Fri, Apr 19, 2019 @ 04:33 GMT

China PBoC Yi outlines specifics on opening financial market access at Boao

    New People’s Bank of China Governor Yi Gang pledged to further open the financial markets in the Boao Forum for Asian in China. And some specifics were offered by Yi too.

    Firstly, the government will remove foreign ownership caps on Chinese banks by the end of June.

    Secondly, foreign securities and life insurance companies will be allowed to hold majority stakes in their Chinese counterparts. That is, ownership could be raised from 49% to 51%. And such restriction will also be abolished in three years.

    Thirdly, by the end of June, the permitted business scope for foreign insurance agents will be expanded.

    Fourthly, the daily quota for foreign investors to buy Chinese stocks and for Chinese investors to buy Hong Kong traded stocks will be quadrupled.

    In addition, by the end of 2018, China will launch a trading link between Shanghai stock markets to London’s.

    Separately, Yi also said that China won’t devalue Yuan as part of the moves of trade war with the US.

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    UK PMI manufacturing dropped to 52, UK economy faces a difficult 2019

      UK PMI manufacturing dropped to 52.0 in February, down from 52.6 and matched expectation. Markit noted that stocks on inputs and finished goods rose sharpy. However, rate of job losses was at six-year high as optimism hits series low.

      Rob Dobson, Director at IHS Markit, which compiles the survey:

      “With Brexit day looming, UK manufacturers continued to implement plans to mitigate potential disruptions. Stockpiling of both inputs and finished products remained the order of the day, with growth in the former hitting a fresh record high.

      “The current elevated degree of uncertainty is also having knock-on effects for business confidence and employment, with optimism at its lowest ebb in the survey’s history and the rate of job losses accelerating to a six-year high.

      “Official data confirm that manufacturing is already in recession, and the February PMI offers little evidence that any short-lived boost to output from stock-building is sufficient to claw the sector back into growth territory.

      “Apart from the uncertain outlook, manufacturers also face a darkening backdrop of a domestic market slowdown and weakening inflows of new export business, as global growth decelerates and trade tensions bite. Manufacturing and the broader UK economy therefore face a difficult 2019, with the slowdown being exacerbated later in the year as inventory positions are unwound and Brexit-related headwinds likely to linger.”

      Full release here.

      Also from UK, mortgage approvals rose to 67k in January. M4 money supply rose 0.2% mom in January.

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      Gemeinschaftsdiagnose slashes 2019 Germany growth forecasts to 0.8%, long-term upswing has come to an end

        Germany’s leading economic institutes lowered economic growth forecasts for the country in 2019 sharply. GDP is projected to rise just 0.8%, down from Autumn 2018 forecasts of 1.9%. Nevertheless, for 2020, GDP is projected to grow 1.8%, unrevised.

        In the press release, Oliver Holtemöller, head of the Department of Macroeconomics and Vice President of the Halle Institute for Economic Research (IWH) said that “the long-term upswing of the German economy has come to an end.” Though, he noted that “we still consider the chance of a pronounced recession to be slight.”

        The statement also noted that “political risks have further clouded the global economic environment.” Also, “if a no-deal Brexit occurs, economic growth this year and the next is likely to be significantly lower than indicated in this forecast.”

        The state was released by joint project group “Gemeinschaftsdiagnose”: German Institute for Economic Research (DIW Berlin), Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, ifo Institute – Leibniz Institute for Economic Research at the University of Munich in cooperation with the KOF Swiss Economic Institute at ETH Zurich, Kiel Institute for the World Economy (IfW), RWI – Leibniz Institute for Economic Research in cooperation with the Institute for Advanced Studies Vienna.

        Full release here.

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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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          DUP Wilson: No-deal Brexit inevitable as EU is cornering Theresa May

            Sammy Wilson, the DUP spokesperson on Brexit, told Belfast newsletter that a no-deal Brexit was “probably inevitable.” He said that “Given the way in which the EU has behaved and the corner they’ve put Theresa May into, there’s no deal which I can see at present which will command a majority in the House of Commons.”

            He added that “anybody looking at it objectively would say that what is on offer from the EU is a far worse deal than a no deal, and therefore she’d be mad to be railroaded into accepting it.” In his view, UK Prime Minister Theresa May will not get what EU are demanding through the House of Commons.

            Though, he also said, “No deal doesn’t mean there will be nothing agreed”. And, “it probably means there will be a lot of mini agreements on things which are essential, to keep planes flying, lorries moving, that sort of thing.” “There will be no overall deal but that doesn’t mean there will be nothing agreed at all because certain essential things are required, both on the EU side and on our side.”

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            Japan-US trade talks to start next week for exchanging views

              Japan Economy Minister Toshimitsu Motegi announced today that the first round of Japan-US trade talks will start next week on April 15-16 in Washington. He said he’d intend to exchange view frankly with US Trade Representative Robert Lighthizer. It’s believed that a core topic is Japan’s near USD 70B trade surplus, with nearly two-thirds from auto exports.

              Finance Minister Taro Aso reiterated Japan’s intention to “further expand trade and investment between” between the two countries, in a “mutually beneficial manner”. He also pointed to the joint statement made last September. However, Japan has been very clear on its intention to defend the multilateral trade pact TPP that it leads, and US quitted under Trump. Hence, no matter what Japan is going to offer to the US, they won’t be something better than what’s offered to TPP partners.Ja

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              US Senate to hold competing votes to end government shutdown

                The US Senate will hold two competing votes on Thursday as effort to end the record government shut down. Trump’s plan, which includes USD 5.7B for border wall will be voted on. Also, Democrat’s proposal, to reopen government through February 8, will also be voted on. It’s seen as a concession by Senate Majority Leader Mitch McConnell who previously refused to vote on a bill that Trump would veto.

                Trump includes a provisional three-year work permits for the youngsters under Deferred Action for Childhood Arrivals program as bargaining chip. But his plan is still likely to be voted down as Democrats have open rejected to compromise on the issue.

                The Democrats could gain enough support from Senate Republicans rebels to vote for their proposal, which was already pass in the House. However, even so, Trump will likely veto even if the Democrat’s bill is passed in the Senate. The Democrats are way short of two-third majority to override Trump’s veto.

                So, the shutdown might still extend beyond Thursday.

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                EU-US joint statement to lower tariffs and barriers, target China for unfair practices

                  Below is the full text of the joint statement following the meeting between European President Jean-Claude Juncker and US President Donald Trump. In short, both sides agreed to strengthen the trade relationship and make trade fairer and more reciprocal. The agreed to worked together toward ” zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods” and increase trade and services, soybeans and other products. The agricultural sector will be opened and energy partnership strengthened.

                  And, both sides agreed to join forces against “unfair global trade practices”. And specifically, they the practices include “intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.” That’s exactly talking about China.

                  Here is the full statement.

                  Joint U.S.-EU Statement following President Juncker’s visit to the White House

                  We met today in Washington, D.C. to launch a new phase in the relationship between the United States and the European Union – a phase of close friendship, of strong trade relations in which both of us will win, of working better together for global security and prosperity, and of fighting jointly against terrorism.

                  The United States and the European Union together count more than 830 million citizens and more than 50 percent of global GDP. If we team up, we can make our planet a better, more secure, and more prosperous place.

                  Already today, the United States and the European Union have a $1 trillion bilateral trade relationship – the largest economic relationship in the world. We want to further strengthen this trade relationship to the benefit of all American and European citizens.

                  This is why we agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. We will also work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans.

                  This will open markets for farmers and workers, increase investment, and lead to greater prosperity in both the United States and the European Union. It will also make trade fairer and more reciprocal.

                  Secondly, we agreed today to strengthen our strategic cooperation with respect to energy. The European Union wants to import more liquefied natural gas (LNG) from the United States to diversify its energy supply.

                  Thirdly, we agreed today to launch a close dialogue on standards in order to ease trade, reduce bureaucratic obstacles, and slash costs.

                  Fourthly, we agreed today to join forces to protect American and European companies better from unfair global trade practices. We will therefore work closely together with like-minded partners to reform the WTO and to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.

                  We decided to set up immediately an Executive Working Group of our closest advisors to carry this joint agenda forward. In addition, it will identify short-term measures to facilitate commercial exchanges and assess existing tariff measures. While we are working on this, we will not go against the spirit of this agreement, unless either party terminates the negotiations.

                  We also want to resolve the steel and aluminum tariff issues and retaliatory tariffs.

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                  Mid-US update: Dollar and Yen maintains unconvincing gains, Canadian and Sterling weakest

                    Dollar and Yen remain the strongest one in mid-US session, after European close. However, for now, it’s uncertain whether they can sustain the gains before US close. Risk aversion is a key driver in the strengthen of them. But judging from the actions in the US markets, it’s hard to say whether the major indices will close the day up or down. DOW dropped to as low as 25479 initially but is now down just -0.14% at 25763. S&P 500 dropped top as low as 2781 but it’s now up 0.13% at 2814. Similarly, NSDAQ dropped to as low as 7563 but it’s now up 0.04% at 7468.

                    On the other hand, Canadian overtook Sterling’s place as the weakest one after larger than expected oil inventory increase sent WTI crude oil to 70. Selling pressing in oil and the Loonie could persist. Sterling was sold off earlier today after UK CPI miss and stays week. The Pound fate will depend on the outcome of the “moment of truth” EU summit.

                    In Europe:

                    • FTSE dropped -0.07% to 7504.60
                    • DAX dropped -0.52% to 11715.03
                    • CAC dropped -0.54% to 5144.95
                    • German 10 year yield dropped -0.0293 to 0.465
                    • Italian 10 year yield rose 0.0841 to 3.545.
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                    Euro surges broadly, EURGBP upside breakout

                      Euro records broad based gains in Asian session today and is trading as the second strongest for today. It’s indeed the strongest one for the week so far. We not seeing any apparent fundamental reason of the Euro’s own for the rally. But the EUR/USD’s reject from 1.1507 support thanks to Dollar’s pullback is a factor. Sterling’s persistent weakness in worries on no-deal Brexit is another favorable factor for Euro.

                      Technically, EUR/USD’s break of 1.1610 minor resistance should indicate near term bottoming at 1.1529, ahead of 1.1507 key support. The consolidation pattern from 1.1509 is starting another rising leg. EUR/USD would be targeting 1.1745 resistance next as the pattern extends.

                      EUR/GBP also finally breaks 0.8967 key cluster resistance level. The upper channel resistance might be an obstacle for the near term. But we’d expect rise from 0.8620 to extend to 61.8% retracement of 0.9305 to 0.8620 at 0.9043. The rise in EUR/GBP would help support Euro elsewhere.

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                      Sterling weakens broadly as EU Barnier blasted Theresa May’s Chequers plan

                        Sterling opened the week broadly lower after EU chief Brexit negotiator Michel Barnier blasted UK Prime Minister Theresa May’s Chequers plan. And, Barnier “strongly opposed” May’s proposals. On the customs proposals, Barnier said its “not practical”. He added, “it is impossible to tell exactly where a product ends up, on the UK market or in the internal market.” And, “the British proposal would be an invitation to fraud if implemented.”

                        He also criticized that the “common rulebook” idea as outdated with modern world of trade. He said “the interest of Europeans is to preserve the integrity of the common market. That is our special strength and the reason why we are respected throughout the world, even in the United States.” He added “we have a coherent market for goods, services, capital and people – our own ecosystem that has grown over decades. You cannot play with it by picking pieces.” Therefore, the EU must prevent unfair competition if the United Kingdom has weaker legal requirements than we do. Otherwise we would discriminate and weaken our own companies.”

                        On the other hand, a UK government spokeswoman defended that the proposal is ” precise, pragmatic and that will work for the UK and the EU.” And, “this proposal achieves a new balance of rights and obligations that fulfils our joint ambition to establish a deep and special partnership once the UK has left the EU while preserving the constitutional integrity of the UK. There is no other proposal that does that.

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                        BoE Governor Carney extends his term till Jan 2020

                          The UK Treasury announced today that BoE Governor Mark Carney will extend his term until January 2020. Carney has originally planned to step down in June 2019. Chancellor of Exchequer Philip Hammond said in the release that I’m delighted that the Governor has agreed to stay in his role for a further seven months to support a smooth exit from the European Union and provide vital stability for our economy.

                          In the same release, Jon Cunliffe was re-appointed as Deputy Governor till October 2023.

                          Carney said in a letter to Hammond saying “I recognize that during this critical period, it is important that everyone does everything they can to support a smooth and successful Brexit.” And, “accordingly, I am willing to do whatever I can in order to promote both a successful Brexit and an effective transition at the Bank of England and I can confirm that I would be honored to extend my term to January 2020.”

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                          ECB Draghi warns of external headwinds, Praet expects stabilization

                            ECB President Mario Draghi said “the outlook for the euro area fundamentally depends on global growth momentum”. And he warned “the escalation of trade tensions, the downturn in global manufacturing and a turn in the tech cycle have increased the euro area’s external headwinds.”

                            ECB Chief Economist Peter Praet, on the other hand, sounds relatively more optimistic. He said “there are good reasons to say that the economy is going to stabilize, it’s probably stabilizing somewhere in the second quarter … That’s our scenario and I still believe in that scenario.”

                            On market pricing, Praet said “the OIS curve that came after the Watchers’ conference in Frankfurt is something that fits well with how we think financial conditions should be today”. Overnight Indexed Swap (OIS) curve suggests that money markets are not pricing in a rate hike from ECB for the next 21 months.

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                            GBP recovers as UK PMI construction rose to 5 month high, beat expectations

                              UK PMI construction rose to 52.5 in April, up fro 47.0 and beat expectation of 50.5. That’s also the highest reading in 5 months. GBP responds positive to the upside surprise and is attempting to rebound.

                              Comments from Tim Moore, Associate Director at IHS Markit:

                              “A rebound in construction activity was pretty well inevitable after snowfall resulted in severe disruptions on site during March. House building led the way, with growth in April among the strongest seen over the past two-and-a-half years. However, the picture was less positive in other areas of construction, with commercial building and civil engineering work rising only marginally.

                              “While temporary factors make it difficult to gauge underlying momentum, the recovery from March’s low point is somewhat underwhelming and provides an indication that the construction sector has been treading water at the very best in recent months.

                              “A consistent theme so far this year has been fragile demand conditions and subdued volumes of incoming new work. Survey respondents noted that heightened economic uncertainty continued to hold back construction growth in April, with risk aversion among clients leading to delays with spending decisions on new projects.”

                              Full release here.

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                              Fed Powell on longer term economic challenges

                                Fed chair Jerome Powell said in a speech that Fed has made “great deal of progress towards” a “strong economy and sound financial system”. He pointed to unemployment rate at 3.7% and strong job creation. And there are others signs of strength beyond the labor market. He noted the decline in financial hardship, wage gains, increased household wealth, and elevated consumer confidence.

                                However Powell also pointed to some “longer-term challenges”. Those include slow growth in wages for lower-income workers. Also, it’s unclear if recent pick up in productivity is a sustainable trend. And, aging population is limiting labor supply growth and potential growth. Decline in economic mobility also reflects the difficulty faced by lower-income Americans in moving up the economic ladder.

                                Powell’s full speech here.

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                                US initial jobless claims rose 8k to 217k, durable orders missed expectations

                                  US initial jobless claims rose 9k to 217k in the week ended July 21, below expectation of 221k. The four-week moving average of initial claims dropped -2.75k to 218k. Continuing claims dropped -8k to 1.745m. The four-week moving average of continuing claims rose 9.5k to 1.74575m.

                                  Headline durable goods orders rose 1.0% in June, well below expectation of 2.5%. Ex-transport orders rose 0.4%, above expectation of 0.3%. Wholesale inventories rose 0.0% mom versus expectation of 0.3% mom. Dollar is relatively unmoved after the releases.

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                                  Turkis Lira down again as Erdogan called interest tool of exploitation

                                    Turkish Lira is hammered by President Tayyip Erdogan’s comments today, just ahead of CBRT rate decision. Erdogan decried high interest rates as a “tool of exploitation”. And defying common logic, he said “if you say inflation is the cause and interest rates are the result, you don’t know this business.” On the other hand, he insisted that “interest is the cause, inflation is the result.”

                                    In addition, he described the depreciation of Lira as an economy as it’s experience “fake volatility” as result of manipulations. Erdogan also pledged to implement measures to solve Lira volatility issues.

                                    According to a Reuters poll, CBRT is expected to hike the benchmark interest rate by between 225 to 725 basis points. Seems like the markets are setting up themselves for disappointments.

                                    USD/TRY hit as high as 6.5514 after the comments and it’s now up around 2%.

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                                    Chinese Yuan selloff intensifies, heading to decade low, SSE and HSI not too bothered though

                                      Chinese Yuan’s selloff picks up some momentum today. USD/CNH (offshore) break 6.9586 yesterday, as well as a near term channel resistance. The upside acceleration suggests that Yuan selling might intensify for the near term.

                                      Now, it looks like a break of 6.9875 high in USD/CNH (2017) low is inevitable. That is, Yuan will hit the lowest level in a decade. The question now is whether there will be intervention of some sort to keep USD/CNH below 7.000 handle.

                                      Reactions in the stock markets are muted though. At the time of writing, the Shanghai SSE is down just -0.46% at 2591. Hong Kong HSI is also down -1.09% only as recent down trend extends steadily.

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                                      EU to start retaliation on EUR 2.8B US imports on June 22, EUR 3.6B to come later

                                        European Commission formally announced retaliation to US steel and aluminum tariffs today. The total EU exports to the US affected by the US measures is at EUR 6.4B. For now, EU will target US products in EUR 2.8B worth first, effective on Friday June 22. Duties on the remaining EUR 3.6B in US goods will take place at a later stage, “in three years’ time or after a positive finding in WTO dispute settlements.

                                        Commissioner for Trade Cecilia Malmström said: “We did not want to be in this position. However, the unilateral and unjustified decision of the US to impose steel and aluminium tariffs on the EU means that we are left with no other choice. The rules of international trade, which we have developed over the years hand in hand with our American partners, cannot be violated without a reaction from our side. Our response is measured, proportionate and fully in line with WTO rules. Needless to say, if the US removes its tariffs, our measures will also be removed.”

                                        Here is the full release.

                                        This is the list of products for rebalancing.

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                                        EC Tusk on Brexit: Ireland first, and no financial services in the deal

                                          European Council President Donald Tusk emphasized that the Irish border issue is a top priority in Brexit negotiation. He said that “if in London someone assumes that the negotiations will deal with other issues first, before moving to the Irish issue, my response would be: Ireland first.” And he warned that “as long as the UK doesn’t present such a solution” regarding a soft border in Ireland, it is very difficult to imagine substantive progress in Brexit negotiations”.

                                          In addition, Tusk explained that “services are not about tariffs. Services are about common rules, common supervision and common enforcement to ensure a level playing field, to ensure the integrity of the single market and, ultimately, also to ensure financial stability. This is why we cannot offer the same in services as we can offer in goods. It’s also why FTAs don’t have detailed rules for financial services.” That is, financial services will be bluntly excluded from the Brexit deal.

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