Tue, Oct 15, 2019 @ 08:47 GMT

OPEC Al-Mazrouei: OPEC alone cannot be blamed on oil price

    OPEC and UAE Energy Minister president Suhail al-Mazrouei criticized that it’s “unfair” to say OPEC for not doing its part and blame the group for oil price. This should be in response to Trump’s one-sided call for OPEC to increase production. Al-Mazrouei said the group always listen to a major consumer country as “we listen to the United States, we listen to China, we listen to India.”

    But he added that “OPEC alone cannot be blamed for all the problems that are happening in the oil industry, but at the same time we were responsive in terms of the measures we took in our latest meeting in June.” And, “there are things outside of our hand, the geopolitics as well as how much production is coming from the shale oil and Canadian sands.”

    OPEC agreed last month to increase production modestly and Al-Mazrouei said “we need to just give it time to enter the market”. He also emphasized that the group is seeking a balance between supply and demand, not targeting a specific price. Meanwhile, he didn’t anticipate any extraordinary meeting of OPEC before the next scheduled one in December.

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    German Merkel hailed China market opening isn’t just talk, but action

      German Chancellor Angela Merkel and Chinese Premier Li Keqiang agreed on protecting multilateral rules-based trading system as they met yesterday. Merkel said “we both want to sustain the system of World Trade Organization rules.” She added that “we hope that Germany and China won’t get caught up in a global spiral of protectionism,” and “we have to express our conviction loud and clear.”

      Merkel also hailed that Chinese is putting real effort in opening up the markets. She pointed to the deal, signed yesterday, for BASF SE to open an 100% owned chemical complex in Gangdong. It’s the first wholely-owned chemical maker project ever. Merkel said “this shows that China’s market opening in these areas isn’t just talk, but action.”

      Li said along side Merkel that multilateralism plays “a strengthening, bolstering role” for the world economy. And, “I can’t imagine anyone can hold back the stream of globalization.”

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      Sterling recovers as leadership challenge is out the window … for now

        Sterling stays weak for today and the week on UK political turmoil. GBP/USD dipped to as low as 1.3189 overnight in reaction to Boris Johnson’s resignation as Foreign Minister. But it somewhat recovered after initial selloff and is now back at around 1.3250. While the situation seems to be stabilized, the Pound is certainly not out of the woods yet. The coming few days, leading up to the publication of the new Brexit plan, will be crucial to Prime Minister Theresa May and the Pound.

        For now, May’s position seems to be safe as Conservative Party chairman Brandon Lewis said he’s not expecting a confidence vote. High profile eurosceptic Jacob Rees-Mogg also said there is no call for May to resign. Robert Buckland, Solicitor General for England and Wales, was also quoted by Reuters saying that “the question of a leadership challenge, I think it’s out the window, gone.” The development helped stabilized Sterling.

        Meanwhile, former Health secretary, a member of the Remain camp, was appointed as Foreign Minister to replace Johnson.

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        UK PM May takes floor, Hammon express support

          UK Prime Minster takes floor in the House of Commons as two of her cabinet members resigned today over her Brexit plan. May thanks former Foreign Minister Boris Johnson and Brexit Minister David Davis.

          May emphasized that the new Brexit plan would take back control of laws and borders. At the same time, she rejected EU’s proposal and warned that “if the EU continues on this course, there is a serious risk it could lead to no deal.”

          May also defended the plan regarding the common rulebook on goods as she said “the friction-free movement of goods is the only way to avoid a hard border between Northern Ireland and Ireland and between Northern Ireland and Great Britain.”

          May also said the plan agreed was a new model that would accelerate negotiations over the summer, secure a new relationship in the autumn, followed by the passing of the withdrawal bill to leave the EU in March 2019.

          The Chancellor of Exchequer Philip Hammond expressed her support to May in his tweets.

          Now, the question is, whether the resignation of Davis and Johnson would bring down May’s government? Or actually strengthen it.

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          Sterling dips as Boris Johnson resigns, markets taking it seriously

            Sterling dips notably as hit by another resignation in Prime Minister Theresa May’s cabinet. The rumor has come true as Foreign Minister Boris Johnson finally resigns.

            Statement from Downing Street: “This afternoon, the prime minister accepted the resignation of Boris Johnson as foreign secretary. His replacement will be announced shortly. The prime minister thanks Boris for his work.”

            Now, we’ll see if the news has lasting impact on the pound, or it’s just a knee jerk action like that following David Davis resignation. But judging from the current price action, Boris resignation seems to be taken more seriously by the markets.

             

             

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            ECB Draghi: Protectionism as main risks and united Europe should lead by example

              ECB President Mario Draghi said at the ECON committee of the European Parliament that the central bank’s monetary policy measures “have been very effective”. There was an overall impact of 1.9% on both Eurozone real GDP growth and inflation for the period between 2016 and 2020. The measures are “playing a decisive role” in bring inflation on track to target. But he also emphasized the need to be “patient, persistent and prudent” to ensure inflation remains on a “sustained adjustment path.

              Draghi also warned that downside risks to outlook “mainly relate to the threat of increased protectionism”. He emphasized that “strong and united Europe” can help “reap the benefits of economic openness while protecting its citizens against unchecked globalisation”. And, he also urged that in “leading by example”, the EU can lend support to multilateralism and global trade. That requires, domestically, “strong institutions and sound economic governance”.

              Here is the full remarks of Draghi.

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              Gold’s corrective rally in progress for 1286.6

                Gold’s rebound from 1238.00 continues today and hits as high as 1265.40 so far. With a short term bottomed formed ahead of 1236.66 key support could be seen. Gold should now target 38.2% retracement of 1365.24 to 1238.00 at 1286.60. That would still be reasonably close to 55 day EMA (now at 1286.23) when they meet. For now we’re only seeing the rebound from 1238.00 as a corrective pattern. Hence, we’d expect strong resistance from 1286.60 to limit upside. The fall from 1365.24 is expected to resume later through 1238.00, when Dollar regains strength.

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                Into US session: Stock rally lifts Australian Dollar, Sterling cheers Davis resignation

                  Entering into US session, Australian Dollar is trading as the strongest one for today, as helped by easing risk aversion/return of risk appetite. China Shanghai SSE rose 2.47% to close at 2815.11 and it looks like 2700 key psychological level is now defended well. Nikkei closed up 1.21%, Hong Kong HSI up 1.32% Singapore Strait Times rose 1.16%. European Indices are also solid. At the time of writing, DAX is up 0.2%, CAC up 0.5%, FTSE up 0.4%.

                  Sterling is trading as the second strongest and markets seemed to be cheering the resignation of Brexit Minister David Davis. Former Minister of State for Housing Dominic Raab is appointed as the new Brexit Minister. Davis’ departure is probably the best for him and PM Theresa May.

                  Meanwhile, Dollar is trading as the weakest one, followed by the Japanese Yen.

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                  Eurozone Sentix Investor Confidence rose to 12.1 in technical counter-movement

                    Eurozone Sentix Investor Confidence rose to 12.1 in July, up from 9.3 and beat expectation of 9.0. Sentix noted in the release that Eurozone expectations may “stabilize slightly” after the sharp fall in June. But that seems more of a “technical counter-movement”. It noted that the Economic Index for Germany had dropped for the sixth time in a row to just 16.2.

                    Also, the next of of trade dispute between the US and the rest of the world “has been reached and countermeasures by the EU and China are under way. Sentix noted if Trump now targets the European car industry, the “trade dispute could lead to more than a slowdown in economic sentiment.” At the same time, central banks, at the path of stimulus remove, are “unlikely to play a support role”.

                    Sentix added that the global environment is also showing more and more signs of an economic slowdown. For Japan, for example, we are recording the sixth consecutive decline in the overall index and economic expectations for Asia ex Japan are slumping by more than 10 points. US economic expectations are also falling to their lowest level since August 2012.

                    Full Sentix Economic Index release here.

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                    All nine BoJ regions reported rosy economic assessment

                      According to BoJ’s Regional Economy Report, six regions (Hokuriku, Kanto-Koshinetsu, Tokai, Kinki, Chugoku, and Kyushu-Okinawa) reported that their economy had been expanding or expanding moderately. Three regions (Hokkaido, Tohoku, and Shikoku) noted that the economy had continued to recover moderately. That’s unchanged from previous assessment in April 2018.

                      BoJ Governor Haruhiko also said in the meeting of the regional branch manager that “Japan’s economy is expected to continue expanding moderately.” But ultra-loose monetary policy would be maintained until inflation hits target. Nonetheless, Yasuhiro Yamada, manager of the BOJ’s Osaka branch, warned that “Many companies in the region say (protectionism) is the number one risk. They are worried about the huge uncertainty over the trade outlook.”

                      Full report here.

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                      Davis: May is good PM but the Brexit plan is a dangerous strategy

                        Ex-Brexit Minister David Davis told BBC Radio that PM Theresa May’s Brexit plan had a “number of weaknesses” and gives away “too much” to the EU. He called that a “dangerous strategy”. And he said he was clear after Friday’s that that he was the “odd man out”.

                        Nonetheless, Davis also said he “won’t be encouraging people” to mount a leader change in the UK and added that “I like Theresa May, i think she is a good PM”. And he didn’t expect others ministers to follow him to resign. He said “the simple truth is people can only make these decisions of conscience, decisions of principle by themselves, in their own minds,”and you can’t make the decision for somebody else and you can’t offload it on somebody else.”

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                        China foreign currency reserves rose 0.05% in June

                          China’s foreign currency reserves rose USD 1.5B in June to USD 3.1121T, up 0.05%. The State Administration of Foreign Exchange spokesperson said that the China’s foreign exchange market was “generally stable”. Due to strength in the US Dollar and change in asset pricing, the overall currency reserve rose slightly.

                          SAFE also noted that since the start of the year, China’s economy has “maintained a steady trend”. But there were “divergence” in global recovery, heightened trade friction, capital out-flow and currency depreciation pressure in emerging markets. Though, China’s cross-border capital flowed remained stable.

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                          Sterling spiked on Brexit plan but reversed after Davis’s resignation

                            UK Prime Minister Theresa May appeared to have united her cabinet on the Brexit plan after the locked-up meeting at the Chequer last Friday. A key element of the plan is to establish a UK-EU free trade area with a common rule book for industrial goods and agricultural products. And the UK would commit by treaty to ongoing harmonization with EU rules on goods. However, on services, the UK will strike different arrangements for regulatory flexibility. And for financial services, the UK will seek arrangements that preserve the mutual benefits of integrated markets and protect financial stability. And, with the plan, the UK believed that the problem of Irish border would be avoided an a backstop plan won’t be needed. The full document is expected to be published this week.

                            Environment Secretary Michael Gove, on the the highest-profile Brexit campaigners, endorsed the plan. He told BBC that “One of the things about politics is that you mustn’t, you shouldn’t, make the perfect the enemy of the good. And one of the things about this compromise is that it unites the cabinet.” And he urged that “All those of us who believe that we want to execute a proper Brexit, and one that is the best deal for Britain, have an opportunity now to get behind the Prime Minister in order to negotiate that deal.”

                            However, the situation is complicated today as Brexit Minister David Davis resigned as he was not willing to be a “reluctant conscript” to the plan. He complained that “the general direction of policy will leave us in at best a weak negotiating position, and possibly an inescapable one.” And the so called “common rule book” with the EU will hand “control of large swathes of our economy to the EU and is certainly not returning control of our laws”. Separately, it’s reported that Steve Baker, a minister in the Brexit department has also resigned.

                            Sterling spiked higher earlier today and reversed on Davis’s resignation.

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                            UK Brexit Minister David Davis’s resignation letter to PM May

                              The following is David Davis’s resignation letter to Prime Minister Theresa May.

                              Dear Prime Minister,

                              As you know there have been a significant number of occasions in the last year or so on which I have disagreed with the Number 10 policy line, ranging from accepting the Commission’s sequencing of negotiations through to the language on Northern Ireland in the December Joint Report. At each stage I have accepted collective responsibility because it is part of my task to find workable compromises, and because I considered it was still possible to deliver on the mandate of the referendum, and on our manifesto commitment to leave the Customs Union and the Single Market.

                              I am afraid that I think the current trend of policy and tactics is making that look less and less likely. Whether it is the progressive dilution of what I thought was a firm Chequers agreement in February on right to diverge, or the unnecessary delays of the start of the White Paper, or the presentation of a backstop proposal that omitted the strict conditions that I requested and believed that we had agreed, the general direction of policy will leave us in at best a weak negotiating position, and possibly an inescapable one.

                              The Cabinet decision on Friday crystallized this problem. In my view the inevitable consequence of the proposed policies will be to make the supposed control by Parliament illusory rather than real. As I said at Cabinet, the common rule book policy hands control of large swathes of our economy to the EU and is certainly not returning control of our laws in any real sense.

                              I am also unpersuaded that our negotiating approach will not just lead to further demands for concessions.

                              Of course this is a complex area of judgment and it is possible that you are right and I am wrong. However, even in that event it seems to me that the national interest requires a Secretary of State in my Department that is an enthusiastic believer in your approach, and not merely a reluctant conscript. While I have been grateful to you for the opportunity to serve, it is with great regret that I tender my resignation from the Cabinet with immediate effect.

                              Yours ever,

                              David

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                              BCC pushes for clarify and Brexit hedge

                                According to the Quarterly Economic Survey of the British Chambers of Commerce (BCC), the UK economic conditions “remain sluggish” despite modest improvement in Q2. The survey showed that the economy is in a “holding pattern” and the annual growth this year is set to be the “lowest since the financial crisis.” It called for a push to “fix the fundamentals” to create a “Brexit hedge”. And the government should provide clarity on the “real-world questions” after Brexit to give businesses a clear path that would enable them to invest and grow.

                                Adam Marshall, Director General of the BCC also noted in the release that “amid growing international uncertainty, from escalating trade disputes to oil price rises, the UK economy continues to grow at a sluggish rate. Brexit is a key factor – but long-standing structural issues are also holding companies’ growth back.” And he emphasized again that
                                “Business needs clarity on Brexit, and a strong domestic agenda that creates a ‘Brexit hedge’ as we navigate turbulence over the next few years.”

                                Full report here.

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                                BoJ Kuroda to maintain ultra loose policy until inflation hits target

                                  BoJ Governor Haruhiko Kuroda said at a quarterly meeting of regional branch managers that the central bank would maintain its ultra-loose monetary policy until inflation hits 2% target. He added that the economy is expanding moderately and is expected to continue with it. Consumer inflation, however, is moving between 0.5% to 1.0%.

                                  BoJ will continue to pursue current policy under the yield curve control framework for as long as needed. The monetary policy will be adjusted when necessary to maintain economic momentum.

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                                  ECB Coeure: Europe United to respond to US shift from hegemonia to arkhe

                                    ECB Executive Board Member Benoit Coeure the recent developments in trade war “doesn’t have the potential to derail the recovery” of the Eurozone. Just after ECB announced to end the asset purchase program in December, the risks of US-China trade war has turned from rhetorics into reality. And the US is threatening tariffs on European Union autos. But Coeure said that the June monetary policy decision “already takes the risks into account” and there is “no reason to change policy expectations” right now. He added the the impact of trade tensions on business confidence is so far “limited” and “the backdrop is very strong resilient growth in the Eurozone”.

                                    Coeure also delivered a speech titled “Asserting Europe’s Leadership” and shared his view on the current global development. He noted that over the past seven decades, American leadership in the world was of the “legitimate” type, that “builds on trust and common identities”. That’s called “hegemonia” in ancient Greece. Such leadership was “largely unchallenged because it was built on shared fundamental values … of human rights, freedom, democracy, equality and the rule of law.”

                                    However, Coeure pointed out that “putting one’s country first marks a departure from the sort of prudent and vigilant policy that leadership by a legitimate hegemon would entail.” And, “he transactional nature of such an approach arguably belongs much more to arkhe – hard power – where policies and doctrines are imposed on others, without their consent and regardless of the consequences. International agreements are repealed, the international rule of law is questioned and other nations are challenged.”

                                    He also said that solutions offered to solve the problems of globalization are too often “simplistic and short-sighted”. For example, “raising tariffs and withdrawing within national borders will deprive people of the economic benefits of trade and integration.” And he pointed to ECB staff estimates that if US raises tariffs of all goods by 10% while others retaliate the same, US GDP could drop up to -2.5% in the first year alone.

                                    Coeure said EU’s response, as seen with ancient Greeks, were alliances against arkhe. That is, “Europe united” against “America first”. In particular, he stressed the importance of “completing the euro area’s architecture” as it’s necessary for Europe to attain other objectives on fostering cooperation on security and defence, speak with one voice on international affairs and to complete the Single Market.

                                    Full speech here.

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                                    Non-farm Payrolls rose 213k, beat expectations. But unemployment rate and wage growth miss

                                      Dollar trades notably lower in early US session despite stronger than expected headline NFP number. Non-farm payroll report showed 213k growth in June, above expectation of 190k. Prior month’s figure was revised up from 223k to 244k. Unemployment rate rose to 4.0%, up from 3.8%. But that’s mainly thanks to rise in participation rate from 62.7% to 62.9%. Wage growth was a miss though as average hourly earnings rose 0.2% mom versus expectation of 0.3% mom. Also from the US, trade deficit narrowed slightly to USD -43.1B in May.

                                      From Canada, the employment market rose 31.8k in June, above expectation of 24.0k. Unemployment rate rose to 6.0%, up from 5.8%. Also, that’s due to rise in participation rate from 65.3% to 65.5%. Trade deficit widened to CAD -2.8B in May.

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                                      Chinese Premier Li: Trade war is never a solution

                                        In response to the start of US section 301 tariffs on USD 34B in Chinese import, Chinese Foreign Ministry spokesman Lu Kang said in a daily media briefing that “after the United States unfairly raised tariffs against China, China immediately put into effect raised tariffs on some U.S. goods.” Lu also reiterated that “On the specifics of the trade issue, from the start China’s position has been very clear and consistent. The United States at all levels is very clear on China’s position,”

                                        Commenting on the issue, Chinese Premier Li Keqiang said in Bulgaria that trade war is “never a solution” and there will be no winner. And, “it benefits no one and it would undermine the multilateral free trade process,” he said. “If one insists on waging a trade war it would hurt others and themselves.”

                                        He reiterated that China is committed to further opening up its markets. But, “if any party resorts to increase of tariffs, china would take measures in response to protect china development interests and safeguard multilateral trade regime and rules.”

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                                        Japan cabinet revised down fiscal 2018 growth forecast

                                          Japan Cabinet Office presented new economic projections at the Council on Economic Fiscal Policy today.

                                          For current fiscal 2018, the economy is projected to grow 1.5% in real term. That’s a downgrade from prior projection of 1.8%, down at the start of the year. In nominal terms, the economy is projected to grow 1.7%, sharply lower from prior forecast of 2.5%, due partly to slowdown in property investment.

                                          The office forecasts the economy to grow 1.5% in the fiscal-2019, in price adjusted real terms. That’s after adjustment to the planned sales tax hike in October 2019. In nominal term, GDP is projected to grow 2.8%.

                                          For the current fiscal 2018, overall CPI is projected to be at 1.1%, unchanged from prior estimate. Overall price CPI is forecast to rise 1.5% in fiscal 2019. With adjustment on the sales tax hike, overall CPI is projected to slow to 1.0%.

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