Wed, Mar 20, 2019 @ 15:51 GMT
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EU Juncker warns UK May against Brexit delay past May 23

    According to his spokesperson, European Commission President Jean-Claude Juncker warned UK Prime Minister Theresa May in a phone call that short Brexit extension has to be complete before May 23.

    The spokesman also later said:

    “President Juncker said to the prime minister that he thinks it’s a good idea she sets out her thoughts to the leaders ahead of the EU Council.

    However, the president has clearly warned the prime minister against including a date for the extension that will be after the European parliament elections. That’s why he repeated in this call his advice, which he set out in his letter on March 11, that the withdrawal has to be complete before May 23, otherwise we risk facing institutional difficulties and legal uncertainty, given the European elections date.

    European elections have to be held if the extension date is beyond May 23. This is the position of the commission and this is what the president informed the prime minister again.”

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    Into US session: Sterling weakest as May seeks short Brexit delay to June 30

      Entering into US session, Sterling is undoubtedly the weakest one as Brexit chaos continue. UK PM May confirmed that she is seeking Article 50 extension till June 30. And she intends to have the third meaningful vote on her Brexit deal. At the same times, it’s reported that EU would only approve extensions till May 23. And most importantly, we’d repeat our doubt that even with an extension, and another MV, would the deal get through the Commons? If not, then what’s next? There is no answer.

      Staying in the currency markets, Kiwiis second strongest weakest. Canadian Dollar is the third weakest as WTI is back below 59 after failing to take out 60 key resistance zone. Swiss Franc, Euro and Aussie are the strongest ones.

      Looking ahead, FOMC rate decision, economic projections and press conference are the main focus of the day. Here are some previews.

      In Europe:

      • FTSE is up 0.20%.
      • DAX is down -1.43%.
      • CAC is down -0.19%.
      • German 10-year yield is down -0.008 at 0.091.

      Earlier in Asia:

      • Nikkei rose 0.20%.
      • Hong Kong HSI dropped -0.49%.
      • China Shanghai SSE dropped -0.01%.
      • Singapore Strait Times dropped -0.41%.
      • Japan 10-year JGB yield rose 0.0092 to -0.036.
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      EU could only approval Brexit delay to May 23, not June 30

        While UK PM May is seeking Article 50 extension to June 30, an EU document seen by Reuters noted that it won’t grant any extension beyond May 23.

        The document noted that “any extension offered to the United Kingdom should either last until 23 May 2019 or should be significantly longer and require European elections.”

        And, “this is the only way of protecting the functioning of the EU institutions and their ability to take decisions.”

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        UK PM May seeking Article 50 extensions until June 30

          UK Prime Minister Theresa May confirms at PMQs in parliament that has written to European Council President Donald Tusk to seek extension of article 50 until June 30. She noted that MPs voted for only a short extension last Thursday. Also, holding European election would not be in anyone’s interest. May also said the government will hold another meaningful vote.

          May said: “As prime minister, I am not prepared to delay Brexit any further than the 30th of June … I have therefore this morning written to President Tusk, the president of the European Council, informing him that the UK seeks an extension to the article 50 period until the 30th June… The government intends to bring forward proposals for a third meaningful vote. If that vote is passed, the extension will give the House time to consider the Withdrawal Agreement Bill. If not, the House will have to decide how to proceed.”

          Here is May’s letter to Tusk.

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          UK CPI ticked up to 1.9%, house price growth slowest since 2013

            In February, UK CPI accelerated to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. It’s close to the two year low in January. Core CPI, on the other hand, slowed to 1.8% yoy, down from 1.9% yoy and missed expectation of 1.9% yoy. RPI was unchanged at 2.5% yoy, matched expectations.

            PPI input rose to 3.7% yoy, up from 2.6% yoy. PPI output rose to 2.2% yoy, up from 2.1% yoy. PPI output core slowed to 2.2% yoy, down from 2.4% yoy.

            Also from UK, house price index rose 1.7% yoy in January, down from December’s 2.5% yoy and missed expectation of 1.7% yoy. It’s also the slowest pace since June 2013.

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            Trump to push FTA negotiations with Japan, ignoring Japan’s own will

              In the U.S. Economic Report of the President released yesterday, Trump indicated he’s going to push for free trade agreement with Japan even though the latter has repeated rejected the idea. The document said that the administration intends to “enter into free trade agreement negotiations with Japan, and the EU, and with the U.K.”

              The document also singled out Australia, who’s a member of Japan led Trans-Pacific Partnership, for having advantages over US exporters in Japan. The TPP is an 11-member FTA that Trump pulled the US out on his own will at the earliest stage of his presidency. The document also noted the FTA between Japan and the EU will put the US farmers and ranchers at a disadvantage.

              It pointed out that “A number of international competitors, such as Australia, face much lower Japanese tariffs, so a free trade agreement with Japan could level the playing field for U.S. exporters”. An addition, “other tariffs and nontariff barriers stand in the way of U.S. goods and services exports to Japan.”

              US Trade Representative Robert Lighthizer said last month that he’s going to launch trade talks with Japan in March. But given that he’s now engaged in negotiations with China (he’s travel to Beijing next week while Chinese delegate will travel to Washington the week after), the US-Japan negotiations is unlikely to start until April or even May.

              Full 700-page report here.

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              EU Juncker reiterates no re-negotiation, UK May to request short Brexit delay

                European Commission President Jean-Claude Juncker reiterated the EU’s stance on Brexit with Germany’s Deutschlandfunk radio. He said “there will be no re-negotiations, no new negotiations, no additional guarantees in addition to those already given”. He added “we have intensively moved towards Britain, there can be no more.”

                Juncker also hinted at another EU summit next week and said “my view this morning at quarter past 8 is that we will not get this through this week and we will have to meet again next week”.

                Separately, both BBC and Sky reported that UK Prime Minister Theresa May will request only a short delay to Brexit in her letter to European Council President Donald Tusk today. But the actual length will only be confirmed when the letter is published.

                Education Secretary Damian Hinds also said “I don’t see how a long delay gives certainty. Actually we’ve had long time already… People are a bit tired of waiting for parliament to get our act together and get the deal passed… Unless and until a deal is finalized, there remains the prospect of the risk of no deal.”

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                China Xi to strengthen global strategic partnership with Italy

                  On the eve of his visit to Italy, Chinese President Xi Jinping wrote in Corriere della Sera newspaper saying that the country is ready to strengthen a “global strategic partnership”. Xi added that “with my visit I wish to set out together with Italian leaders the guidelines for bilateral relations and take them into a new era.” Additional, China like to coordinate more closely with Italy in multilateral organizations like UN, WTO and GD20. And both countries could develop joint projects in ports, shipping, telecoms and pharmaceuticals.

                  Separately, Vice Foreign Minister Wang Yi said “it is hard to avoid misunderstandings occurring during the process of advancing the construction of the Belt and Road. But he emphasized that “facts are the best proof”. Italy is set to send a high-level delegation to the second Belt and Road summit in Beijing next month. And they would be the first G7 nation to join the initiative, which could upset the US and alert EU.

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                  Fed to stand pat, release new projections, may announce end to balance sheet runoff

                    Fed is widely expected to keep interest rate unchanged at 2.25-2.50% today. Also the central bank is expected to reiterated that it’s in no hurry to make another move. The language that “the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes” should be maintained .

                    There will be two major focuses for the announcement as well as press conference. Firstly, Fed’s is known to be preparing for ending the balance sheet roll-off this year. The balance sheet surged from less than USD 1T in 2008 to hit a peak of USD 4.5T as a result of the quantitative easing program. It then started to be reduced by USD 50B per month since early last year. The detailed plan might be revealed today with specifics on when and how the runoff would end.

                    Fed will also publish first set of new economic projections after it shifted to a “patient” stance. Forecasts on GDP, unemployment rate and inflation are important as usual. But a crucial part is projection on federal funds rate. Back in December, the median forecast was for interest rate to rise to 2.9% in 2019, with central tendency at 2.6-3.1%. For 2020, media rate was at 3.1%. The longer run neutral rate was projected to be at 2.8%, with central tendency at 2.5-3.0%. Today’s projections will hopefully answer questions like: Is there one or two expected rate hikes this year? Are some members expecting a rate cut? Where the neutral rate is? Will rate hike continue down the road to surpass neutral?

                    Here are Fed’s December projections.

                    Below are some suggested readings on FOMC:

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                    BoJ Jan minutes: Current policy stance appropriate as momentum towards 2% inflation target maintained

                      As revealed by minutes of January 22-23 BoJ meeting, “most members” believed it’s appropriate to ” persistently continue with the powerful monetary easing under the current guideline for market operations” as momentum towards 2% inflation target was maintained. Meanwhile, “many members” said it’s necessary to take account of developments of developments in economic activity, and financial conditions in a “balanced manner”.

                      The board also spent considerable amount of time discussing monetary policy stance in responses to downside risks. One member noted it was necessary to “devise ways to avoid a situation where an expectation that no policy change would occur for the time being would be fixed to an excessive degree in financial markets”

                      Another member noted that “it was not desirable to adopt a stance of not taking action until a serious crisis occurred”. This member also said “it was necessary to emphasize the Bank’s stance of taking swift, flexible, and decisive actions.”

                      Full BoJ minutes here.

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                      High-level US-China trade talks to resume next week, aiming at a deal in April

                        It’s reported, without confirmation from named officials, that high-level US-China trade talk are going to resume week in a push to close the deal by the end of April. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin would fly to Beijing in the week of March 25 to meet Chinese Vice Premier Liu He again. The following week, Liu He is expected to fly to Washington to continue the negotiations.

                        At the same time, it’s reported that China is pushing back against some of the American demands on core issues. A key reason is the lack of assurance from Trump on lifting tariffs imposed. China is also said to be stepping back from the initial agreements over pharmaceutical data protection, patent linkages and refused to give ground on data-service issues. Nevertheless, some officials on both sides are seeing the “back-and-froth” as something expected in typical negotiations.

                        The date for signing a trade deal between the countries has been pushed back recently. While it’s still possible to happen in April, the more probable occasion would be as sideline of G20 summit in Japan in June. Meanwhile, in his typical rhetorics, Trump said at the White House yesterday that “talks with China are going very well”.

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                        EU Barnier: Concrete plan needed to asssess reason and usefulness of Brexit extension

                          EU chief Brexit negotiator Michel Barnier demands concrete plan from the UK so that EU leaders can make a decision on approving an extension.

                          He said “Does an extension increase the chances of ratification of Withdrawal Agreement? What would be the purpose and outcome? How can we ensure that, at the end of a possible extension, we are not back in the same situation as today?”

                          “If Theresa May requests an extension before the European Council on Thursday, it will be for the 27 leaders to assess the reason and usefulness… EU leaders will need a concrete plan from the UK in order to be able to make an informed decision,” he added.

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                          EU Katainen: Trump’s selfishness approach on trade is not sustainable

                            European Commission Vice President Jyrki Katainen criticized that the “selfish” approach of Trump’s to trade is not sustainable. And he emphasized to maintain rule-base trade with WTO reforms.

                            Katainen said “Japan, China and the EU are willing to reform the WTO, the U.S. has not been that interested, but they are willing to cooperate: He added: “Even though the U.S. authorities may think that selfishness is better than cooperation, it is not a sustainable way of thinking. We need better, rules-based trade in the future where the international community sets the rules”.

                            On trade negotiation with the US, he said “there are discussions going on on several levels and … we can end up having some sort of an agreement with the U.S. on trade, but let’s not go deeper than this”. He emphasized “it is too early to say that our trade discussions are doomed to fail.”

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                            EU Tusk and Irish Varadkar await proposals, UK May to seek Brexit extension

                              European Council President Donald Tusk met Irish Taoiseach Leo Varadkar in Dublin today to “confirm full EU unity on Brexit”. After that they issued a joint statement emphasizing that “we must now see what proposals emerge from London” in advance of the summit in Brussels on Thursday. Also, they noted “preparations continue in Ireland and across the European Union for a no deal scenario, which would have serious consequences for all concerned.

                              Meanwhile, UK Prime Minister Theresa May’s spokesman said she is going to writing a letter to Tusk asking for Brexit delay. But it’s not clear that how long a delay she’d seek. Some Eurosceptics in May’s Cabinet emphasized that that they’re rather leave without a deal than have a long Article 50 extension. But there seems to be no agreement in the Cabinet meeting yet.

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                              Into US session: Sterling up without conviction, positive European data ignored

                                Entering into US session, the forex markets remain rather directionless at this point. Sterling is lifted mildly by talks that EU is going to offer UK a conditional Brexit extension in the summit later this week. With that change in circumstance, Prime Minister Theresa May could bring her deal back to the Commons for another meaningful vote. But still, upside in the Pound is very limited as there is no clear path to what’s next on Brexit.

                                Data from Europe are positive with unemployment rate in UK hitting 44-year low at 3.9%. Wage growth also maintained strongest pace German ZEW Economic Sentiment also showed significant improvement. But the data are largely ignored. WTI crude oil is extending recent rally to 59.80 so far and it’s now sitting inside key resistance zone around 60. Oil price is giving Canadian Dollar a mild lift.

                                In Europe:

                                • FTSE is up 0.52%.
                                • DAX is up 0.89%.
                                • CAC is up 0.46%.
                                • German 10-year yield is up 0.010 at 0.98. It breached 0.1 handle to 0.101 earlier today.

                                Earlier in Asia:

                                • Nikkei dropped -0.08%.
                                • Hong Kong HSI rose 0.19%.
                                • China Shanghai SSE dropped -0.18%
                                • Singapore Strait Times rose 0.25%.
                                • Japan 10-year yield dropped -0.008 to -0.044.
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                                EU officials give strong warnings to UK for clarity and purpose for Brexit extension

                                  The Brexit chaos in the UK drew some strong reactions from EU. Germany’s Europe Minister Michael Roth warned that “our patience as the European Union is being sorely tested at the moment.” He added “I can only call once again on our British partners in London to make concrete proposals at last on why they want an extension.”

                                  French EU affairs minister Nathalie Loiseau also complained that “this uncertainty is unacceptable”. She added: “We need an initiative, we need something new because if it’s an extension to remain in the same deadlock… How do we get out of this deadlock? – this is a question for the British authorities.” Also, “Grant an extension – what for? Time is not a solution, it’s a method. If there is an objective and a strategy and it has to come from London.”

                                  Separately, ITV political editor Robert Preston reported tat EU leaders are unlikely to grant a Brexit delay this week. Instead, they will request clarify from UK Prime Minister Theresa May on what the delay is for.

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                                  German ZEW improved significantly as major risks considered less dramatic

                                    German ZEW Economic Sentiment improved notably to -3.6 in March, up from -13.4 and beat expectation of -11.0. German ZEW Current Situation, however dropped to 11.1, down from 15.0 and missed expectation of 13.0. Eurozone ZEW Economic Sentiment improved to -2.5, up from -16.6 and beat expectation of -15.1. Eurozone ZEW Current Situation also dropped to -6.6, down from -3.0.

                                    ZEW President Professor Achim Wambach said in release that the significant improvement shows that “major economic risks are considered to be less dramatic than before”. Those include possible delay in Brexit and renewed hope for a deal. Also, “progress made in the negotiations between China and the US to end the trade war between the two nations may also have contributed”. Still the indicators point to “relatively weak growth” in first half in Germany.

                                    Full release here.

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                                    UK unemployment rate dropped to 3.9%, wage growth solid at 3.4%

                                      UK unemployment rate dropped to 3.9% in the three months to January, down from 4.0% and beat expectation of 4.0%. That’s also the lowest level since the period between November 1974 to January 1975. For men, unemployment rate dropped to 4.0%, lowest since 1975. For women, unemployment rate dropped to 3.8%, lowest since 1971.

                                      Average weekly earnings including bonus rose 3.4% yoy, unchanged from December and beat expectation of 3.2% yoy. Average weekly earnings excluding bonus rose 3.4% yoy, down from December’s 3.5% and matched expectations. Also release, jobless claims rose 27.9k in February, above expectation of 13.1k.

                                      Full release here.

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                                      Barclay: Moment of crisis for UK but Bercow pointed to possible solutions already

                                        UK Brexit Minister Stephen Barclay warned that this is a “moment of crisis” for the country after Commons Speaker John Bercow “raised the bar” for another Brexit vote on the same deal. And it’s “more unlikely” for the meaningful vote to take place this week.

                                        Nevertheless, Barclay also pointed out that Bercow already “pointed to possible solutions”. And Barclay added “you can have the same motion but where the circumstances have changed.” Also, Barclay noted “the speaker himself has said that where the will of the House is for a certain course of action, then it is important that the will of the House is respected.” He added that both an extension or a shift in support, could indicate a change in context.

                                        But Barclay rejected the option of asking the Queen to cut short the entire parliamentary session, known as prorogation, He said “the one thing everyone would agree on is that involving Her Majesty in any of the issues around Brexit is not the way forward, so I don’t see that a realistic option.”

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                                        RBA awaits more data to resolve tensions in domestic data

                                          In the March meeting minutes, RBA noted the “tension” between ongoing improvement in job data and slowdown in output growth in H2 2018. Leading indicators pointed to further tightening in the job market and wages growth picked up in Q4. Growth slowed but business and public spending remained positive. However, there continued to be “considerable uncertainty” around consumption outlook, given fall in house prices.

                                          Taken into account the available information, RBA judged that current monetary policy stance was “supporting jobs growth and a gradual lift in inflation”. But “significant uncertainties around the forecasts remained”. The scenarios of a rate hike and rate hike were “more evenly balanced” than over the preceding year. And, “it would be appropriate to hold the cash rate steady while new information became available that could help resolve the current tensions in the domestic economic data.”

                                          Full minutes here.

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