Wed, May 22, 2019 @ 05:34 GMT
Live Comments

Live Comments

BoJ Harada: If weak economy deteriorates, should strengthen easing without delay

    BoJ dove Yutaka Harada said today that “the economy has been weak recently, and the same can be said about prices”. Also, “there’s a risk the current sluggishness observed in prices will spill over to inflation expectations, further delaying a pick-up in inflation.” In addition, “the impact of the consumption tax hike scheduled for October this year also is a concern.”

    Harada warned “if the economy deteriorates to the extent that achieving our price target in the long-term becomes difficult, it’s necessary to strengthen monetary easing without delay.” He also dismiss claims that the ultra-loose monetary policy hurts banks’ profits. He said “the deterioration of banks’ profitability is actually caused by a structural problem, which is that they are accumulating deposits despite a lack of borrowers.”

    Released from Japan, trade surplus narrowed to JPY 60.4B in April. Exports dropped -2.4% yoy while imports rose 6.4% yoy. In seasonally adjusted terms, trade deficit narrowed to JPY -110.9B.Exports rose 0.6% while imports dropped -0.1%. Machine orders rose 3.8% mom in March, above expectation of 0.0% yo.

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    40% US manufacturers moving out of China on trade war, only 6% back to US

      American Chamber of Commerce in Shanghai and China carried a joint survey on the impact of US-China tariffs. Results showed that the negative impact of tariffs is clear and hurting the competitiveness of American companies in China. 74.9% os respondents said the tariffs hikes are having a negative impact to their business. Among them, manufacturers suffered most with 81.5% for US tariffs and 85.2% for Chinese tariffs. Impacts include lower demand (52.1%), higher manufacturing costs (42.4%) and higher sales prices (38.2%).

      Also, companies are increasingly adopting an “In China, for China” strategy (35.3%), or delaying and canceling investment decisions (33.2%). However, 40.7% are considering or have relocated manufacturing facilities outside China. For those moving, Southeast Asia (24.7%) and Mexico (10.5%) are the top destinations. Only 6% said they’re relocating back to the US.

      On non-tariff measures, 20.1% said there were “increased inspections” in China, and “slower customs clearance (19.7%). 14.2% said there was ” slower license approvals and 14.2% said there were increased regulatory scrutiny. But 53.1% said there was no increase in non-tariff retaliatory measures by the Chinese government.

      Press release here.

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      Fed Rosengren: No clear need to alter slightly accommodative interest rates

        Boston Fed President Eric Rosengren said in a speech that “today, the two elements of the Fed’s mandate are sending opposing signals for monetary policy”. That is, low unemployment suggests “a bit tighter policy” while low inflation “the opposite”. But there is “no clarion call” to alter current policy in near term. He viewed current policy as “slightly accommodative” consistent with lifting inflation back to target over time. He added “the Fed can afford to wait to see if that forecast does indeed materialize.”

        On the economy, Rosengren is relatively optimistic and he expects unemployment rate to fall further. He noted that the significant decline in equity markets in Q4 has largely recovered. Worries over Brexit and China slowdown “appear to have subsided since the beginning of the year”. Also, Q1 growth in US was “stronger than many forecasters expected”.

        On trade, he said “I am optimistically assuming that both sides in the trade negotiations will work to reach an agreement”. And, “I am also assuming that while the uncertainty is not helpful, it will be transitory, and thus have only a modest effect on the forecast for the U.S. economy overall.”

        Rosengren’s full speech here.

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        May’s new Brexit plan received terrible responses

          Sterling was lifted briefly by UK Prime Minister Theresa May’s “new” Brexit plan. But recovery in Pound quickly faded as the plan was terribly received by MPs across the House. In short, under the new 10-point plan, the most important part is guaranteeing a vote on whether to call a second referendum on the Brexit deal. However, the pre-condition for the vote on referendum is the passage of the Brexit deal itself in the Commons.

          Labour leader Jeremy Corbyn was quick to reject the proposal as “largely a rehash” and pledged “we won’t back a repackaged version of the same old deal”. Former foreign minister Boris Johnson and ex Brexit minister Dominic Raab said they’d oppose the deal. Pro-Brexit Cabinet ministers including Michael Gove, Andrea Leadsom and Chris Grayling opposed the idea of a “free vote”. Northern Ireland’s Democratic Unionist Party was concerned that “fatal flaws” of the original Brexit deal remained, which could split Northern Ireland with the rest of UK.

          Despite the desperate final gamble, there is still practically no chance for May to get her Brexit deal through Commons in the June. A fourth humiliating defeat is more likely than not.

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          Sterling recovers further on prospect of a second referendum on the Brexit deal

            Sterling is given a lift as UK Prime Minister Theresa May outlines her “new” plan regarding Brexit. One key element is that her Brexit bill will include a requirement to hold a vote on whether or not to have a second referendum on the deal. That is, if MPs want a second referendum, they must vote for the bill. The prospect of a second referendum is apparently the thing that shoots the Pound higher.

            Here is a summary of May’s 10-point plan:

            “So our New Brexit Deal makes a ten-point offer to everyone in Parliament who wants to deliver the result of the referendum.

            1. The government will seek to conclude alternative arrangements to replace the backstop by December 2020, so that it never needs to be used.
            2. A commitment that, should the backstop come into force, the government will ensure that Great Britain will stay aligned with Northern Ireland.
            3. The negotiating objectives and final treaties for our future relationship with the EU will have to be approved by MPs.
            4. A new workers’ rights bill that guarantees workers’ rights will be no less favourable than in the EU.
            5. There will be no change in the level of environmental protection when we leave the EU.
            6. The UK will seek as close to frictionless trade in goods with the EU as possible while outside the single market and ending free movement.
            7. We will keep up to date with EU rules for goods and agri-food products that are relevant to checks at border protecting the thousands of jobs that depend on just-in-time supply chains.
            8. The government will bring forward a customs compromise for MPs to decide on to break the deadlock.
            9. There will be a vote for MPs on whether the deal should be subject to a referendum.
            10. There will be a legal duty to secure changes to the political declaration to reflect this new deal.

            Al of these commitments will be guaranteed in law – so they will endure at least for this parliament.”

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            Sterling recovers as PM May set to announce new Brexit deal at 1500GMT

              Sterling recovers notably on short covering as UK Prime Minister Theresa May is scheduled to announce her new Brexit deal at 1500GMT.

              Her spokesman said that “Cabinet discussed the new deal which the government will put before parliament in order to seek to secure the UK’s exit from the European Union.

              The discussions included alternative arrangements, workers’ rights, environmental protections and further assurances on protecting the integrity of the UK in the unlikely event that the backstop is required.

              The prime minister said that “the withdrawal agreement bill is the vehicle that gets the UK out of the European Union and it is vital to find a way to get it over the line.”

              And the prime minister will be setting out further details on the way forward in a speech this afternoon.”

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              Into US session: Currency markets ignores easing risk aversion, AUD weakest on RBA cut bets

                Risk markets are generally lifted by US decision to delay the sanctions of Huawei for 90 days. DOW future is currently up more than 100pts while major European indices are generally higher. China Shanghai SSE also reclaimed 2900 handle. However, it should be noted that the move was seen as for housekeeping purpose only. That is, it’s for preventing sudden disruptions on the US side. It’s by no means an end to US-China trade tension. More importantly, given the hard line rhetorics from both sides, we’re not seeing any chance of a deal in that 90 days window. Thus, current rebound in risk markets will soon prove to be temporary.

                The currency markets are responding rather well to the news. Yen and Swiss Franc are just mixed, without any clear sign of receding risk aversion. As for today, Australian Dollar is the weakest one after RBA governor Philip Lowe indicated that they will think about cutting interest rates at June meeting. New Zealand Dollar, follows as second weakest. On the other hand, Canadian Dollar is the strongest one for now, followed by Sterling.

                In Europe, currently:

                • FTSE is up 0.60%.
                • DAX is up 0.98%.
                • CAC is up 0.52%.
                • German 10-year yield is up strongly by 0.0197 at -0.064.

                Earlier in Asia:

                • Nikkei dropped -0.14%.
                • Hong Kong HSI dropped -0.47%.
                • China Shanghai SSE rose 1.23% to 2905.97.
                • Singapore Strait Times dropped -0.69%.
                • Japan 10-year JGB yield rose 0.0027 to -0.045.
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                OECD lowers global growth forecast on trade tension, but upgrades US

                  OECD lowered global growth forecast to 3.2% in 2019, down from March projection of 3.3%. Chief Economist Laurence Boone warned that “the fragile global economy is being destabilized by trade tensions.” And, growth is stabilizing but the economy is weak and there are very serious risks on the horizon. Governments need to work harder together to ensure a return to stronger and more sustainable growth.”

                  On US-China trade war, OECD warned that an intensification of trade restrictions would have significant costs. The new tariffs and measures announced this month could reduce GDP growth in US and China by 0.2-0.3% on average by 2021 and 2022. Under the scenarios of additional 25% tariffs on essentially all remaining bilateral trade between US and China, “the short term costs are considerably higher and broader”. Global trade could be reduced by 1% by 2021. US GDP could dropped by 0.6% while China GDP could drooped by 0.8%.

                  However, it should also be noted that GDP growth projection was revised up by 0.2% to 2.8% in 2019 and by 0.1% to 2.3% in 2020. OECD said “in the absence of further shocks, the economy is on track to continue its solid expansion and grow
                  somewhat faster than the rest of the OECD on average”.

                  Summary of new growth projections :

                  • 2019 global at 3.2%, down from 3.3% (March forecast)
                  • 2020 global at 3.4%, unchanged
                  • 2019 US at 2.8%, up from 2.6%
                  • 2020 US at 2.3% up from 2.2%.
                  • 2019 Eurozone at 1.2%, up from 1.0%
                  • 2020 Eurozone at 1.4% up from 1.2%
                  • 2019 Japan at 0.7%, down from 0.8%
                  • 2020 Japan at 0.6%, down from 0.7%
                  • 2019 UK at 1.2%, up fro 0.8%
                  • 2020 UK at 1.0%, up from 0.9%
                  • 2019 China at 6.2%, unchanged
                  • 2020 China at 6.2%, unchanged

                  Full report here.

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                  ECB de Guindos: Slower growth momentum increases tail risks

                    ECB Vice President Luis de Guindos urged Eurozone banks to build extra capital buffers to mitigate the risk of unexpected shocks. He said “the slower growth momentum we are seeing increases the risk of tail events, in other words, shocks that are unlikely to occur, but would have a significant impact on the financial system and the economy if they did.”

                    “The continued build-up of buffers could therefore be justified, especially in those countries where the long upturn may have led to an underestimation of credit risk or where private indebtedness is particularly high or rising.”

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                    UK CBI: Investment down, stockpiling up, threat of a no-deal ever present, viable Brexit deal desperately need

                      UK CBI trends total orders dropped to -10 in May, down from -5 and missed expectation of -5. 23% of manufacturers reported total orders books above normal. 32% said they were below normal. The -10 balance was the worst since October 2016, but stayed broadly in line with long-run average of -13.

                      Anna Leach, CBI Deputy Chief Economist, said: “With investment down, stockpiling up, and the threat of a no-deal ever present, we desperately need parliament to thrash out a viable deal in the national interest. Where the cross-party talks failed, Parliament must succeed, or continued economic paralysis will see us hurtle ever closer to disaster.”

                      Full release here.

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                      BoJ Kuroda: Persisting US-China trade war has widespread impact of global and Japanese economies

                        BoJ Governor Haruhiko Kuroda warned of the impact of US-China trade war again in the parliament today. He said “if trade tensions persist, they would have a widespread impact on global and Japanese economies via business sentiment and market developments.” And, “we hope the United States and China engage in constructive discussions.”

                        Finance Minister Taro Aso also told the parliament that “we’re seeing some manufacturers delaying capital expenditure plans.” However, “corporate profits are high and the fundamentals supporting domestic demand remain solid.”

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                        US grants housekeeping temporary exemptions on restrictions on Huawei

                          The US Commerce Department announced limited exemptions on products of Chinese telecom giant Huawei. The move is seen as for keeping the house in order, so as to prevent internet, computer and cell phone systems from crashing

                          Under the move, Huawei and its 68 non-US affiliates will be granted 90 days temporary general license to have  limited engagement in transactions involving the export, reexport, and transfer of items.

                          With the arrangement, “this license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks”. The Commerce Department said it will evaluate whether to extend the exemptions beyond 90 days.

                          Full statement here.

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                          RBA to consider cutting interest rate at June meeting

                            In a speech delivered today, RBA Governor Philip Lowe said the central bank will consider the case for cutting interests in the upcoming meeting in two weeks’ time n June. After weak inflation reading and surge in unemployment rate in Q1, RBA might pull ahead the anticipated rate cut(s) for the second half.

                            Lowe said “accumulating evidence is that the Australian economy can support an unemployment rate of below 5 per cent without raising inflation concerns”. Such judgement is also “consistent with the experience overseas”. Meanwhile, recent flow of data suggests it’s “less likely” that “current policy settings are sufficient to deliver lower unemployment.”

                            There are few options ahead to lower unemployment rate. These include further monetary easing, additional fiscal support and structure policy changes. But he emphasized “relying on just one type of policy has limitations, so each of these is worth thinking about.”

                            Lowe concluded the speech noting: “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

                            Lowe’s full speech The Economic Outlook and Monetary Policy.

                            Some readings on RBA minutes released today too:

                            AUD/USD dips notably today but stays above 0.6864 temporary low so far. Nevertheless, with 0.6988 resistance intact, near term outlook remains bearish. Further decline should be seen ahead to 161.8% projection of 0.7295 to 0.7003 from 0.7205 at 0.6733, which is close to 0.6722 low.

                             

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                            Fed Bullard: If low inflation persists, will push FOMC more to cut interest rates

                              In an interview with Handelsblatt published yesterday, St. Louis Fed President James Bullard said t”he wind has completely turned” in Fed’s monetary policy since January. FOMC has approached his view that there should be no more rate hikes for 2019.

                              Bullard said at this stage of the business cycle, he’d normally expect at least 2% inflation. But core CPI is only 1.6% and “that worries me”. He also noted that “If that persists, I will push the FOMC more to lower interest rates and try to bring inflation expectations down to two percent.”

                              Regarding the impact of trade war with China on the economy, Bullard said “that depends on how long they last”. “To really hurt the US, the dispute would have to continue for some time,” he added. He also noted the worry is “even bigger” in Asia or Europe. US has “such a large and diversified economy” and hence, the impact as a whole is “relatively small”.

                              Full interview here.

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                              Fed Powell: Another sharp increase in business debt could increase vulnerabilities appreciably

                                In a speech delivered yesterday, Fed Chair Jerome Powell said that “business debt has clearly reached a level that should give businesses and investors reason to pause and reflect.”  He pointed to corporate borrowing which hit record level of 35% of assets. And, he warned “another sharp increase…could increase vulnerabilities appreciably”.

                                Though, Powell also emphasized the debt problem is not at the level of systemic threat as the sub-prime mortgage markets. “As of now business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm,” he said.

                                Responding to some questions, Powell said “today’s inflation dynamics are very different from even 25 years ago. Globalization and technology may be playing a role”. Also, it was premature to make a judgement about the impact trade and tariff issues could have on monetary policy.

                                Powell’s speech on Business Debt and Our Dynamic Financial System.

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                                UK Hammond: Real risk of new PM seeking damaging no-deal brexit

                                  According to pre-released extract of a speech on Tuesday, UK Chancellor of Exchequer Philip Hammond is set to criticize that advocating for “no deal” Brexit is to “hijack” the result of the Brexit referendum held nearly three years ago.

                                  Hammond will said there are some “on the populist right” who claim that only leaving without a deal is a “truly legitimate Brexit”. However, “the 2016 Leave campaign was clear that we would leave with a deal”. Thus, “to advocate for ‘no deal’ is to hijack the result of the referendum, and in doing so, knowingly to inflict damage on our economy and our living standards. Because all the preparation in the world will not avoid the consequences of no deal.”

                                  Hammond will also warned that “there is a real risk of a new Prime Minister abandoning the search for a deal, and shifting towards seeking a damaging no-deal exit as a matter of policy … in order to protect an ideological position which ignores the reality of Britain’s economic interests and the value of our Union.”

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                                  World Trade Outlook Indicator stays at nine-year low, significant risks on the downside

                                    World Trade Outlook Indicator (WTOI) is unchanged at 96.3 in May, same as February’s reading, which was the lowest level since 2010. The indicator suggests that world trade growth is likely to remain weak into Q2. Also, recent major trade measures announced were not included in the the calculations yet. Thus, outlook would worsen further ahead if  heightened trade tensions are not resolved or if macroeconomic policy fails to adjust to changing circumstances.

                                    WTO also recapped that in the April forecasts, global merchandise trade growth would slowed to 2.6% in 2019, down from 3.0% in 2018. Though, rebound is expected to 3.0% in 2020. However, “there are significant downside risks to the 2019 forecast. Any rebound in 2020 would depend on reduced trade tensions and/or improved macroeconomic performance. ”

                                    Full release here.

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                                    Gold failed 1300, to extend corrective fall through 1266 low

                                      Gold’s sharp fall and break of 1281.97 minor support suggests that rebound from 1266.26 has completed at 1303.28, failing to sustain above 1300 handle. More importantly, the development indicates that corrective decline from 1346.71 is not completed yet. Bias is now turned back to the downside for 1266.26 low.

                                      Firm break of 1266.26 will extend the correction from 1346.71 to 50% retracement of 1160.17 to 1346.71 at 1253.44 and possibly below. For now, we’d expect strong support from 61.8% retracement at 1231.42 to contain downside to complete the correction.

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                                      Fed Bostic: Lack of hitting inflation target not a material failure

                                        Regarding market pricing of Fed’s rate cut, Atlanta Fed President Raphael Bostic told CNBC that “the market is ahead of where I am”. And, “I would say I’m not expecting a rate cut to be imminent, certainly not by September. Things would need to happen in order for that to play out.”

                                        On inflation, Bostic noted “in general, my view is as long as we don’t see inflation running away, that would the sign that our policy is basically at a neutral level”., And, “we could sustain that for a long time and we don’t have to move.”

                                        On the other hand, Bostic was also unconcerned with downward inflation pressure. He said “I’m not super-concerned about that today, and mainly it’s because when you look at inflation expectations, they haven’t started to trail away in a significant way away from our target”.

                                        Nevertheless, he added, “if I started to see a trend moving away to one and a half or one and a quarter [percent] for inflation expectations, then I’d be concerned. But right now, I don’t see our lack of hitting that target … as being a material failure.”

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                                        Into US session: Aussie stays firm despite risk aversion, stocks weighed down by Huawei isolation

                                          Entering into US session, European stocks are trading broadly lower while US futures also point to lower open. Sentiments are hurt as US is stepping up measures to isolate China’s telecom giant Huawei as trade war intensifies. Chipmakers including Intel, Qualcomm, Broadcom indicated that they will stop supply to Huawei. Germany’s Infineon Technologies is also reported to have halted shipments to the Chinese company. But most importantly, Google will also cut up supply of hardware and some software services.

                                          However, the reactions in currency markets are relatively muted. Australian Dollar remains the strongest one, as boosted by election results over the weekend. New Zealand and Canadian Dollars follow. There is no apparent lift on Yen and Swiss Franc despite risk aversion. On the other hand, Dollar, Euro and Yen are the weakest ones for now.

                                          In Europe, currently:

                                          • FTSE is down -0.96%.
                                          • DAX is down -1.50%.
                                          • CAC is down -1.61%.
                                          • German 10-year yield is up 0.0105 at -0.091.

                                          Earlier in Asia:

                                          • Nikkei rose 0.24%.
                                          • Hong Kong HSI dropped -0.57%.
                                          • China Shanghai SSE dropped -0.41%.
                                          • Singapore Strait Times dropped -0.77%.
                                          • Japan 10-year JGB yield rose 0.008 to -0.047.
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