Thu, Jan 28, 2021 @ 09:26 GMT

Into US session: Sterling weakest on Brexit deadlock, Dollar and Yen firm

    Entering into US session, Sterling is once again the weakest one for today as Brexit uncertainty continues. But still, the Pound is holding above near term support levels against Dollar, Euro and Yen. And thus, it’s just experience volatility in tight range. After rejecting all four alternatives in the Commons, there remains no majority on the way forward regarding Brexit. And it’s reported that Conservative MP Oliver Letwin might be a abandoning attempts to use indicative votes to find a consensus.

    Meanwhile, Prime Minister Theresa May is maintaining the firm opposition to second referendum and a long Article 50 extension. The Financial Times even reported that May would rather go for a no-deal Brexit than revocation. It’s also reported that May is still considering to bring back her deal for a fourth vote. But Speaker John Bercow is said to reject it. After all, it seems no one knows what’s next.

    Staying in the currency markets, New Zealand Dollar is currently the second weakest, followed by Australian Dollar. Aussie dropped notably earlier today after RBA loosen up its monetary policy stance and hinted the next move is data-dependent. But there is no follow through selling yet. Meanwhile, Dollar and Yen are the strongest ones for today

    In Europe, currently:

    • FTSE is up 1.08%.
    • DAX is up 0.64%.
    • CAC is up 0.50%.
    • German 10-year yield is down -0.011 at -0.036.

    Earlier in Asia:

    • Nikkei closed down -0.03%.
    • Hong Kong HSI rose 0.21%.
    • China Shanghai SSE rose 0.20%.
    • Singapore Strait Times rose 0.90%.
    • Japan 10-year JGB yield is up 0.0101 at -0.068.

    WTO forecasts global trade growth to slow to 2.6% this year

      WTO warned that global trade will continue to face “strong headwinds” this year and next due to “rising trade tensions and increased economic uncertainty. For 2019, growth in trade volume is forecast to slow to 2.6%, down fro 3.0% in 2018. Though, trade growth should pic up again to 3.0% in 2020. It also warned that trade tensions still pose the greatest risk to the forecast, but a relaxation could provide some upside potential.

      In the press release, WTO Director General Roberto Azevêdo said: said “it is increasingly urgent that we resolve tensions and focus on charting a positive path forward for global trade which responds to the real challenges in today’s economy – such as the technological revolution and the imperative of creating jobs and boosting development.”

      WTO’s chief economist Robert Koopman also warned that “any automobile tariff would likely have bigger knock on effects through the global economy than what we see from the U.S.-China conflict.”

      Full release here.

      UK PMI construction rose to 49.7, outlook underwhelming by historical standards

        UK PMI construction rose to 49.7 in March, up from 49.5 and matched expectations. Markit noted marginal reduction in overall construction output. Commercial work remains weakest performing area. But, residential building rises at fastest pace for three months.

        Joe Hayes, Economist at IHS Markit, which compiles the survey:

        “Fears that the recent weakness of the UK construction sector may not be just a blip, but a sustained soft patch, were further fuelled by latest data. Amid subdued inflows of new work, a first back-to-back decline in output since August 2016 was recorded. Brexit-related uncertainty continued to generate indecisiveness, ultimately hitting order book volumes. Furthermore, strong competition for contracts was also reported by some panel members. The outlook was subsequently underwhelming by historical standards, with the unsettled political and economic environment keeping business confidence below its long-run average.

        “Nevertheless, UK construction businesses ramped up their purchases of materials and other inputs, reflecting efforts to build safety stocks ahead of any potential Brexit-related disruptions. As such, supply chain constraints persisted and average input lead times lengthened once again.”

        Full release here.

        Swiss CPI rose to 0.7% in March, but well off cyclical peak

          Swiss CPI rose 0.5% mom 0.7% yoy in March, above expectation of 0.4% mom, 0.5% yoy. The annually rate also accelerated from 0.6% yoy in February. But it’s well off cyclical peak of 1.2% yoy made in mid-2018.

          The FSD noted that the increase in CPI could be explained by several factors, including “rising prices for international package holidays and for air transport”. Meanwhile, “prices for fruiting vegetables and berries decreased.

          Full release here.

          EU Barnier: No-deal Brexit becomes more likely but we can still avoid it

            EU chief Brexit negotiator Michel Barnier said at an event in Brussels that “over the last days a no-deal scenario has become more likely.” Though, he remained optimistic that “we can still hope to avoid it.” He urged the UK to “indicate the way forward or indicate a plan… more today than ever”. He reiterated the agreement Brexit deal was “the only way” to leave EU in an orderly way.

            Meanwhile, Barnier also said EU27 is ready for a disorderly, abrupt Brexit. But he emphasized: “Being prepared for no-deal doesn’t mean that everything will be smooth. There will be disruptions, there will be problems. Being prepared means all unforeseen disruptions could be managed by the EU”.

            EU Juncker tells China: It can’t stay like this. It can’t work like this.

              European Commission President Jean-Claude Juncker complained the practices of the bloc’s “systematic rivals” in front of lawmakers in Germany yesterday. He said “Chinese companies have free access to our markets in Europe, but we don’t to the markets in China”, and “it can’t stay like this”.

              Also, “one country isn’t able to condemn Chinese human rights policy because Chinese investors are involved in one of their ports,” Juncker added “it can’t work like this”.

              Though, he’s not against China’s Belt and Road initiative “as long as the conditions are right”. He said, “if you don’t only meet Chinese workers on these construction sites but also European workers, then this is all feasible.”

              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.

                BCC: UK businesses hitting the brakes hard on ongoing Brexit impasse

                  According to the British Chambers of Commerce’s quarterly economic survey, found that key indicators of UK economic health weakened considerably in Q1. In particular balance of services companies reporting rise in exports sales dropped to lowest in a decade. Balance of firms reporting improved cashflow turned negative for the first time since 2012. Also, investment intentions in manufacturing and services were at lowest in eight years.

                  BCC Director General Adam Marshall said “our findings should serve as a clear warning that the ongoing impasse at Westminster is contributing to a sharp slowdown in the real economy across the UK. Business is hitting the brakes – hard.” Also, “the prospect of a messy and disorderly exit from the EU is weighing heavily on the UK economy, and must still be avoided”

                  Marshall also complained that “for too long Brexit tunnel-vision has distracted government from fixing the fundamentals to support growth here in the UK.”

                  Full BCC release here.

                  UK parliament rejected all four Brexit alternatives again, but customs union option was close

                    Sterling weakened mildly as the UK House of Commons, unsurprisingly, rejected all four Brexit alternatives in yesterday’s indicative votes again. The closest one to get a majority was Conservative MP Kenneth Clarke’s Customs Union option, which was defeated 276-273. The most voted one was Labour Peter Kyle’s Confirmatory Public Vote, which was defeated 292-280.

                    Brexit Minister Steven Barclay complain in the Parliament after the votes that “this House has continuously rejected leaving without a deal just as it has rejected not leaving at all.” And he reiterated that ” the only option is to find a way through which allows the U.K. to leave with a deal.” He also noted “if the house were to agree a deal this week, it would still be possible to avoid holding European parliamentary elections.” It’s taken as a hint that Prime Minister Theresa May could put the thrice-defeated Brexit deal to a fourth vote this week.

                    RBA kept cash rate at 1.50%, no dovish shift in statement

                      RBA left cash rate unchanged at 1.50% as widely expected. There is no dovish shift in the statement yet. The central bank continues to sound non-committal and noted “the Board will continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time.”

                      There are little changes in substances in the statement too. RBA noted that GDP data paint a “softer picture” of the economy than job data. It acknowledged the mere 0.2% growth in Q4 and 2.3% over 2018. It also noted that “growth in household consumption is being affected by the protracted period of weakness in real household disposable income and the adjustment in housing markets.”

                      Employment and inflation outlook are unchanged. RBA expects “continued improvement in the labour market is expected to see some further lift in wages growth over time”, gradually. Inflation is expected to pick up gradually over the next couple of years. The central scenario is unchanged for inflation to hit 2% in 2019 and 2.25% in 2020.

                      Here is the full statement:

                      Statement by Philip Lowe, Governor: Monetary Policy Decision

                      At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

                      The outlook for the global economy remains reasonable, although growth has slowed and downside risks have increased. Growth in international trade has declined and investment intentions have softened in a number of countries. In China, the authorities have taken steps to ease financing conditions, partly in response to slower growth in the economy. Globally, headline inflation rates have moved lower following the earlier decline in oil prices, although core inflation has picked up in a number of economies. In most advanced economies, unemployment rates are low and wages growth has picked up.

                      Global financial conditions remain accommodative and have eased recently. Long-term bond yields have declined further, consistent with the subdued outlook for inflation and lower expectations for future policy rates in a number of advanced economies. Across a range of markets, risk premiums remain low. Equity markets have also risen and are being supported by growth in corporate earnings. In Australia, long-term bond yields have fallen to historically low levels and short-term bank funding costs have moderated further. The Australian dollar has remained within its narrow range of recent times. While the terms of trade have increased over the past couple of years, they are expected to decline over time.

                      The Australian labour market remains strong. There has been a significant increase in employment and the unemployment rate is at 4.9 per cent. The vacancy rate remains high and there are reports of skills shortages in some areas. The stronger labour market has led to some pick-up in wages growth, which is a welcome development. Continued improvement in the labour market is expected to see some further lift in wages growth over time, although this is still expected to be a gradual process.

                      The GDP data paint a softer picture of the economy than do the labour market data. GDP rose by just 0.2 per cent in the December quarter to be 2.3 per cent higher over 2018. Growth in household consumption is being affected by the protracted period of weakness in real household disposable income and the adjustment in housing markets. The drought in parts of the country has also affected farm output. Offsetting these factors, higher levels of spending on public infrastructure and an upswing in private investment are supporting the growth outlook, as is the steady growth in employment.

                      The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft and rent inflation remains low. Credit conditions for some borrowers have tightened a little further over the past year or so. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

                      Inflation remains low and stable. Underlying inflation is expected to pick up gradually over the next couple of years, although this has been taking a little longer than earlier expected. The central scenario is for underlying inflation to be 2 per cent this year and 2¼ per cent in 2020. In the near term, headline inflation is expected to decline because of lower petrol prices earlier in the year, while underlying inflation is expected to remain broadly stable.

                      The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. The Board will continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time.

                      ISM manufacturing rose to 55.3, employment jumped to 57.5

                        US ISM manufacturing index rose to 55.3 in March, up from 54.2 and beat expectation of 54.3. Price paid component rose to 54.3, up from 49.4. Employment component jumped notably to 57.5, up from 52.3.

                        ISM noted that

                        • Comments from the panel reflect continued expanding business strength, supported by gains in new orders and employment.
                        • Demand expansion continued, with the New Orders Index returning to the high 50s, the Customers’ Inventories Index improving but remaining too low, and the Backlog of Orders Index softening to marginal expansion levels.
                        • Consumption (production and employment) continued to expand and regained its footing with a combined 6.2-percentage point gain from the previous month’s levels, recovering most of February’s loss.
                        • Inputs — expressed as supplier deliveries, inventories and imports — were lower this month, primarily due to inventory consumption exceeding inputs, resulting in a combined 2.3-point decline in the Supplier Deliveries and Inventories indexes that contributed negatively to the PMI.
                        • Imports expansion declined to near-zero expansion levels.
                        • Overall, inputs continue to reflect an easing business environment, but to a lesser extent than in February, confirmed by the Prices Index returning to expansion.
                        • Exports orders continue to expand, but at marginal levels.
                        • Prices reversed two months of contraction by returning to a robust mid-50s level.
                        • The manufacturing sector continues to expand, demonstrated by improvements in the PMI® three-month rolling average, which is consistent with overall manufacturing growth projections.

                        Full release here.

                        ECB Draghi said substantial stimulus remains essential, de Guindos said weaker growth will weigh on inflation

                          In ECB annual report published today, President Mario Draghi maintained that “substantial monetary policy stimulus remains essential to ensure the continued build-up of domestic price pressures over the medium term”. Also,”In view of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, the conduct of monetary policy in the euro area will continue to require patience, prudence and persistence.”

                          In presenting the report, Vice President Luis de Guindos warned that “the effect of the adverse factors weighing on growth is expected to unwind over time.” And, “weaker growth momentum will leave its mark on domestic price pressures, slowing the adjustment of inflation towards our aim”.

                          US retail sales dropped -0.2%, ex-auto sales dropped -0.4%, USD/JPY dips

                            US retail sales report post another disappointment today. Headline sales dropped -0.2% mom in February, below expectation of 0.3% mom. Ex-auto sales dropped -0.4% mom versus expectation of 0.4% mom

                            Full release here.

                            USD/JPY dips notably just after the release.

                            Into US session: Sterling strongest despite Brexit uncertainty, Yen dives on risk appetite

                              Entering into US session, Sterling is surprisingly the strongest one today. Much stronger than expected UK manufacturing PMI might be a positive factor for the Pound. But it should noted that the improvements could mainly reflect pre-Brexit stock-building. It could indeed be a major headwind moving forward. At the time same, the House Commons will hold a second session of indicative votes on Brexit today. Debate might center around options of customs union, single market or a combination. Also, there would be debates on confirmatory referendum. Prime Minister Theresa May could decide what she’d do next after having the results from the indicative votes.

                              Staying in the currency markets, Yen is the weakest one on global risk market rally. Stronger than expected manufacturing PMIs from China raised hope that the worst is over for the Chinese economy. However, such improvement is not seen elsewhere yet, including Eurozone, Japan and even Australia. The ISM manufacturing index from US to be released today needs to give more positive signs to secure investor confidence.

                              In Europe, currently:

                              • FTSE is up 0.71%.
                              • DAX is up 1.13%.
                              • CAC is up 0.76%.
                              • German 10-year yield is up 0.0332 at -0.035, staying negative.

                              Earlier in Asia:

                              • Nikkei rose 1.43%.
                              • Hong Kong HSI rose 1.76%.
                              • China Shanghai SSE rose 2.58%.
                              • Singapore Strait Times rose 1.17%.
                              • Japan 10-year JGB yield rose 0.0113 to -0.079.

                              BDI: Disorderly Brexit could slash Germany GDP by 0.5% to just 0.7% in 2019

                                President Federation of German Industries (BDI), Dieter Kempf, warned that “in the case of the disorderly exit of the British from the EU in the current year threatens a relapse to only 0.7 percent increase in gross domestic product” in Germany. That would be 0.5% lower than current forecast of 1.2% growth for 2019.

                                Kempf also complained that “the extension of the time limit for the self-imposed departure of the British from the EU continues the exhausting uncertainty for our companies”. And, “there is a risk that British policymakers once again buy expensive time at the expense of the economy – without wanting to take responsibility for the bill.”

                                BDI’s release in German.

                                Eurozone unemployment rate unchanged at 7.8%, CPI slowed to 1.4%

                                  Eurozone unemployment rate was unchanged at 7.8% in February, matched expectations. It’s the lowest level since October 2008. EU28 unemployment was was also unchanged at 6.5% . It’s the record low since the start of series in January 2000.

                                  Among the member states, lowest unemployment rates in February 2019 were recorded in Czechia (1.9%), Germany (3.1%) and the Netherlands (3.4%). The highest unemployment rates were observed in Greece (18.0% in December 2018), Spain (13.9%) and Italy (10.7%).

                                  Eurozone CPI closed to 1.4% yoy in March, down from 1.5% yoy and missed expectation of 1.5% yoy. CPI core dropped to 0.8% yoy, down from 1.0% yoy and missed expectation of 1.0% yoy.

                                  UK PMI manufacturing rose to 13-month high, stepping up Brexit preparations

                                    UK PMI manufacturing rose to 55.1 in March, up from 52.1 and beat expectation of 51.2. It’s also the highest level in 13 months. Markit noted that stocks of inputs and finished goods rise at record rates. Also, Trends in output, new orders and employment strengthen.

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

                                    “Manufacturers reported a surge of business activity in March as companies stepped-up their preparations for potential Brexit-related disruptions. Output, employment and new orders all rose at increased rates as manufacturers and their clients raced to build safety stocks. Stocking of finished goods and input inventories surged to new survey-record highs.

                                    “The stock-building boost introduces a major headwind for demand, output and jobs growth moving forward. Manufacturers are already reporting concerns that future trends could be constrained as inventory positions across the economy are unwound. The survey is also picking up signs that EU companies are switching away from sourcing inputs from UK firms as Brexit approaches. It looks as if the impact of Brexit preparations, and any missed opportunities and investments during this sustained period of uncertainty, will reverberate through the manufacturing sector for some time to come.”

                                    Full release here.

                                    Eurozone PMI manufacturing finalized at 47.5, lowest since 2013

                                      Eurozone PMI manufacturing was finalized at 47.5 in March, revised down from 47.6, down from February’s 49.3. It’s also the lowest level since April 2013, and the second straight months of sub-50 reading. Markit noted there was the biggest monthly decline in new orders since late 2012. Also, confidence hits lowest level in over six years.

                                      Among the countries, Germany PMI manufacturing was revised further lower to 44.1, an 80-month low. Italy PMI manufacturing was at 47.4, 70-month-low. France PMI manufacturing was revised down to 49.7, below 50, but it’s just a 3-month low. Australian PMI manufacturing was at 48-month low at 50.0. Netherlands PMI manufacturing was at 33-month low at 52.5. However, Greece PMI manufacturing was at 54.7, 12-month high.

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

                                      “The March PMI data indicate that the eurozone’s manufacturing sector is in its steepest downturn since the height of the region’s debt crisis in 2012. The survey is indicative of output falling at a quarterly rate of approximately 1% in March, suggesting that the January rebound from one-off factors late last year seen in the latest official data is likely to prove short lived.

                                      “Looking at the forward-looking indicators, downside risks have intensified, and the trend could clearly deteriorate further in the second quarter. New orders are falling at a rate not seen since 2012, and disappointing sales mean warehouses are filling with unsold stock. The orders-to-inventory ratio – a key indicator of the future production trend – is at its lowest for almost seven years. Expectations of output for the coming year are also the gloomiest since 2012.

                                      “Concerns over trade wars, tariffs, rising political uncertainty, Brexit and – perhaps most importantly – deteriorating forecasts for the economic environment both at home and in export markets, were widely reported to have dampened business activity and confidence.

                                      “Cost cutting has become more evident as firms grow more risk averse, notably with respect to hiring. Job losses were reported in both Germany and Italy, where the downturn in demand is doing the most damage. However, France’s manufacturing sector is also now back in decline, Austria’s goods-producing sector has stalled, Spain is close to stagnation and growth has lost considerable momentum in the Netherlands, highlighting the increasingly broad-based nature of the current deterioration.”

                                      Full release here.

                                      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.

                                        Japan PMI manufacturing finalized at 48.9, worst quarterly performance since 2016

                                          Japan PMI manufacturing was finalized at 49.2 in March, up[ from February’s 48.9, signalling slowdown continues. Markets noted that demand remains sluggish, pulling output lower. Firms push resources to clearing backlogs due to lack of new work. And business confidence remains among lowest on record.

                                          Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

                                          “The final manufacturing PMI print of Q1 for Japan points to the worst quarterly performance in the sector since Q2 2016. The likelihood of the negative trend in output being stymied any time soon appears slim, with demand for goods from both domestic and international sources waning further. Firms cut production at the fastest rate in almost three years and showed reluctance to replace out-going staff, with employment growth at the lowest since late-2016.

                                          “The economic backdrop for the manufacturing sector in Japan remains fiercely challenging. Asian goods producers face headwinds from slowing growth in Europe and China, while global trade risks are yet to be mitigated by a breakthrough in US-Sino relations.

                                          “For the Japanese economy to keep its head above water, the service sector will need to pick up any manufacturing slack, which will hinge on domestic demand pressures sustaining the strength that supported the growth rebound at the end of 2018.”

                                          Full release here.