Sun, May 31, 2020 @ 19:56 GMT

UK Parliament seized control over Brexit, to vote on alternatives on Wednesday

    The UK Parliament seized control over Brexit from the government after passing a cross-party amendment by 329 to 302 late Monday. The amendment was tabled by former Tory minister Oliver Letwin involving Labour’s Hilary Benn. It gives MPs a series of votes on alternatives to Prime Minister Theresa May’s Brexit deal, including a second referendum, staying the the customs union, no-deal and even revoking article 50.

    Three Conservative ministers resigned from the government to support the amendment, including Foreign Affairs Minister Alistair Burt, Health Minister Steve Brine and Business Minister Richard Harrington. A total of 29 Conservatives rebelled to vote for the amendment.

    The Brexit department issued a quick email statement after the vote. It criticized that the results “upends the balance between our democratic institutions and sets a dangerous, unpredictable precedent for the future.” And it warned that “while it is now up to parliament to set out next steps in respect of this amendment, the government will continue to call for realism – any options considered must be deliverable in negotiations with the EU.

    Earlier in the day before the vote, May declined to commit to abide by the outcome of the indicative votes. She said: “No government could give a blank cheque to commit to an outcome without knowing what it is. So I cannot commit the government to delivering the outcome of any votes held by this house. But I do commit to engaging constructively with this process.”

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    Eurozone GDP grew 0.2% in Q3, CPI slowed to 0.7% in Oct

      Eurozone GDP grew 0.2% qoq in Q3, unchanged from Q2’s rate, beat expectation of 0.1% qoq. Over the year, GDP grew 1.1% yoy. EU28 GDP grew 0.3% qoq 1.4% yoy.

      Eurozone CPI slowed to 0.7% yoy in October, down from 0.8% yoy, matched expectation. However, CPI core accelerated to 1.1% yoy, up from 1.0% yoy and beat expectation of 1.1% yoy.

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      Forecasters downgrade Eurozone inflation and growth projections in ECB survey

        In the Q4 ECB Survey of Professional Forecasters, Eurozone inflation expectations were revised down on average across all horizons. Real GDP growth expectations was also revised down, particularly for 2020. Meanwhile, unemployment rate expectations were also revised up.

        • HICP inflation is projected to be at 1.2% in 2019 (vs Q3 projection of 1.3%), 1.2% in 2020 (vs 1.4%) and 1.4% in 2021 (vs 1.5%).
        • Core HICP is projected to be at 1.1% in 2019 (vs 1.1%) 1.2% in 2020 (vs 1.3%), and 1.4% in 2021 (vs 1.5%).
        • Real GDP growth is projected to be at 1.1% in 2019 (vs 1.2%), 1.0% in 2020 (vs 1.3%) and 1.3% in 2021 (vs 1.4%).
        • Unemployment rate is projected to be at 7.6% in 2019 (vs 7.6%), 7.5% in 2020 (vs 7.4%) and 7.4% in 2021 (vs 7.3%.

        Full report here.

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        ECB minutes: Less confidence in baseline growth scenario, range of possibilities widened

          Minutes of ECB’s April 9-10 meeting showed that policy makers were getting less confident on Eurozone recovery. The minutes noted “it was acknowledged that some recent data had turned out even weaker than expected”. And, “there was now somewhat less confidence in the baseline scenario and that the range of other possible outcomes had widened.”

          Also, “the global outlook remained subject to the continued risk of an escalation of trade conflicts and the uncertainty surrounding the withdrawal of the United Kingdom from the EU.”

          Regarding the new TLTROs, “some arguments were put forward in favor of pricing the new operations so they would primarily serve as a backstop, providing insurance in times of elevated uncertainty.” Also, “other arguments supported the view that the TLTRO-III operations should be seen as a potential tool for adjusting the monetary policy stance.”

          Full monetary policy accounts here.

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          US Mnuchin: We’re very focused on the EU trade relationship

            US Treasury Secretary Steven Mnuchin said the US is “very focused on the EU” on strengthening the trade relationship. He said that after Meeting of Trump and Juncker, there is an agreement in principal and the officials planned to move forward to “turn it into real agreement”.

            Both sides would immediately focus on steel and aluminum tariffs first “so that there can be no tariffs in either direction”. The issue is expected to be resolved “very quickly”. Mnuchin also said there is an outline already, “in agriculture, in chemicals, in medical devices, in industrial LNG” and so “we’re going to make a lot of progress.

            Regarding China, Mnuchin said “if they’re willing to make serious changes just as the EU did yesterday, we’ll negotiate with China any time.”

            And on NAFTA, he said “hopeful that we’ll have an agreement in principal in the near future.” He also noted that “whether it’s one deal or two deals, so long as we get the right agreement, we’re indifferent.”

            US Trade Representative Robert Lighthizer said that the US was close to reaching a broad agreement on NAFTA renegotiations. And he added that “we are in the finishing stages of achieving an agreement in principle that will benefit American workers, farmers, ranchers, and businesses.” And talks were being done at an “unprecedented speed”.

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            An update on GBP/CHF short, lower stop to 1.2725

              Swiss Franc overtakes Euro as the strongest currency for today and the week so far as buyers jump in during early part of European session. On the other hand, Sterling was left behind by others in the broad based selloff in Dollar. As a result, GBP/CHF dips notably to as low as 1.2588 so far today and is set to recent down trend. As planned in the last weekly report, we’ll now lower the stop of our GBP/CHF short (sold at 1.2971) to 1.2725, which is slightly above 1.2722 minor resistance.

              Overall view is unchanged that fall from 1.3854 is in progress and should target cluster level at 100% projection of 1.3854 to 1.3049 from 1.3265 at 1.2460 and 61.8% retracement of 1.1638 to 1.3854 at 1.2485. We plan to exit our short position at 1.2500, which is slightly above this 1.2460/85 support zone. Consider that there is loss of downside momentum, as seen it daily MACD’s stay above signal line. There is no compelling reason to change this plan.

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              USTR on track to impose new 15% tariffs on China on Sept 1

                US Trade Representative office affirmed that the administration is carrying on with the plan to impose new tariffs on China. In Federal Register notice, it’s noted that 15% tariffs will take effect on part of the USD 300B in Chinese goods, starting September 1.

                The second batch of products include cell phones and laptop computers. 15% tariffs on this second batch will take effect of December 15.

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                US PPI and core PPI slowed in September, missed expectations

                  Both US PPI and core PPI slowed in September and missed expectations. PPI dropped came in at -0.3% mom, 1.4% yoy, versus expectation of 0.1% mom, 1.7% yoy. PPI core was at -0.3% mom, 2.0% yoy, versus expectation of 0.2% mom, 2.2% yoy.

                  Full release here.

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                  RBNZ raises QE limit to NZD 60B, negative rate a future option

                    RBNZ kept OCR unchanged at 0.25% as widely expected. Also, the central bank decided to expand the upper limit of the Large Scale Asset Purchase program (LSAP) to NZD 60B, up from NZD 33B. Government inflation-indexed bonds are now included in the program, together with government bonds and local government funding agency bonds.

                    RBNZ is also “prepared to use additional monetary policy tools if and when needed including reducing the OCR further, adding other types of assets to the LSAP programme, and providing fixed term loans to banks.”

                    In the minutes, the committee noted that a “negative” OCR will “become an option in future”, even though financial institutions are “not yet operationally ready. Discussions with the institutions about preparing for negative rate are “ongoing.

                    Full statement here.

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                    Yen broadly higher into US session, CAD/JPY increasing downside bias

                      Yen staying strongest entering into US session. Commodity currencies are under pressure.

                      CAD/JPY in down trend across time frame. With increasing intraday downside bias.

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                      NATO pledged to spend more, but Trump wants double the target

                        In a NATO summit statement “Brussels Declaration on Transatlantic Security and Solidarity”, the alliance pled to “share fairly the responsibilities of defending each other. ” It noted that “Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.”

                        And, “even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.”

                        That seemed to be a unified answer to Trump’s call for more spending from other NATO members.

                        Separately, Bulgaria’s President Rumen Radev told reporters that “President Trump, who spoke first, raised the issue not only to achieve 2 percent, today, but (set) a new barrier – 4 percent.” Reuters also reported an unnamed UK official saying
                        “He certainly said that he wanted more money to be spent on defense”, referring to Trump.

                        Here is full NATO statement.

                        Brussels Declaration on Transatlantic Security and Solidarity

                        1. NATO guarantees the security of our territory and populations, our freedom, and the values we share – including democracy, individual liberty, human rights and the rule of law.  Our Alliance embodies the enduring and unbreakable transatlantic bond between Europe and North America to stand together against threats and challenges from any direction. This includes the bedrock commitment to collective defence set out in Article 5 of the Washington Treaty.  NATO will continue to strive for peace, security and stability in the whole of the Euro-Atlantic area, in accordance with the purposes and principles of the UN Charter.
                        2. We face a prolonged period of instability. Russia is challenging the rules-based international order by destabilising Ukraine including through the illegal and illegitimate annexation of Crimea; it is violating international law, conducting provocative military activities, and attempting to undermine our institutions and sow disunity.  At the same time, a multitude of threats emanate from NATO’s Southern periphery. While significant progress has been made in defeating ISIS/Daesh, terrorism, in all its forms and manifestations, continues to threaten Allies and the international community and to undermine stability. Instability contributes to irregular migration, trafficking and other challenges for our countries. Allies stand firmly in unity and solidarity in the fight against terrorism.
                        3. We will share fairly the responsibilities of defending each other.  Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.  But even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.
                        4. Today we are strengthening further our deterrence and the collective defence of all NATO territory and populations, building on our Forward Presence and consistent with the decisions taken in Warsaw. Our deterrence and defence is based on an appropriate mix of nuclear, conventional and missile defence capabilities, which we continue to adapt.  We will increase the readiness of our forces and improve our ability to reinforce each other within Europe and across the Atlantic. As part of that, we have agreed an adapted and strengthened NATO Command Structure. We are also further reinforcing the cyber defence capabilities of Allies and of NATO itself.
                        5. We are strengthening our capacity to prepare against, deter and respond to hybrid threats. Hybrid tactics increasingly target our political institutions, our public opinion and the security of our citizens.  Allies are making our societies more resilient against them, and we will respond with resolve when necessary.
                        6. NATO poses no threat to any country. All these measures are defensive, proportionate and transparent, and within NATO’s legal and political commitments.  We remain fully committed to arms control, disarmament and non-proliferation.
                        7. We remain ready for a meaningful dialogue with Russia to communicate clearly our positions and, as a first priority, to minimize risk from military incidents, including through reciprocal measures of transparency.  We continue to aspire to a constructive relationship with Russia, when Russia’s actions make that possible.
                        8. We are boosting NATO’s contribution to the international fight against terrorism. We have decided, on request of the Iraqi Government and in coordination with the Global Coalition to Defeat ISIS, to establish a training mission in Iraq.  We will increase our assistance to the Afghan Security Forces, providing more trainers and extending financial support, as the Government makes an unprecedented political effort to seek a peaceful resolution to the conflict.   NATO will do more to help Allies, on their request, to tackle terrorism at home; to provide advice and support to partners, including through the new Hub for the South; and will continue to contribute to the Global Coalition.
                        9. We are strengthening NATO’s contribution to projecting stability, because we know that our security is best assured if it is shared beyond our borders. We have agreed a Package on the South to deepen our political dialogue and practical cooperation with our partners in the region, including Jordan and Tunisia.  We provide tailored support to our eastern partners Georgia, the Republic of Moldova and Ukraine, as well as to Bosnia and Herzegovina.  We will also boost NATO’s cooperation with Finland and Sweden in the Baltic Sea, as well as with our partners in the Black Sea, Western Balkans and Mediterranean regions, each of which is important to Alliance security.  We are maintaining our important operation in Kosovo. And while remaining a transatlantic Alliance, NATO will retain its global perspective.
                        10. The NATO-EU strategic partnership is essential for the security and prosperity of our nations and of the Euro-Atlantic area.  The European and North American Allies contribute significantly to European security and defence. We recognize that a stronger and more capable European defence will lead to a stronger NATO. We therefore welcome the Joint Declaration signed by the NATO Secretary General and the Presidents of the European Council and Commission, which sets out the unprecedented progress being made in NATO-EU cooperation, including on military mobility. We welcome the significant contributions of the members of both organisations to Euro-Atlantic security.
                        11. We are committed to NATO’s Open Door policy because it strengthens the Alliance and contributes to Euro-Atlantic security, in keeping with the Bucharest Summit.  We warmly welcome the agreement between Athens and Skopje; this success will benefit both countries, the region and NATO.  We have decided to invite the Government in Skopje to begin accession talks to join the Alliance once the terms of the agreement are met.
                        12. We continue to modernize the Alliance. To face evolving security challenges, we have taken steps to ensure that NATO can continue to act at the speed required. Our new policies on NATO’s support for Women, Peace and Security, and for the protection of civilians and children in armed conflict, demonstrate our determination to step up NATO’s role in these areas.
                        13. We pay tribute to all the men and women who serve, and who have served, in NATO operations and missions.  Their service and sacrifice has been essential to keep our territories and populations safe.
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                        BoC Poloz: Recent data suggests below-potential growth just temporary

                          BoC Governor Stephen Poloz sounded confident in his speech yesterday. He noted that Canada is adjusting the challenges in the domestic and global economies. And after taking into account the structural adjustments to oil prices, he said “we can see many area of encouraging economic growth”.

                          He added that the global economy is performing less well than expected and “Canada is feeling the effects”. Housing markets is also taking longer to “digest the combined effect of stricter mortgage guidelines and higher interest rates”.

                          However, Poloz said “recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”

                          More on Poloz’s speech.

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                          Japan Tankan large manufacturing dropped to 12, lowest since 2017, large fall since 2012

                            Japan Tankan large manufacturing index dropped to 12 in Q1, down from 19 and even missed expectation of 13. That’s also the lowest level since March 2017. The quarterly decline was sharpest since 2012. Large non-manufacturing index dropped to 21, down from 24 and missed expectation of 22. It’s also the lowest level since March 2017.

                            Large manufacturing outlook also dropped to 8 down from 15 and missed expectation of 13. Large non-manufacturing outlook was unchanged at 20, matched expectations. All industry capex rose 1.2% in Q1, suggesting large firms expect to increase capital expenditure by a mere 1.2% in the year that begins in April. It’s sharply lower than prior 14.3% but beat expectation of 0.8%.

                            The overall set of numbers are weak, suggesting worsening outlook and deeper slowdown in the Japanese economy. Down the road, if the trend continues, BoJ might be force to re-evaluate its own monetary policy.

                            Full release here.

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                            Ifo: Coronavirus to cost Germany EUR 255B to EUR 728B

                              Ifo institute warned that the coronavirus pandemic could cost Germany’s economy between EUR 255B and EUR 729B. President Clemens Fuest said such costs would “exceed everything known in Germany from economic crises or natural disasters in recent decades. ” And, “depending on the scenario, the economy shrinks by 7.2 to 20.6 percent points”.

                              “If the economy comes to a standstill for two months, depending on the scenario, costs come to between 255 and 495 billion euros. Economic output then shrinks by 7.2 to 11.2 percentage points a year, “says Fuest.

                              In the best scenario, it is assumed that economic output will decline to 59.6 percent for two months, recover to 79.8 percent in the third month and finally reach 100 percent in the fourth month.

                              “With three months of partial closure, the costs already reach 354 to 729 billion euros, which is a 10.0 to 20.6 percentage point loss in growth,” says Fuest.

                              Full release here.

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                              Eurozone PMI manufacturing finalized at 47.6, remained stuck firmly in a steep downturn

                                Eurozone PMI Manufacturing was finalized at 47.6 in June, revised down from 47.8, versus May’s 47.7. Among the member states, Germany reading was revised down to 45.0, but that was a 4-month high. Austria dropped to 55-month low at 47.5. Spain dropped to 74-month low at 47.9. Italy dropped to 3-month also at 48.4. Ireland dropped to 72-month low at 49.8. All these readings are contractionary.

                                Expansionary reading including Netherlands at 50.7, but that’s still at 73-month low. France was revised down from 52.0 to 51.9, a high month high. Greece dropped to 19-month low at 52.4.

                                Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                                “Eurozone manufacturing remained stuck firmly in a steep downturn in June, continuing to contract at one of the steepest rates seen for over six years. The disappointing survey rounds off a second quarter in which the average PMI reading was the lowest since the opening months of 2013, consistent with the official measure of output falling at a quarterly rate of approximately 0.7% and acting as a major drag on GDP.

                                “Deteriorating inflows of new work meanwhile meant manufacturers increasingly focused on keeping costs down, notably by cutting staff numbers and warehouse stocks.

                                “The downturn is also increasingly feeding through to lower inflationary pressures, as producers and their suppliers compete on price to retain customers and generate sales. In stark contrast to the steep rise in producers’ costs and charges seen at the start of the year, raw material prices are now falling for the first time in three years and selling prices are barely rising.

                                “The downturn is also showing no signs of any imminent end. The survey’s forward-looking indicators remained worryingly subdued in June, adding to concerns about the economy in the second half of the year.”

                                Full release here.

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                                UK PMI services finalized at 50.0, overall stagnation of UK economy at the end of 2019

                                  UK PMI Services was finalized at 50.0 in December, up from November’s 49.3. PMI Composite was unchanged at 49.3. Stabilization of the service sector was offset by a sharp and accelerated decline in manufacturing output (index at 45.6).

                                  Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey:

                                  “Service companies widely commented on delayed spending decisions and a headwind to sales from domestic political uncertainty in the run-up to the general election. With manufacturing and construction output also subdued in December, the latest PMI surveys collectively signal an overall stagnation of the UK economy at the end of 2019. “However, the latest UK service sector figures are an improvement on those seen in November and strike a slightly more positive tone than the earlier ‘flash’ PMI for December. The final IHS Markit/CIPS UK Services data includes survey responses from after the election, unlike the earlier flash estimate.

                                  “It is notable that the forward-looking business expectations index is now the highest since September 2018 and comfortably above its ‘flash’ reading for December. The modest rebound in new work provides another signal that business conditions should begin to improve in the coming months, helped by a boost to business sentiment from greater Brexit clarity and a more predictable political landscape.”

                                  Full release here.

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                                  ECB and BOE activate currency swap arrangements

                                    ECB and BoE announced to activate currency swap arrangements ahead of Brexit. Under the arrangement, BoC will offer to lend Euro to UK banks on a weekly basis. BoE will also obtain Euro from ECB in exchange for Sterling. Also, Eurosystem would stand ready to lend Sterling to Eurozone banks if needed.

                                    ECB said “the activation marks a prudent and precautionary step by the Bank of England to provide additional flexibility in its provision of liquidity insurance, supporting the functioning of markets that serve households and businesses.”

                                    Full statement here.

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                                    BoJ raised 2018, 2019 GDP growth forecasts, lowered 2018 inflation forecast

                                      In the outlook for economic activity and prices report, BoJ noted that the economy is “likely to continue growing at a pace above its potential in fiscal 2018.” For 2019 and 2020, “the economy is expected to continue on a expanding trend supported by external demand. Ex-fresh food CPI continued to show “relatively weak developments” when excluding the effects of energy prices.

                                      Below are the updated economic forecasts of BoJ:

                                      • Forecast of fiscal 2018 real GDP was raised to 1.6%, up from January’s estimate of 1.4%.
                                      • Forecast of fiscal 2019 real GDP was raised to 0.8%, up from 0.7%.
                                      • Forecast of fiscal 2020 real GDP was at 0.8%
                                      • Forecast of fiscal 2018 core CPI was lowered to 1.3%, down from 1.4%.
                                      • Forecast of fiscal 2019 core CPI (ex sales tax hike) was unchanged at 1.8%
                                      • Forecast of fiscal 2020 core CPI was at 1.8%.

                                      BoJ also highlighted four major risks to the outlook. First is overseas developments including US economic policies and Brexit. Secondly is the impacts of the planned consumption tax hike in October 2019. Third is change in firms and households medium- to long-term growth expectations. Fourth is fiscal sustainability in the medium term to long term.

                                      There re also three main risks identified to price developments. First is change in firms and households medium- to long-term inflation expectations. Second is items’s prices that are not response to output gap. Third is the developments in exchange rates and commodity prices.

                                      Here is the full report.

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                                      China’s retaliation tariffs start shortly after US tariffs took effect

                                        Shortly after US tariffs on USD 16B in Chinese goods came into effect, China’s equivalent retaliation tariffs also start.

                                        In a brief statement, the Chinese Ministry of Commerce said “China resolutely opposes this, and will continue to take necessary countermeasures.”

                                        And, “at the same time, to safeguard free trade and multilateral systems, and defend its own lawful interests, China will file suit regarding these tariff measures under the WTO dispute resolution mechanism.”

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                                        UK to start no-deal Brexit preparation in full

                                          UK Prime Minister Theresa May’s spokesman said yesterday that the Cabinet agreed that the government should start no-deal Brexit preparation “in full”. He noted “we have now reached the point where we need to ramp up these preparations”. And, “we will now set in motion the remaining elements of our no-deal plans”.

                                          Additionally, “Cabinet also agreed to recommend businesses now also ensure they are similarly prepared, enacting their own no-deal plans as they judge necessary”.

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