UK GDP contracted -0.2% in Q2, first contraction since 2012

    UK GDP surprisingly contracted by -0.2% qoq in Q2, worse than expectation of 0.0% qoq. That’s also the first quarterly contraction since 2012. Over the year, GDP grew 1.2% yoy, slowed from Q1’s 1.8% yoy and missed expectation of 1.4% yoy. Looking at some details, services sector provided the only positive contribution to GDP growth, with 0.1% qoq growth. Production sector contracted sharply by -1.4% qoq, driving by sharp decline in manufacturing output. In June, GDP rose 0.0% mom, below expectation of 0.1% mom.

    Chancellor of the Exchequer Sajid Javid said, “this is a challenging period across the global economy, with growth slowing in many countries. But the fundamentals of the British economy are strong – wages are growing, employment is at a record high and we’re forecast to grow faster than Germany, Italy and Japan this year.” And, “the government is determined to provide certainty to people and businesses on Brexit – that’s why we are clear that the UK is leaving the EU on October 31.”

    Also released from UK, industrial production dropped -0.1% mom, -0.6% yoy in June, versus expectation of -0.2% mom, -0.3% yoy. Manufacturing production dropped -0.2% mom, -1.4% yoy, versus expectation of -0.2% mom, -1.1% yoy. Visible trade deficit narrowed to GBP -7.0B in June versus expectation of GBP -11.3B.

    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”.

      World bank upgrades 2023 global growth forecast to 2.1%

        In the latest Global Economic Prospects, World Bank raised 2023 global growth forecast to 2.1%, from January’s projection of 1.7%. Nevertheless, growth forecast for 2024 was downgraded from 2.7% to 2.4%. Growth is expected to accelerate further to 3.0% in 2025.

        “Growth over the rest of 2023 is set to slow substantially as it is weighed down by the lagged and ongoing effects of monetary tightening, and more restrictive credit conditions,” the report said.

        “These factors are envisaged to continue to affect activity heading into next year, leaving global growth below previous projections.”

        Full Global Economic Prospects here.

        Brexit parliamentary vote to be held on Jan 15

          BBC reported that the Commons will vote on Prime Minister Theresa May’s Brexit deal on Tuesday January 15. And May will give her last efforts to give further assurances that the controversial Irish backstop solution is only temporary. MPs are invited to meet with May tomorrow.

          Over 200 MPs had signed a letter to May urging her to rule out a no-deal Brexit. However, former foreign minister Boris Johnson wrote in Daily Telegraph arguing that no-deal Brexit, “otherwise known as coming out on World Trade terms” is “closest to what people actually voted for” in the 2016 EU referendum.

          Separately, a YouGov poll published on Sunday should that if a referendum were held immediately, 46% of Britons would vote to remain in the EU, 39% would vote to leave. Removing those undecided or refused to answer, the split was 54-46 in favor of remaining.

          US-China trade deal might not be ready for APEC, farm purchase a sticky point

            According to a Reuters report, the text of US-China trade deal might not be ready for signing at the APEC summit in Chile on November 16-17. An unnamed official was quoted saying “If it’s not signed in Chile, that doesn’t mean that it falls apart. It just means that it’s not ready. Our goal is to sign it in Chile. But sometimes texts aren’t ready. But good progress is being made and we expect to sign the agreement in Chile.”

            Though, White House spokesman Judd Deere insisted, “As the president said several weeks ago, we have reached a phase-one agreement with the Chinese and both sides are working to finalize the text for a signing in Chile.”

            Separately, it’s reported that the amount of farm purchases is a sticky point for the text of the agreement. US is pushing China to spell out that it would buy as much as USD 50B of American farm products. But China would want to make it flexible and make the purchases based on market conditions. An unnamed Chinese officials said “China does not want to buy a lot of products that people here don’t need or to buy something at a time when it is not in demand.”

            And separately again, China’s UN Ambassador Zhang Jun warned on Tuesday that US criticism on China’s Xinjian policy is not helping trade negotiations. The US, UK and 21 other states pushed China to stop detaining ethnic Uighurs and other Muslims in Xinjiang Zhang said, “the trade talks are going on and we are seeing progress. I do not think its helpful for having a good solution to the issue of trade talks.”

            US initial jobless claims rose to 216k, below expectation

              US initial jobless claims rose 2k to 216k in the week ending December 17, below expectation of 220k. Four-week moving average of initial claims dropped -6k to 222k.

              Continuing claims dropped -6k to 1672k in the week ending December 10. Four-week moving average of continuing claims rose 30k to 1657k.

              Full release here.

              Eurozone CPI rises to 2.9% yoy in Dec, core CPI down to 3.4% yoy

                Eurozone CPI reaccelerated from 2.4% yoy to 2.9% yoy in December, below expectation of 3.0% yoy. Core CPI (excluding energy, food, alcohol & tobacco) slowed from 3.6% yoy to 3.4% yoy, matched expectations.

                Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in December (6.1%, compared with 6.9% in November), followed by services (4.0%, stable compared with November), non-energy industrial goods (2.5%, compared with 2.9% in November) and energy (-6.7%, compared with -11.5% in November).

                Full Eurozone CPI release here.

                New Zealand imports rose 12% yoy in Oct, imports rose 26% yoy

                  New Zealand goods exports rose 12% yoy to NZD 5.3B in October. Goods imports rose 26% yoy to NZD 6.6B. Trade deficit came in at NZD -1.3B, versus expectation of NZD -1.6B.

                  Exports to China was up 20%, Australia down -6.5%, USA up 12%, Japan 30%, EU up 11%. Imports from China rose 29%, EU up 33%, Australia up 7.5%, USD up 13%, Japan up 52%.

                  Full release here.

                  US GDP grew only 1.1% annualized in Q1, well below expectations

                    US GDP growth for Q1 2023 came in at a mere 1.1% annualized, significantly below the expected 2.0%.

                    The increase in real GDP can be attributed to rises in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment.

                    However, these increases were partially offset by declines in private inventory investment and residential fixed investment. Meanwhile, imports, which are subtracted when calculating GDP, also increased.

                    Price index for gross domestic purchases rose by 3.8% in Q1, compared to the 3.6% increase recorded in Q4. Personal Consumption Expenditures price index saw a 4.2% increase, up from the previous quarter’s 3.7% increase. Excluding food and energy prices, PCE price index climbed by 4.9%, compared to 4.4% increase in the previous quarter.

                    Full US GDP release here.

                    US non-farm payroll grew 164k, unemployment rate unchanged at 3.7%, wage growth accelerated

                      US non-farm payroll grew 164k in July, slightly below expectation of 169k. That was still in-line with the average growth in the first six months of the year, but notably below 2018 average of 223k per month. Prior month’s figure was revised down from 224k to 193k.

                      Unemployment rate was unchanged at 3.7%, matched expectation. Participation rate was unchanged at 63.0%. The upside surprise comes from wage growth. Average hourly earnings rose 0.3% mom in July, above expectation of 0.2% mom.

                      Also released, US trade deficit narrowed slightly to USD -55.2B in June. Canada trade surplus came in smaller than expected at CAD 0.1B.

                      Pre-US update: China stock breaks critical support, AUD & NZD shrug and turn stronger

                        Global stock market rout continues in European session. At the time of writing, DAX is down -1.21%, CAC down -1.41%, FTSE down -1.74%. German 10 year bund yield is dropping -0.048 at 0.508. We’ll see if it can defend 0.5 handle. Italian yield rises 0.089 to 3.593. That is, German-Italian spread is back above 300 again.

                        In the currency markets, despite risk aversion, Australian and New Zealand Dollar are the strongest one today. One explanation is that due to global stock market turmoil, there is less risk of monetary policy divergence between AU/NZ and the rest of developed world. Of course this one is a bit far fetched. On other hand, Dollar is the weakest one, followed by Yen and Sterling.

                        But again, the weekly picture is usually more accurate. Yen is the strongest one followed by New Zealand Dollar and then Sterling. Canadian Dollar is the worst performing, followed by Dollar and then Euro.

                        In Asia, Nikkei lost -3.89% to 22590.86. Singapore Strait Times lost -2.69% to 3047.39. Hong Kong HSI fell -3.54% to 25266.37.

                        China Shanghai SSE dropped -5.22%, to close at 2583.46. Remember that PBoC announced some surprised measures during the last Sunday. Clearly, they’re no able to stop China from following global trend. The SSE has now closed below key support level of 2638.3 (2016 low). The whole down trend from 5178.28 is resuming. Barring any government intervention, the index will likely head towards 61.8% projection of 5178.19 to 2638.30 from 3587.03 at 2017.37 in medium term. It’s just the beginning of a serious down turn in China.

                        ECB Makhlouf: I’m open to acting forcefully to bring inflation down

                          ECB Governing Council member Gabriel Makhlouf told WSJ, “I’m open to acting forcefully to get inflation down to our target.” He noted that interest rate could rise to above 3.5% and stay there.

                          Regarding speculations that ECB would cut interest this year, Makhlouf said, “I think that really is going too far… We’ll reach a point where we’re going to, then plateau.”

                          “I see the ECB as putting up interest rates after the March meeting…Even though inflation is coming down it’s still way above our target,” Makhlouf added.

                          US consumer confidence dropped moderately in March, dollar and stock lack direction

                            US Conference Board consumer confidence dropped moderately in March to 127.7, missing expectation of 131.0 But it stayed close to 18 year high at 130 in February.

                            Reaction to the data is muted though. Dollar rebounded earlier today, but it’s struggling to extend gain in US session so far.

                            Stocks also struggle to find a direction as DOW is trading nearly flat.

                            US Mnuchin still far apart with Democrats on fiscal stimulus

                              US Treasury Secretary Steven Mnuchin indicated in an interview that he’s still “far part” with the Democrats on the next fiscal stimulus deal. Politics were “part of the reality” and an agreement is unlikely before US election, even though he will keep trying.

                              “The president has said to me, keep at this until you get this done,” Mnuchin told Fox Business Network. “If we don’t get it now, when the president wins the election we’ll get it passed quickly afterwards.”

                              Drew Hammill, deputy chief of staff for House Speaker Nancy Pelosi, said the talks between Mnuchin and Pelosi were “productive”. Staff would continue to “exchange paper” and the two will speak again on Thursday.

                              Australian Dollar recovers broadly on ScoMo win, but upside limited

                                Australian Dollar recovers broadly today as Treasurer Scott Morrison becomes the next Prime Minister, winning a three way race with Foreign Minister Julie Bishop and former Home Affairs Minister Peter Dutton after Malcolm Turnbull was ousted. That’s the sixth change in prime ministership in a less than a decade.

                                ScoMo, as Morrison has come to be known, is seen as the most market-friendly option. In particular, as under him as Treasurer, there was substantial improvement in budget balance in Australia.

                                However, the rebound is limited as the markets are probably looking through to next year’s general election already. Bigger uncertainty lies ahead as there is a good chance of a Labor win while results in a change of government and policy directions.

                                Fed Bullard: We’re not quite there yet

                                  St. Louis Fed President James Bullard said yesterday that “we’re not quite there yet” to scale back the monetary stimulus. Vaccinations are bringing the economy “closer and closer” to the pre-pandemic state. “I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do it when we’re still in the pandemic,” he added.

                                  Bullard also said, “we’ll see if the demand really flows through to a lasting increase in inflation or if this is just temporary. I think it’s mostly temporary but then some of it will flow through to inflation expectations.” He expected inflation to rise above 2% in 2021 and into 2022.

                                  ECB Centeno: Fragmentation has to be dealt with in their genesis

                                    ECB Governing Council member Mario Centeno said the new instrument will “fight the risks of fragmentation” as monetary policy is gradually normalized. He emphasized that fragmentation has to be dealt with “in their genesis and not afterwards”.

                                    The instrument “will certainly demonstrate the determination of the euro system and the council of governors in containing these risks”.

                                    “There is no single typology of indicators to measure the materialization of fragmentation,” he added. “There is no goal regarding specific yield spread values”.

                                    Canada GDP grew 0.2% mom in Jan, to rise further 0.8% in Feb

                                      Canada GDP grew 0.2% mom in January, a below expectation of 0.4% mom. But that’s still the eight month of increase in a row. Goods-producing industries grew 0.8% mom. Services-producing industries rose 0.0% mom. Overall, 9 of 20 industrial sectors increased in January.

                                      Statistics Canada said advance information indicates an approximate 0.8% expansion in real GDP in February. Notable increases were observed in the manufacturing sector as well as in mining, quarrying, and oil and gas extraction, accommodation and food services, and construction.

                                      Full release here.

                                      BoE hikes 50bps, 3 members want 75bps, one want 25bps

                                        BoE raises Bank rate by 50bps to 2.25% as widely expected. The voting was not unanimous, with five MPC members Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, and Silvana Tenreyro, voted for the decisions. Three members, Jonathan Haskel, Catherine L Mann and Dave Ramsden voted for 75bps hike. One member, Swati Dhingra, voted or 25bps hike.

                                        The Committee voted unanimous to reduce the stock of purchased government bonds by GBP 80B over the next 12 months, to a total of GBP 758B, as set out in August meeting minutes.

                                        BoE also said that the MPC will consider and make decision on the Bank Rate “at each meeting”. The scale, pace and timing of any further changes will reflect the assessment of economic outlook and inflationary pressures. It maintain the pledge to “respond forcefully” if outlook suggests “more persistent inflation pressures”.

                                        Full statement here.

                                        WH Kudlow has guarded optimism on China trade talks

                                          In a CBS interview aired on Sunday, White House economic adviser Larry Kudlow said trade negotiations with China got “closer and closer”. He hailed that “we made good headway last week when Vice Premier Liu He was here.” And talks will continue this week with “a lot of teleconferencing”. He also added “a lot of very difficult topics for the first time are on the table and being resolved”. He has “guarded optimism, may- maybe more than guarded optimism so we’re- we’re gaining on it.”

                                          Kudlow also said “great progress” was made on intellectual property theft. And “good progress” was made on “the forced transfer of technology, on the ownership.” But there are still “issues outstanding” including “enforcement related issues”.

                                          But he emphasized: “In each and every place, (A) they’ve acknowledged their problems. That was a very big hurdle. And (B) what wasn’t on the table is on the table, and (C) we’re getting closer and closer.”