Thu, Dec 03, 2020 @ 14:27 GMT

BoE, FCA and CFTC announced measures to ensure continuity of derivatives trading and clearing post-Brexit

    Bank of England, UK’s Financial Conduct Authority and US Commodity Futures Trading Commission announced measures today to ensure Brexit, in whatever form “will not create regulatory uncertainty regarding derivatives market activity between the UK and US”. Measures include continued supervisory co-operation, extension of existing CFTC relief to EU firms to UK after Brexit. Also, US trading venues, firms and CCPs will be able to continue providing services in the UK.

    In a joint statement, BoE Governor Mark Carney said “As host of the world’s largest and most sophisticated derivative markets, the US and UK have special responsibilities to keep their markets resilient, efficient and open.

    “The measures we are announcing today will do that. Market participants can be confident that the clearing and trading of derivatives between the UK and US will maintain the high standards of today when the UK leaves the EU”.

    Carney also warned that “The biggest issue from a financial stability perspective, from a market integrity perspective, from a continuity perspective, is a no-deal scenario by the end of March.”

    Full statement here.Full statement here.

    US durable goods orders dropped -0.2%, ex-transport orders rose 0.9%

      US durable goods orders dropped -0.2% in January to USD 246.2B, better than expectation of -1.5% decline. Ex-transport orders rose 0.9%, above expectation of 0.2%. Ex-defense orders rose 3.6%.

      The second estimate of US Q4 GDP showed 2.1% annualized growth, unrevised, unchanged from Q3’s reading. PCE price index was revised down from 1.6% to 1.3%. PCE core index was also revised down from 1.3% to 1.2%.

      UK confirms Brexit meaningful vote on Tuesday

        UK Prime Minister Theresa May’s spokesman confirmed that there will be a meaningful vote on the Brexit deal tomorrow. But at this point, it’s unsure whether the vote would be on the “agreed” deal with EU, or a “hypothetical” deal that could push EU to concede to.

        The spokesman also noted that “It’s important to note the PM spoke to (European Commission President) Jean-Claude Juncker by phone yesterday evening and talks are continuing. The PM and negotiating teams are focused on making progress so we can secure parliament’s support for the deal.”

        EU chief negotiator Michel Barnier refused to comment on Brexit negotiations today. Ahead of a meeting of EU ambassadors, Barnier just said “We talked all weekend and now the discussions, the negotiations, are between the government in London and the parliament in London.”

        Canada PMI manufacturing dropped to 26-month low, weaker employment growth the main factor

          Canada PMI manufacturing dropped to 52.6 in February, lowest level in 26 months. Markit noted weakest upturn in overall business conditions since December 2016, softer jobs growth offsets slight rebound in new orders, and production levels rise at moderate pace.

          Christian Buhagiar, President and CEO at SCMA said:

          “Canadian manufacturers experienced a slowdown in overall business conditions during February, with weaker employment growth the main factor weighing on the headline PMI reading.

          “Production growth was relatively subdued, reflecting a sustained soft patch for incoming new work so far this year. Survey respondents noted that trade frictions and heightened global economic uncertainty had led to delayed decisionmaking among clients on new orders.

          “The main positive developments were signs of reduced pressure on supply chains and a fall in input cost inflation to its lowest since September 2016. The latest deterioration in vendor performance was the least marked for almost two years, despite reports that adverse weather conditions had caused some disruption to supply chains in February.”

          Full release here.

          China warns of countermeasures after US House passed legislations supporting Hong kong

            US House of Representatives passed four measures on Tuesday, on unanimous voice vote, taking a hardline stance on China. In particular, three of the legislations were in support for Hong Kong following over four months of protests. China’s Foreign Ministry immediately responded by accusing the US of “sinister intentions” and warned of retaliation should the acts were passed in the Senate too.

            The measures include the Hong Kong Human Rights and Democracy Act that requires the US secretary os state to certify Hong Kong’s autonomy status every year. The Protect Hong Kong Act bans commercial exports of military and crowd-control items to Hong Kong Government. A third measures is a non-binding resolution, condemning China’s interference” in Hong Kong’s affairs and support the city’s right to protest. The fourth measure was another non-binding resolution commending Canada for its actions related to a US request to extradite Meng Wanzhou, CFO of telecom giant Huawei.

            China’s Foreign Ministry warned in a brief statement, “if the relevant bill is finally passed into law, not only will it hurt Chinese interests and China-US relations, but also seriously damage US interests. Regarding the wrong decision of the US, the Chinese side will have to enact effective countermeasures, firmly safeguard Chinese sovereignty, security and development interests”.

            Bundesbank: No fundamental change in German outlook but coronavirus a new layer of risk

              Bundesbank said in the monthly report that for Q1, there are “no signs of a fundamental change in Germany’s economy”. Domestic demand and construction are expected to continue to support the economy as a whole. Manufacturing will remain a drag even though the contraction is starting to ease.

              However, it warned that “with the appearance of the coronavirus in China at the beginning of 2020, a new layer of risk was added.” “A temporary decline in overall demand there could damp German export activity,” the report noted. “Moreover, some global value chains could be impaired by security measures put in place. Delivery bottlenecks in selected industries here would be one consequence.”

              Swiss KOF Economic Barometer to 101.7, clear contribution from exports

                Swiss KOF Economic Barometer rose 1.7 to 101.7 in June, above expectation of 101.0. It’s also back above long-term average at 100.0. KOF said it indicates a “slightly above-average development” in Switzerland. But still, the “tailwind for the Swiss economy is no longer as strong as during winter.”

                Exports made a “particularly clear contribution” to the improvement. There were also “positive developments in domestic demand, with increase in “propensity to consume”. In manufacturing and construction, the indicators for order backlogs, inventory reserves and intermediate goods purchasing point to a more positive development. Within manufacturing, however, “signs of developments in the near future are mixed.”

                Full release here.

                Bundesbank: German growth on sound path, private consumption as linchpin

                  German Bundesbank noted in the latest monthly report that “economic boom in Germany was still ongoing”. In Q2, private consumption “continued its ascent” and was the “linchpin of economic growth”. Government consumption also rose “significantly”. Exports grew “moderately” following a drop at the start of the year.

                  Bundesbank expected the economy to “remain on a sound growth path” in Q3 even though the pace could slow from H1. Industry is not expected to make any meaningful contribution to aggregate growth. On the other hand, private consumption remains a key growth driver due to “excellent labour market situation and the current strong wage hikes”

                  For Eurozone, “the unabatedly positive sentiment among businesses and consumers suggests that the economic upturn in the euro area will continue”.

                  Full release here.

                  Eurozone unemployment rate rose to 7.3% in Apr, 11.9m people jobless

                    Eurozone unemployment rate rose to 7.3% in April, up from March’s 7.1%. EU unemployment rose to 6.6%, up from 6.4%. Eurostat estimates that 14.079 million men and women in the EU, of whom 11.919 million in the euro area, were unemployed in April 2020. Compared with March 2020, the number of persons unemployed increased by 397000 in the EU and by 211000 in the euro area.

                    Full release here.

                    German CPI slowed to 1.4% yoy, below expectations of 1.5% yoy

                      Germany CPI dropped -0.2% mom in August, worse than expectation of -0.1% mom. Annually, CPI slowed to 1.4% yoy, down from 1.7% yoy, missed expectation of 1.5% yoy.

                      Released earlier today, German unemployment rose 4k in August, matched expectations. Unemployment rate was unchanged at 5.0%, also matched expectations.

                      YouGov predicts 68 Conservative majority in UK Dec elections

                        Sterling jumps broadly after YouGov projected that the Conservative Party is on track to win its biggest majority in more than three decades in the upcoming election on December 12. The results, if realized, would put UK on track for Brexit with a deal finally on January 31.

                        According to the poll, Conservatives would win 359 seats, giving it a majority of 68. Labour is predicted to win 211 seats, SNP 43, and Lib Dems 13. “As expected, the key thing deciding the extent to which each of these seats is moving against Labour are how that seat voted in the European Union referendum,” said Chris Curtis, YouGov’s political research manager. “This is allowing the Tories to overturn quite substantial majorities.”

                        GBP/CHF’s rally resumed by taking out 1.2892 resistance and hits as high as 1.2931 so far. Near term outlook will now remain bullish as long as 1.2673 support holds. Rise from 1.1674 is targeting 1.3399 key structural resistance next.

                        German 10-year yield hit new record below -0.7 on ECB expectations

                          German 10-year yield dives again and hit new record low at -0.725%. ECB Governing council member Oilli Rehn is seen as the trigger for the free fall in yields. Rehn hinted that ECB is ready for a “significant and impactful policy package in September”.

                          There’s speculation that ECB would lower key interest rate by -10bps from the current -0.40%. And, the break of -0.7% level in 10-year bund yield is seen as significant, as could effectively be the new lower bound for ECB deposite rate after the new package.

                          RBA cuts cash rate by 25bps to 1.25%, full statement

                            RBA cut cash rate by 25bps to 1.25% as widely expected. The objective of the cut is to “assist with faster progress in reducing unemployment” and thus, “achieve more assured progress towards the inflation target”. More importantly, RBA leaves the option open for more rate cut. It will “continue to monitor developments in the labour market closely and adjust monetary policy” for the objectives.

                            On the economy, RBA expects growth to be around 2.75% in 2019 and 2020. Outlook for household consumption is the “main domestic uncertainty, which is “affected by a protracted period of low income growth and declining housing prices”. The central bank noted the tick up in unemployment to 5.2% in April. But the data suggests that “Australian economy can sustain a lower rate of unemployment.” RBA also noted “lower than expected” inflation outcomes which “suggest subdued inflationary pressures across much of the economy”. But inflation is still expected be at 1.75% in 2019 and 2.00% in 2020.

                            Full statement below:

                            Statement by Philip Lowe, Governor: Monetary Policy Decision

                            At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.25 per cent. The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.

                            The outlook for the global economy remains reasonable, although the downside risks stemming from the trade disputes have increased. Growth in international trade remains weak and the increased uncertainty is affecting investment intentions in a number of countries. In China, the authorities have taken steps to support the economy, while addressing risks in the financial system. In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up.

                            Global financial conditions remain accommodative. Long-term bond yields and risk premiums are low. In Australia, long-term bond yields are at historically low levels. Bank funding costs have also declined further, with money-market spreads having fully reversed the increases that took place last year. The Australian dollar has depreciated a little over the past few months and is at the low end of its narrow range of recent times.

                            The central scenario remains for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption.

                            Employment growth has been strong over the past year, labour force participation has been increasing, the vacancy rate remains high and there are reports of skills shortages in some areas. Despite these developments, there has been little further inroads into the spare capacity in the labour market of late. The unemployment rate had been steady at around 5 per cent for some months, but ticked up to 5.2 per cent in April. The strong employment growth over the past year or so has led to a pick-up in wages growth in the private sector, although overall wages growth remains low. A further gradual lift in wages growth is expected and this would be a welcome development. Taken together, these labour market outcomes suggest that the Australian economy can sustain a lower rate of unemployment.

                            The recent inflation outcomes have been lower than expected and suggest subdued inflationary pressures across much of the economy. Inflation is still however anticipated to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario remains for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and a little higher after that.

                            The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

                            Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.

                            EU Centeno: Franco-German recovery fund a critical part of larger and coordinated coronavirus response

                              In an interview with German weekly Welt am Sonntag, Eurogroup head Mario Centeno said that the Franco-German proposal of EUR 500B recovery fund could be a “critical part” in the “larger and coordinated” coronavirus response”. It would “allow us to protest the single market in the recovery phase”. He added that “the German-Franco proposal would be a great step towards a fiscal union and a properly functioning currency union, even if the recovery fund is only temporary.”

                              He admitted that “we will all come out of this crisis with higher debts”. Hence, it’s important for the Eurogroup to agree on a recovery fund that “spread the costs of the crisis over time”. The France-German initiative was also “one step forward in addressing the debt overload issue by proposing common debt issuance.”

                              On the economy, Centeno said the forecasts so far do not take into account the EUR 500B reconstruction funds and the frontloaded EU budget. He added, “this enormous stimulus will strongly accelerate economic recovery”. “By the end of 2022, most – if not all – EU countries will return to 2019 GDP levels”.

                              Full interview here.

                              Canadian dollar jumps as core CPI accelerated in March

                                Canadian Dollar rises in early US session as core inflation came in higher than expected. Headline CPI rose 1.9% yoy in March, accelerated from 1.5% yoy but matched expectation. CPI core common was unchanged at 1.8% yoy, matched expectations. However, CPI core median accelerated to 2.0% yoy, up from 1.8% yoy and beat expectation os 1.8% yoy. CPI core trim rose to 2.1% yoy, up from 1.9% yoy and beat expectation of 1.8% yoy.

                                Also from released, Canada trade surplus was smaller than expected at CAD 2.9B in February. US trade deficit narrowed to USD -49.4B in February.

                                USD/CAD dips through 1.3284 support after the releases. But it’s staying above 1.3250 support. There is no change in the view that it’s in consolidation pattern from 1.3467. Rise from 1.3068 is expected to resume sooner or later.

                                Briefer than brief press briefing of China MOFCOM

                                  China Ministry of Commerce Spokesman Gao Feng delivered a rather unimpressive briefing, in response to US President Donald Trump’s proposal of tariffs on additional USD 100b of products. Gao just said that US action is extremely wrong, and with misjudgment in the situation. He pledged that China is ready and won’t hesitate to retaliate. And there will be immediately action is the US releases the USD 100b tariff list. Gao claimed that China has very detailed retaliatory measures.

                                  Basically, Gao just said that we’re ready to hit the ball back hard. But it’s now still in your court.

                                  Eurozone Sentix investor confidence slumped to -42.9, recession will go deeper an dlonger

                                    Eurozone Sentix Investor Confidence dropped to -42.9 in April, down from -17.1. That’s the lowest level on record. Current Situation index dropped from -14.3 to -66.0, also a record low and the largest decline on record. Expectations index, however, improved from -20.0 to -15.8. Sentix said Eurozone economy is in a “deep recession”, which will “go much deeper and longer”.

                                    It also said, “the corona virus is keeping the global economy in a stranglehold: without exception, all regions of the world are in a deep recession. Never before has the assessment of the current situation collapsed so sharply in all regions of the world within one month”.

                                    Germany Investor Confidence dropped from -16.9 to -36.0, lowest since 2209. Germany Current Situation dropped from -13.3 to -59.3, lowest since 2009. Germany Expectations improved from -20.5 to -9.0. US Investor Confidence dropped from 0.2 to -39.1, lowest since 2009. US Current Situation dropped from 17.8 to -59.0, lowest since 2009. US Expectations dropped from -16.0 to -16.5, lowest since October 2019.

                                    Full release here.

                                    GBP dives as CPI slowed to 2.5% yoy versus expectation of 2.7% yoy

                                      GBP drops sharply after CPI miss. Headline CPI slowed to 2.5% yoy in March versus expectation of 2.7% yoy. Core CPI dropped to 2.3% yoy versus expectation of rising to 2.5% yoy. Now, slowing consumer inflation is putting a May BoE hike in doubt.

                                      GBP/USD’s fall from 1.4376 accelerates after the release. And focus is back on 1.4144 minor support. Break will threaten near term reversal.

                                      Bundesbank expects German economy to expand considerably again in Q4

                                        Germany’s Bundesbank said today that the economy “may have come to a temporary halt” in Q3. The “booming” constructor sector have even “decelerated” after strong Q2. Also, retail sales were “relatively subdued”. However, the bank does not expect the pause in growth to be long-lived. And, business expectations the auto sector “rose significantly of late.”

                                        Bundesbank expects “economic output to expand considerably again in the current three-month period.” The bank also noted “rather sharp fall” in unemployment, which could be attributable in part to “the expansion of labour market policy measures at the end of the summer holiday period.”

                                        Full article release here.

                                        New Zealand ANZ Business Confidence rose to -41.8, recovery going to be a long haul

                                          New Zealand ANZ Business Confidence improved to -41.8 in May, up from May’s prelim reading of -45.6, and April’s -66.6. All industry stayed negative, worst in Agriculture at -82.1. Activity Outlook improved to -38.7, up from May’s prelim reading of -42.0, and April’s -55.1. Retail activity was worst at -45.3. Also, with the Activity Outlook stayed well below 2008.09 lows, and would “need to rise another 17 points just to reach its lows from the 2009 recession”.

                                          ANZ also noted, “it’s a long way back to normality” while “the recession is just starting to make itself felt”. The economy needs to “reshape to face to the new reality”, in particular, the loss of international tourists “completely for now, but likely still at a hugely significant scale for years”. “Fiscal and monetary policy are doing what they can to cushion the blow and sow the seeds of recovery, but it’s going to be a long haul.”

                                          Full release here.