Canada employment grew 53.7k in September, above expectation of 40.2k. For whole of Q3, employment rose 111k, or 0.6%, similar to 0.7% in Q2. Unemployment rate dropped to 5.5%, down from 5.7% and beat expectation of 5.7%.
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Sterling surges as EU Barnier got greenlight for tunnel Brexit neogtiations
The Guardians reported that EU Chief negotiator Michel Barnier has secured the greenlight from EU27 to open intensive “tunnel” negotiations with UK on Prime Minister Boris Johnson’s latest Brexit proposals. Barnier met UK Brexit Minister Stephen Barclay today and he said afterwards that “Be patient. Brexit is like climbing a mountain. We need vigilance, determination and patience.”
European Commission spokesperson said “Michel Barnier had a constructive meeting this morning with Steve Barclay. It was a constructive meeting, and on that basis you can assume they have exchanged ideas and they discussed many different angles.”
European Council President Donald Tusk also said earlier that “, yesterday, when the Irish taoiseach and the UK prime minister met they both saw for the first time a pathway to a deal. I have received promising signals from the taoiseach that a deal is still possible.””
Sterling rise sharply on the news. GBP/USD broke 1.2582 resistance. GBP/JPY broke 135.74 resistance. EUR/GBP also broke 0.8786 support.
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China pushing for partial trade deal ahead of 2nd day of meeting
China is pushing for a partial trade deal with the US with its state media. The China Daily newspaper said in an editorial that “A partial deal is a more feasible objective. Not only would it be of tangible benefit by breaking the impasse, but it would also create badly needed breathing space for both sides to reflect on the bigger picture.” Though, it also warned that
It’s believed that China is offering to increase annual purchases of US agricultural products, in exchange for further delay in the next tranche of tariffs. Also, there could be some form of currency agreement but it’s unsure if there will be anything new other than the usual pledges.
Trade talks will continue for a second day in Washington today. Trump is scheduled to meet Chinese Premier Liu He at 1845 GMT after the meeting.
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EU Tusk received optimistic message on Brexit deal
European Council President Donald Tusk said that “we have received optimistic messages that there could be a deal” on Brexit. However, he remained cautious that latest round of Brexit talks carried no guarantee of success. He added that he might announce that a deal was impossible at October 17-18 summit, unless UK came up with a workable solution. today. Time was “practically up”.
Separately, UK Brexit Secretary Stephen Barclay and EU chief Brexit negotiator Michel Barnier me at the EU Commission’s Berlaymont headquarters in Brussels today. It’s unclear what UK Prime Minister Boris Johnson and Irish Prime Minister Leo Varadkar have agreed yesterday. But it’s believed that if Barclay could delivery details of some workable solution, intense discussion could continue during the week, to pave the way for a deal next week.
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New Zealand BusinessNZ PMI unchanged at 48.4, stuck in a tight band of contraction
New Zealand BusinessNZ Performance of Manufacturing Index was unchanged at 48.4 in September, signaling same rate of contraction in the sector. The sub-index of new orders (50.1) recovered from its decline in August to just keep its head above water for September. Also, employment (50.0) showed no change following four consecutive monthly declines. However, the weak new order results in recent months meant production (46.2) fell to its lowest result since April 2012. In addition, deliveries of raw materials (46.4) fell to its lowest since March 2011.
BusinessNZ’s executive director for manufacturing Catherine Beard said that “Overall, while it is good to see the sector not declining further, it remains stuck in a tight band of contraction. The key to lifting it back into expansion will be a sustained boost to both new orders and production in the months ahead.” BNZ Senior Economist, Craig Ebert said that “if it’s a manufacturing recession then it’s an extremely mild one compared to what the industry went through in 2008/09”.
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First day of US-China trade talks went well, Trump to meet Liu on Friday
The first day of US-China trade negotiations in Washington appeared to have completed well, with positive mood. President Donald Trump said: “We just completed a negotiation with China, we’re doing very well, we’re having another one tomorrow. I’m meeting with the vice premier over at the White House, and I think it’s going really well. We’re going to see them tomorrow, right here, and it’s going very, very well.” Trump is scheduled to meet Chinese Premier Liu He at 1845 GMT on Friday.
Myron Brilliant, US Chamber of Commerce head of international affairs, appeared to be upbeat too after being briefed by both sides. He said he negotiators were “trying to find a path toward the bigger deal” with progress on market access and less controversial intellectual property and other issues. Also, “I believe that there’s even the possibility of a currency agreement this week. I think that could lead to a decision by the U.S. administration to not put forth a tariff rate hike on Oct. 15.”
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Irish PM Varadkar: Possible for us to come to an agreement on Brexit
Sterling rebounded strongly overnight and would very likely end the week and the biggest winner. It was firstly lifted by the “constructive” talks between UK Prime Minister Boris Johnson and Irish Prime Minister Leo Varadkar. Then upbeat comments from Varadkar added more fuel to the Pound’s rally.
Varadkar told reporter: “I think it is possible for us to come to an agreement, to have a treaty agreed, to allow the UK to leave the EU in an orderly fashion and to have that done by the end of October.. Also, “I don’t think this should be seen in the context of who’s making concessions, or who the winners and losers are, I don’t think that’s the game any of us want to play.”
Earlier, they issued a joint statement, saying that “both continue to believe that a deal is in everybody’s interest”. More importantly, “they agreed that they could see a pathway to a possible deal. Their discussion concentrated on the challenges of customs and consent.” UK Brexit Secretary Steve Barclay and EU negotiator Michel Barnier will meet in Brussels on Friday. Officials will “continue to engage intensively” with each other in the search for a deal.
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Sterling rebounds as Johnson and Varadkar see pathway to a possible Brexit deal
Sterling rebounds strongly after UK Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar held “constructive” talks. In a joint statement, they said that “both continue to believe that a deal is in everybody’s interest”.
More importantly, “they agreed that they could see a pathway to a possible deal. Their discussion concentrated on the challenges of customs and consent.” UK Brexit Secretary Steve Barclay and EU negotiator Michel Barnier will meet in Brussels on Friday. Officials will “continue to engage intensively” with each other in the search for a deal.
For now, there seems to be no breakthrough in the negotiations regarding Irish backstop yet. However, at least, both sides believed there was enough progress for further talks.
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US CPI unchanged at 1.7%, core CPI unchanged at 2.4%
In September, US CPI was flat mom versus expectation of 0.1% mom rise. Core CPI rose 0.1% mom versus expectation of 0.2% mom. Annually, headline CPI was unchanged at 1.7% yoy, below expectation of 1.8% yoy. Core CPI was also unchanged at 2.4%, matched expectations.
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US initial jobless claims dropped to 210k, below expectations
US initial jobless claims dropped -10k to 210k in the week ending October 5, below expectation of 217k. Four-week moving average of initial claims rose 1k to 213.75k. Continuing claims rose 29k to 1.684m in the week ending September 28. Four-week moving average of continuing claims rose 2.5k to 1.665m.
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ECB accounts: A number of reservations expressed about elements of stimulus package
Accounts of September 11-12 ECB policy meeting showed rather wide division in opinion regarding the new stimulus package. That was inline with comments from ECB officials after that meeting. The accounts noted, “a number of reservations were expressed about individual elements of the proposed policy package”. Also, “although the rational for a comprehensive package was widely shared, members assessed the case for specific elements differently, with some measures seen as substitutes rather than compliments.”
In particular, while here was a “clear majority” favoring restart of QE, “a number of members assessed the case for renewed net asset purchases as not sufficiently strong”. QE was deemed to be a “less efficient instrument, or “an instrument of last resort”. The cut in deposit rate to -0.5% was passed by a “very large majority”. But, “lower money market trading volumes for longer tenors suggested that the conviction about cuts significantly deeper into negative territory was not broad-based and uncertainty over the future path of short-term policy rates remained elevated.”
Full ECB meeting accounts here.
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NIESR: UK GDP to grow 0.5% in Q3, 0.3% in Q4
NEISR said that UK economy is on course to grow by 0.5% in Q3, then slow to 0.3% in Q4. And that would be consistent with 1.3% GDP in 2019 as a whole, just slightly down fro 1.3% in 2018.
Garry Young, Director of Macroeconomic Modelling and Forecasting: “Despite better than expected GDP data, the underlying pace of growth in the United Kingdom is slow. The strongest source of private sector demand is household consumption, driven by real wage growth, but this is not sustainable without a pick-up in productivity growth, and this seems unlikely in the near term.”
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UK GDP contracted -0.1% mom, production shrank sharply
UK GDP contracted -0.1% mom in August, below expectation of 0.0% mom. Looking at the details, Services was flat mom. Production dropped sharply by -0.6% mom. Manufacturing contracted -0.7% mom. Construction rose 0.2% mom. Agriculture dropped -0.1% mom.
In the three months to August, rolling GDP grew 0.3%, but that’s mainly because of the growth back in July. Services was the main drive in the three-month GDP growth, up 0.4% 3mo3m. Production contracted -0.4$ 3mo3m. Construction grew 0.1% 3mo3m.
Also from UK, manufacturing production dropped -0.7% mom, 1.7% yoy in August, much worse than expectation of -0.1% mom, -0.7% yoy. Industrial production dropped -0.6% mom, -1.8% yoy, also much worse than expectation of -0.1% mom, -1.1% yoy. Goods trade deficit widened slightly to GBP -9.8B.
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German export shrank as trade war continued to weigh
In August, German exports dropped -3.9% yoy to EUR 101.2B while exports dropped -3.1% yoy to EUR 85.0B. Trade surplus came in at EUR 16.0B. In calendar and seasonally adjusted terms, exports dropped -1.8% mom while imports rose 0.5% mom. Trade surplus narrowed to EUR 18.1B.
The slump in export is seen as another evidence of impact from trade wars, which continued to drag on the economy. Continued weakness in manufacturing and exports point to another quarter of GDP contraction, following Q2’s -0.1% qoq. German economy was likely in recession already.
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US-China trade talks may end in deadlock as mood turned sour
Ahead of the top-level US-China trade negotiations today, Chinese officials appeared to be toning down expectations. According to a Reuters report, the Chinese government is not optimistic on any agreement out of the meetings in Washington today and tomorrow. The talks could just end up in a deadlock. Also, more time is needed to improve the overall ties between the two countries.
The mood turned sour this week after US Commerce Department blacklisted 27 Chinese entities and imposed some visa restrictions for abuse of human rights in Xinjiang. Meanwhile, it’s reported that China is insisting on not addressing the core issues including intellectual property theft, forced technology transfer, subsidies on state-owned enterprises and enforcement of the agreement. Instead, they aiming at a partial deal which the US is not after.
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Chinese Liu said to cut short trade talks in US, White House denied
The South China Morning Post in Hong Kong reported that no progress was made in deputy-level trade talks this week. And Chinese Vice Premier Liu He is set to cut short his trip to Washington. Originally planned to hold two days of meeting on Thursday and Friday, Liu might just leave on Thursday. Though, the rumor was quickly denied by the White House and the spokesman said “We are not aware of a change in the Vice Premier’s travel plans at this time”.
Separately, US Commerce Secretary Wilbur Ross said that “tariffs are finally forcing China to pay attention to our concerns”. Yet, he noted that “trade agreements historically have been very weak on enforcement”. And, “given the magnitude and the complexity of the changes we need, enforcement becomes an extremely critical component of any agreement that we make.”
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FOMC minutes: Some wants clarity on when recalibration of policy would end
Minutes of September FOMC meeting noted that “downside risks to the outlook for economic activity had increased somewhat” since July meeting, particularly those stemming from “trade policy uncertainty and conditions abroad.” And, the minutes warned that the developments “seemed more likely to move in directions that could have significant negative effects on the U.S. economy”.
Domestically, “softness in business investment and manufacturing so far this year was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected.” And, “risks to the inflation projection were also viewed as having a downward skew, in part because of the downside risks to the forecast for economic activity”.
Yet, regarding the monetary policy path forward, a few participants judged that “expectations regarding the path of the federal funds rate implied by prices in financial markets were currently suggesting greater provision of accommodation at coming meetings than they saw as appropriate”. And, it might be come necessary to “seek a better alignment of market expectations regarding the policy rate path with policymakers’ own expectations for that path.”
Several participants urged to provide “more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end.”
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US oil inventories rose 2.9m barrels, WTI steady
US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.9m barrels in the week ending October 2019, above expectation of 1.8m barrels.. At 425.6m barrels, crude oil inventories are at the five year average for this time of year.
WTI crude oil is steady after the release. Decline from 63.04 lost momentum ahead of 50.43 support. This level is also close to 61.8% retracement of 42.05 to 66.49 at 51.38, as well as 50 psychological level. Thus, we’d expect stronger support from there to bring rebound, to extend medium term trading. On the upside, break of 54.71 will target 63.04 resistance.
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EU Sassoli open to Brexit extension for specific objective reasons
European Parliament President David Sassoli warned that “not much progress” has been made regarding Brexit negotiation. And UK must either seek Brexit delay or face no-deal Brexit.
He added that “the European Parliament is of course open to possibility of an extension if there are specific objective reasons for it”. And “Requesting extension is the prerogative of the UK.
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US-China reached trade deal phase 1, covering IP, financial services and farm purchases
After two day of top-level trade US-China trade negotiations, President Donald Trump announced that “very substantial phase one deal” was made with China. It would take up to five weeks to put the agreement into words, for signing at the APEC Chile summit on November 16-17. The deal covered intellectual property and financial services. Also, Trump said it’s a “tremendous deal for the farmers”, with purchase of around USD 40B to USD 50B worth of agricultural purchases. The amount would be 2.5 to 3 times what China has purchased at its highest point thus far.
On the other hand, US will delay the planned escalation of tariffs on USD 250B in Chinese imports to imports, supposed to take effect on October 15. Nevertheless, further 15% of tariffs an essentially all Chinese imports could still start on December 15, unless the second phase could be agreed.
Treasury Secretary Steven Mnuchin said “I think we have a fundamental understanding on the key issues. We’ve gone through a significant amount of paper, but there is more work to do.” But he also emphasized “we will not sign an agreement unless we get and can tell the president that this is on paper.” Chinese Vice Premier Liu He said “We have made substantial progress in many fields. We are happy about it. We’ll continue to make efforts.”