Tue, Oct 26, 2021 @ 06:22 GMT

UK urges EU to match its compromises on Brexit

    UK Prime Minister Boris Johnson said he made a “very generous, fair and reasonable offer” to the EU on Brexit. And “what we’d like to hear from you now is what your thoughts are.” And, he also told EU, “if you have issues with any of the proposals that we’ve come up with, then let’s get into the detail and discuss them.”

    Johnson’s spokesman also noted, “We are ready to talk to the EU at pace to secure a deal so that we can move on and build a new partnership between the UK and the EU, but if this is to be possible, the EU must match the compromises that the UK has made”. And, “the PM still believes there is an opportunity to get a deal done, but the EU must understand, in order to achieve that, the backstop has to be removed.”

    Fed Daly: Last rate cut an appropriate recalibration of policy for headwinds, not impending downturn

      In a Quora.com post, San Francisco Fed Mary Daly said the US is not headed towards a recessions right not. She saw “solid domestic momentum that points to a continued economic expansion:. Also, “the labor market is strong, consumer confidence is high, and consumer spending is healthy.”

      But “considerable headwinds”, including global slowdown and trade uncertainties, contributed to fear that a “downturn is right around the corner”. Hence, she’s closely look at whether “fear of recession becomes a self-fulfilling prophecy”.

      Daly added that recent rate cut was “appropriate recalibration” of policy in response to the headwinds. And, her support was “not because I see an impending downturn on the horizon.”

      Fed Mester: Policy to be accommodative for a very long time

        Cleveland Fed President Loretta Mester said yesterday monetary policy is “going to be accommodative for a very long time because the economy just needs it to get back on its feet.” Recovery is going to pick up momentum in the second half after vaccination. But until then, fiscal support on vaccine distribution and employment could help stabilize the economy. Also, “It’s going to take a while for the economy to get back to maximum employment,” she added.

        Separately, Richmond Fed President Thomas Barkin said in a Financial Times interview that the economy still need support. “I still think there are a lot of people out of work who need a bridge to the other side, and I am supportive of what we can do to help them.” He expected some “short-term price volatility” but there are deflationary risks too. He’s keeping the focus on “medium-term” inflation expectations.

        ISM services rose to 59.7, mostly optimistic despite concerns on tariffs, capacity constraints and employment resources

          ISM Non-Manufacturing Composite rose to 59.7 in February, up from 56.7, beat expectation of 57.3. Employment Index dropped -2.6 to 55.2. Business Activity Index rose 5 to 64.7. New Orders rose 7.5 to 57.7. Price dropped -5 to 54.4.

          ISM noted that “respondents are concerned about the uncertainty of tariffs, capacity constraints and employment resources; however, they remain mostly optimistic about overall business conditions and the economy.”

          Full release here.

          UK CBI retail sales rose to -10, retailers contend with looming Brexit deadline

            UK CBI realized sales improved to -10 in October, but remained in decline for the sixth consecutive months. Rain Newton-Smith, CBI Chief Economist, said: “Retailers have now endured six months of falling sales, the longest period of decline since the financial crisis. The sector is struggling with ongoing digital disruption, layered on top of cost pressures from a weak pound and the cumulative burden of an outdated business rates regime.

            “Retailers have also had to contend with the looming Brexit deadline, which has partly driven a record spike in stocks. The timing could not be worse: the run-up to Christmas is a crucial time of year for the retail sector, and not knowing where we will be on November 1st is adding more strain to an already beleaguered sector.”

            Full release year

            France PMI composite dropped to 55.1 in Sep, clear evidence of cooling

              France PMI Manufacturing dropped from 57.5 to 55.2 in September, below expectation of 57.3, lowest in 8 months. PMI Services dropped slightly from 56.3 to 56.0, below expectation of 56.0, lowest in 5 months. PMI Composite dropped from 56.9 to 55.1, lowest in 5 months.

              Joe Hayes, Senior Economist at IHS Markit said:

              • “Flash PMI data for September provides clear evidence that economic growth in France is cooling…
              • “The most striking finding from the September survey was the strong drop-off in manufacturing production growth, which panel members linked to the well-documented supply-side issues that are ongoing at present…
              • “These issues aren’t just confined to the manufacturing sector either, with service providers also affected.
              • “An accelerated deterioration in supplier delivery times has again pushed up inflation, after August data provided tentative hopes that some of these pressures were coming off the boil.
              • “Overall, slowing demand growth, rising prices and considerable supply-side issues are – to say the least – far from the ideal conditions as we head into what seems to be another challenging winter period.”

              Full release here.

              EU Moscovici: Brexit has to be dealt with in London first

                European Commissioner for Economic and Financial Affairs Pierre Moscovici reiterated the EU’s stance that regarding Brexit, the ball is in UK’s court now. He said “Certainly the EU is there, the EU is waiting, the EU is ready but first we need to know clearly what are the British intentions and we need some clarifications from London”.

                He added that “Of course the door is always open for discussion but it’s not up to us to tell now the British side where it wants to go. The ball clearly is in the British side again. It’s not a problem that can be solved by Brussels, maybe in Brussels later, but it has to be first dealt with in London.”

                Also on the possibility of hard Brexit, Moscovici said “Nobody wants a no-deal (Brexit), that is clear. The British parliament doesn’t want a no-deal, the British government doesn’t want a no-deal, and the EU is not willing a no-deal, so we need to explore all options which are not a no-deal.”

                Fed Beige Book: Economic growth downshifted slightly

                  In the Beige Book economic report, Fed said that “economic growth downshifted slightly to a moderate pace in early July through August”. The deceleration in activity was “largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.” Other sectors were “constrained by supply disruptions and labor shortages, as opposed to softening demand”

                  All Districts continued to report “rising employment overall”. All Districts noted “extensive labor shortages that were constraining employment”. A number of Districts reported an “acceleration in wages”, with several noted “particularly brisk wage gains among lower-wage workers”. Inflation was “steady at a elevated pace”. Several Districts indicated that businesses anticipate “significant hikes in their selling prices in the months ahead”.

                  Full Beige Book here.

                  ECB de Guindos: It’s medical question first and foremost

                    Vice President Luis de Guindos said yesterday that “substantial monetary support” is needed for the economy “for some time to come. He added, “even if recovery is successful, there is still a lot of uncertainty.” Pace of inflation will “slow down again” next year as a number of one-off factors wane, such as the temporary VAT cut in Germany last year.

                    He also said that when to end the PEPP is a “medical question first and foremost”. He added, “it depends on whether the vaccination campaigns are successful in combating the Delta variant and whether new, more resistant variants appear.”

                    Fed Williams: Policy well-positioned for an uncertain future

                      New York Fed President John Williams said that “from the domestic point of view, things are strong and continue to be strong”. However, “we’re dealing with various global factors we’re trying to navigate”. The US is facing headwinds from global slowdown, trade uncertainties and muted inflation pressures. As a result, “growth is starting to slow in the US”.

                      Nevertheless, Williams still believed that Fed has “monetary policy in the right place”. The three rate cuts since July put policy “well-positioned for a future that is uncertain.” Still, policy was “not locked in” and would respond to incoming data.

                      ECB Rehn confidence to ensure favorable financing conditions when exiting crisis measures

                        ECB Governing Council member Olli Rehn said while growth in Eurozone is robust, supported is still needed. The outlook is clouded by bottlenecks as well as coronavirus variants.

                        The central bank is expected to debate in December on timing and the way to wind down the PEPP purchases. Rehn said he’s confident to find a ” viable and meaningful way of ensuring favorable financing conditions when we start our very gradual transition from the crisis measures to the next normal.”

                        He also urged governments to prepare for the eventual rise in borrowing cost even though a rate hike is “not yet within sight”. “It will nevertheless one day take place,” Rehn said. “This should be taken into account in budgetary planning in all the euro area countries.”

                        Canada retail sales rose 0.9%, but largely from motor sales

                          Canada retail sales rose 0.9% mom to USD 51.5B in November, well above expectation of 0.6% mom. That also largely offset the -1.1% mom decline in October. However, the growth was primarily attributable to highest sales at motor vehicle and parts dealers. Ex-auto sales grew merely 0.2% mom, below expectation of 0.5% mom. Overall, sales were up in six provinces and all census metropolitan areas.

                          Full release here.

                          UK wage growth accelerated to fastest since 2008

                            UK unemployment rate was unchanged at 4.1% in the three months to October, matched expectation. However, wage growth was rather impressive. Average weekly earnings including bonus rose 3.3% 3moy, above expectation of 3.0% 3moy. Average weekly earnings excluding bonus also rose 3.3% 3moy, above expectation of 3.2% 3moy. Wage growth was indeed fastest since 2008. Also claimant count rose 21.9k in November, above expectation of 13.2k.

                            Full release here.

                            BoJ Kuroda: Absolutely not that case of exiting ultra-loose policy

                              BoJ Governor Haruhiko Kuroda reiterated in an interview with the Japan Daily, the central bank had “absolutely no play” to stop ETF purchases, or unload its holdings. “We will continue to buy ETFs flexibly and in a nimble fashion, so it’s absolutely not the case that we are exiting ultra-loose monetary policy”, he added.

                              Separately from Japan, retail sales dropped -1.6% yoy in February, better than expectation of -2.8% yoy. That’s still the third straight month of annual decline. Unemployment rate was unchanged at 2.9%, better than expectation of a rise to 3.0%.

                              Fed Mester: My positive baseline outlook depends on very accommodative policy

                                Cleveland Fed President Loretta Mester said she expected unemployment rate to fall to 4.5% or lower this year, with GDP growth in 6-7% range. She emphasized, “my positive baseline outlook depends on appropriate monetary policy, which, in my view, will need to be very accommodative for some time to support the broadening of the recovery.”

                                “I wouldn’t consider the increase in inflation I expect this year to be the type of sustainable increase needed to meet the forward guidance on our policy rate,” she said. “So I expect to be deliberately patient unless there is clear evidence that inflation pressures will push inflation to exceed our desired path.”

                                “I need to see more improvement before I would consider the conditions of our forward guidance on asset purchases as being met,” said Mester.

                                Kashkari: Fed should use forward guidance now to avoid recession

                                  In an op-ed article published in the Financial Times, Minneapolis Fed President Neel Kashkari said Fed should use forward guidance now to stimulate the economy. He explained that “forward guidance can also provide stimulus by signalling that overnight rates will be low in the future.” That is, Fed can “influence long-term rates by giving guidance about the future path of their short-term equivalents. The firmer the Fed’s commitment, the more influence it can have.”

                                  Kashkari added that “forward guidance should be used now, before the federal funds rate returns to zero.” He argued that “if a central bank cuts rates to zero in response to a downturn and then announces that it plans to keep rates low, that can actually be perceived as a sign of weakness rather than strength.” Instead, “it would be better to deploy guidance now in an effort to avoid hitting zero.

                                  Regarding the guidance, he said “at a minimum, we should commit to not raising rates again until core inflation returns to our 2 per cent target on a sustained basis.”

                                  Fed Rosengren: Public health crisis will dissipate over the course of the year

                                    Boston Fed President Eric Rosengren said in a speech that the public health crisis will likely “dissipate over the course of this year”. “The pandemic is likely to continue to be a problem for public health and the economy until widespread vaccinations take hold,” he added. “Nonetheless, with substantial fiscal and monetary support, I expect a robust recovery starting in the second half of this year.”

                                    In response to a question, Rosengren said, “I expect it to be a little while before we’re even talking about tapering on our purchases of government and mortgage-backed securities.”

                                    Full speech here.

                                    Fed Barkin: Recent pick up in inflation just a natural rebound

                                      Richmond Fed President Tom Barkin said in a speech, while inflation has run below the 2% target it is “not that far-off target”. “With rounding, you could even call it on target.” The new framework allows “only a moderate” overshoot in inflation. “That moderation limits the risk of de-anchoring while sending a positive signal on inflation.”

                                      He added that recent pick up in inflation is “just a natural rebound from a deflationary second quarter.”. While it’s possible that inflation could escalate in the near future, “I have to say I’m less worried about that possibility.” And, should inflation emerge, the Fed has the tools and the will to address it.”

                                      Barkin’s full speech here.

                                      Canada manufacturing sales dropped -1.5% mom in July

                                        Canada manufacturing sales dropped -1.5% mom to CAD 59.6b in July, worse than expectation of -1.0% mom. Sales were down in 12 of 21 industries, led by the wood product (-21.8%), aerospace product and parts (-19.0%), miscellaneous (-12.1%) and petroleum and coal product (-2.3%) industries.

                                        The declines were partially offset by higher sales in the motor vehicles (+13.5%), primary metal (+3.9%) and motor vehicle parts (+7.6%) industries.

                                        Full release here.

                                        Irish PM Varadkar: Possible for us to come to an agreement on Brexit

                                          Sterling rebounded strongly overnight and would very likely end the week and the biggest winner. It was firstly lifted by the “constructive” talks between UK Prime Minister Boris Johnson and Irish Prime Minister Leo Varadkar. Then upbeat comments from Varadkar added more fuel to the Pound’s rally.

                                          Varadkar told reporter: “I think it is possible for us to come to an agreement, to have a treaty agreed, to allow the UK to leave the EU in an orderly fashion and to have that done by the end of October.. Also, “I don’t think this should be seen in the context of who’s making concessions, or who the winners and losers are, I don’t think that’s the game any of us want to play.”

                                          Earlier, they issued a joint statement, saying that “both continue to believe that a deal is in everybody’s interest”. More importantly, “they agreed that they could see a pathway to a possible deal. Their discussion concentrated on the challenges of customs and consent.” UK Brexit Secretary Steve Barclay and EU negotiator Michel Barnier will meet in Brussels on Friday. Officials will “continue to engage intensively” with each other in the search for a deal.