FT predicts Johnson’s Brexit deal to be defeated by 318 to 321

    Sterling remains steady today as traders are all holding their bets ahead of tomorrow’s crucial vote on the new Brexit withdrawal agreement. UK Prime Minister Boris Johnson will hold a cabinet meeting at 1500GMT in Downing Street today, in effort to secure support for the bill. At this point, there is no sign that Northern Ireland’s DUP is changing their stance against the plan. ERG chair is holding the cards on his chest. The group is due to meet tomorrow and make a recommendation but Guardian reported that most of the “Spartans” are likely to support. Labour MP John Mann has predicted that “more than nine” of his parliamentary colleagues will vote for Johnson’s deal

    Financial Times predict that Johnson’s deal would be voted down by 318-321. The possible supporters include 259 Conservatives, 28 hardline Eurosceptic Conservatives, 20 independent Conservatives, 7 Labour rebels, 3 independents and 1 Lib Dem. The reported noted: “Analysis by the Financial Times suggests that unless the prime minister can persuade the DUP to drop its opposition, or persuade several Labour MPs or independent parliamentarians to support the deal, Mr Johnson will struggle to win a House of Commons majority.”

    China GDP growth slowed to 6% in Q3, worst since 1992

      China’s GDP growth slowed further to 6.0% yoy in Q3, down from 6.2% yoy in Q2 and missed expectation of 6.1% yoy. That’s also the worst pace since Q1 of 1992, the earliest quarterly data on record. National Bureau of Statistics spokesman Mao Shengyong said China was ” faced with mounting risks and challenges both at home and abroad”. But he attempted to tone down the situation and said ” the national economy maintained overall stability … and improved living standard.” He also added there was ample room for adjustments on monetary policy,

      The weak data raised concern that the slowdown this year could be worse than originally expected, as trade war with US weigh. While there appears to be some progresses on trade negotiations, the imposed tariffs are remaining. Uncertainties continued to weigh on business sentiments too. Growth could slow further below 6% handle in Q4.

      Nevertheless, on the positive side, industrial production grew 5.8% yoy in September, comfortably beat expectations of 5.0% yoy. That’s also a notably improvement from 4.4% yoy in August. Retail sales growth accelerated to 7.8% yoy, up from 7.5% yoy and matched expectations. Fixed asset investment, however, slowed to 5.4% ytd yoy, down from 5.5% and matched expectations.

      Japan CPI core slowed to 0.3%, lowest since Apr 2017

        Japan CPI core (all items ex-fresh food), slowed to 0.3% yoy in September, down from 0.5% yoy, matched expectation of 0.3% yoy. That’s also the lowest level in more than two years since April 2017, and drifted further away from BoJ’s 2% target. All items CPI slowed to 0.2% yoy, down from 0.3% yoy and matched expectations. CPI core-core (all items ex-fresh food and energy) slowed to 0.5% yoy, down form 0.6% yoy, matched expectation but remained sluggish.

        Japan Finance minister Taro Aso said yesterday that the government was ready to ramp up stimulus to guard against risks from slowing global growth and US-China trade tensions. He said after a meeting of G20 finance leaders, “Given uncertainty over the global economy, exports are falling and weighing on manufacturers’ output. But the weakness has yet to spread to non-manufacturers or domestic demand.

        Ado added, “if we need to compile some form of an economic stimulus package, we are ready to take various types of fiscal measures flexibly”. He also emphasized that “When you look back at the problems Japan faced, including deflation, they can’t be fixed by monetary policy alone. You need a coordinated monetary and fiscal response.”

        Separately, the good news is that the government estimated the US-Japan trade deal will boost Japan’s economy by 0.8%. There will be around JPY 4T contribution to GDP based on its fiscal 2018 figures. Also, the deal will create around 280k jobs.

        Fed Williams: Economy in pretty good place with very resilient consumers

          New York Fed President John Williams said yesterday that the economy is in a “pretty good place” and consumption has been “very resilient”. While consumer spending is a lagging indicator, data on asset prices, employment growth and wage growth support positive outlook.

          Fed policymakers factored in some uncertainties during the decisions for rate cuts back in July and September. The factors include global slowdown, low inflation and trade tensions. However, Williams added, “I don’t want to have this narrative that we still have the same conditions out there so does it mean we need to take further and further action.” And, “what we need to do is weigh or consider how those factors are influencing the outlook.”

          US oil inventories rose 9.3m barrels, well above expectation of 2.7m

            US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 9.3m barrels in the week ending October 11, much higher than expectation of 2.7m barrels. At 434.9m barrels, crude oil inventories are about 2% above the five year average for this time of year.

            WTI crude oil remains in tight range after the release, showing little reactions. Outlook is unchanged that further decline cannot be ruled out. But we’d expect strong support form around 50 psychological level to contain downside. This level is also close to 61.8% retracement of 42.05 to 66.49 at 51.38. On the upside, break of 54.71 will target 63.04 resistance.

            DUP said it won’t support Johnson’s new Brexit deal

              Sterling pares back some of earlier gains after Northern Ireland’s DUP said it won’t support UK Prime Minister Boris Johnson’s new Brexit deal. In a statement, DUP said: “Following confirmation from the Prime Minister that he believes he has secured a ‘great new deal’ with the European Union the Democratic Unionist Party will be unable to support these proposals in Parliament.:

              It added: “these proposals are not, in our view, beneficial to the economic well-being of Northern Ireland and they undermine the integrity of the Union…. it is our view that these arrangements would not be in Northern Ireland’s long term interests.”

              Philly Fed survey dropped to 5.6, price pressure moderated

                Philadelphia Manufacturing Business Outlook Diffusion Index dropped -6 pts to 5.6, missed expectation of 7.1. The percentage of firms reporting increases (27%) this month narrowly exceeded the percentage reporting decreases (21%). Price paid index dropped -16 pts to 16.8, suggesting price pressures moderated.

                Philly Fed noted: “Responses to the October Manufacturing Business Outlook Survey suggest growth in manufacturing activity this month. Although they remained positive, the indicators for general activity and shipments fell from their levels in September. The firms reported an improvement in both new orders and employment this month. The survey’s future indexes indicate that respondents continue to expect growth over the next six months.”

                Full release here.

                US initial jobless claims rose to 214k, above expectation of 212k

                  US initial jobless claims rose 4k to 214k in the week ending October 12, slightly above expectation of 212k. Four-week moving average of initial claims rose 1k to 214.75k. Continuing claims dropped -10k to 1.679m in the week ending October 5. Four-week moving average of continuing claims rose 3.5k to 1.670m.

                  Full release here.

                  China MOFCOM: Final goal of trade talks is to end trade war and remove all tariffs

                    Chinese Ministry of Commerce spokesperson Gao Feng said today that the “final goal” of US-China trade negotiation is to “end the trade war and cancel all additional tariffs”. He added, “this would benefit China, the U.S. and the whole world. We hope that both sides will continue to work together, advance negotiations, and reach a phased agreement as soon as possible.”

                    Also, Gao admitted that “Since this year, under the effect of China-US trade frictions, trade and investment between the U.S. and China have fallen”. “This fully demonstrates that trade wars have no winners”, he added.

                    Sterling rises as Brexit deal finally clinched in Brussels

                      Sterling surges on news that a Brexit deal is finally clinched in Brussels today, after marathon discussions this week. The news also take stocks and commodity currencies higher. The agreement came just a few hours ahead of the EU summit. European Commission President Jean-Claude Juncker said in a letter that he would recommend EU27 leaders to approve the deal. And it’s a “high time” to complete the Brexit process.

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                      UK Prime Minister Boris Johnson also said “we have a great new Brexit deal”. His spokesperson added that Johnson is confidence that the new Brexit deal will go forward for a vote in the parliament on Sunday. And, “The public would expect if the deal is passed, for MPs to do everything they can to pass it on time and yes we are confident that we can do that, referring to leaving EU on October 31.

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                      Australia NAB business confidence dropped to -2, conditions improved to 1

                        Australia quarterly NAB Business Confidence dropped from 5 to -2 in Q2. Current Business Confidence improved from 1 to 2. However, Business Confidence for the next 3 months dropped from 12 to 9. Business confidence for the next 12 months dropped from 23 to 20. Capex plans for the next 12 months also dropped from 24 to 21.

                        According to Alan Oster, NAB Group Chief Economist: “There are tentative signs that the trend decline in business conditions since mid-2108 has slowed, but conditions remain below average with only a small increase in Q3. Business confidence saw a sharp fall in Q3 more than reversing the surprising bounce in Q2. It appears that any post-election optimism has faded despite very low interest rates following the back to back interest rate cuts mid-year”.

                        Full release here.

                        Australia unemployment rate dropped to 5.2%, Aussie lifted mildly

                          Australian dollar is lifted by decline in unemployment rate as data showed. While the improvement is welcomed by RBA, it’s far from being enough to confirm a pause in the easing cycle. The economy added 14.7k jobs in September, above expectation of 10.0k. Full-time employment grew 26.2k while part-time employment dropped -11.4k. Unemployment rate dropped -0.1% to 5.2% but participation rate also dropped -0.1% to 66.1%.

                          The seasonally adjusted unemployment rate increased by 0.2% in New South Wales (4.5%), and by 0.1 % in Queensland (6.5%). Decreases were recorded in South Australia (down 1.0% to 6.3%, following a cumulative increase of 1.3% over the previous two months), Victoria (down 0.2% to 4.7%) and Tasmania (down 0.2% to 6.2%), with Western Australia recording no change.

                          Full release here.

                          EU ready to approve Brexit deal, awaiting UK Commons support

                            There is increasing optimism that a Brexit deal could finally be agreed by UK and EU, as soon as on Thursday. French President Emmanuel Macron said “I want to believe that a deal is being finalized and that we can approve it tomorrow [Thursday].” German Chancellor Angela Merkel also said she is increasingly of the belief” that an agreement would be reached. Earlier, European Council President Donald Tusk also noted “theoretically we could accept a deal tomorrow.”

                            The plan to publish a full legal text ahead of EU summit on Thursday and Friday, however, was put on hold, due to uncertainties on the British side. EU leaders are ready to approve the deal on condition of backing from UK House of Commons, at a special sitting on Saturday. ERG leader Steve Baker said after a backbench 1922 meeting that the deal in the works “could well be tolerable”. But the big question lies in Northern Ireland’s DUP.

                            US Mnuchin: Administration’s objective to ready the US-China trade deal phase 1 by APEC next month

                              US Treasury Secretary Steven Mnuchin said yesterday that the texts of phase one US-China trade agreement are being written by both teams. The administration’s “objective” was to ready the agreement to be signed by both Presidents at the APEC summit in Chile on November 16-17.

                              Mnuchin added the phase one agreement would include a “quite broad” chapter regarding protection of American intellectual property rights in China. The would also be some coverages on structural agricultural issues and currencies. Meanwhile, some of the issues regarding forced technology transfer would be addressed in the second phase of negotiations.

                              On the US side, Mnuchin said, “we were all focused on was the October tariffs”. And, “we have not gone to the president with any recommendation or any decision” regarding the tranche of tariffs scheduled for December 15.

                              ECB Lane: Convergence of inflation towards target partly reversed

                                In a presentation to the Brookings institution in Washington, ECB chief economist Philip Lane said:

                                • The euro area is facing a more extended slowdown than previously expected
                                • The convergence of inflation towards the inflation aim has recently slowed and partly reversed
                                • The ECB’s monetary policy measures remain effective in fostering a reacceleration of growth and, thereby, inflation convergence
                                • A highly accommodative stance of monetary policy will be necessary for a prolonged period of time
                                • The more fiscal policy contributes to boosting long-term growth potential and providing cyclical stabilisation, the quicker will be the effects of monetary policy interventions on the economy and inflation

                                Full presentation here.

                                Fed Evans expects no change in interest rate through end of 2020

                                  Evans expects the US economy to grow “a touch above 2 percent this year”. Even though growth is clearly slowing, ‘2 percent is not far from my staff’s estimate of the economy’s long-run potential growth rate, which is between 1-3/4 and 2 percent”. Thus, growth would continue to run roughly in line with potential. Meanwhile, unemployment is anticipated to remain close to current level for some time, “below the long-run benchmark of 4.2 percent”.

                                  He also forecast inflation to “move up slowly and then modestly overshoot out 2 percent target a couple years down the road”. To achieve this, more monetary accommodation is needed that he though necessary just this last December. Since then, some data came in weaker, downside risks multiplied, and inflation and inflation expectations retreated. Thus, the two 25bps rate cut this year were “quite appropriate”.

                                  Yet, Evans added “policy probably is in a good place right now”. Growth outlook is good, and we have policy accommodation in place to support rising inflation.”. He is “keeping an open mind” to arguments of more accommodations, including uncertainties and unexpected downside shocks. But his overall assessment is “pretty much in line” with FOMC’s median outlook. That is, no additional change in federal funds rate target through the end of 2020, and one rate hike in each of 2021 and 2022.

                                  Evan’s full speech here.

                                  EU Brexit debriefing delayed for second time

                                    On Brexit agreement, European Council President Donald Tusk said, “it is still undergoing changes and the basic foundations of this agreement are ready and theoretically we could accept a deal tomorrow.” And, “yesterday evening I was ready to bet on it…today again certain doubts have appeared from the British side.” Nevertheless, “theoretically in seven to eight hours everything should be clear.”

                                    Meanwhile, EU’s debriefing on Brexit negotiations is said to be delayed for a second time to 1700GMT today.

                                    Canada CPI unchanged at 1.9%, but core CPI accelerated

                                      Canada headline CPI dropped -0.4% mom in September, much worse than expectation of 0.0%. Annually, CPI was unchanged at 1.9% yoy, below expectation of 2.0% yoy. However, CPI core common rose to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. CPI core median rose to 2.2% yoy, up from 2.1% yoy and beat expectation of 2.1% yoy. CPI core trimmed also rose to 2.1% yoy, up from 2.0% yoy, matched expectations.

                                      Full release here.

                                      US retail sales dropped -0.3%, first contraction in seven months

                                        US retail sales dropped -0.3% mom in September, much worse than expectation of 0.3% mom rise. That’s also the first decline in seven months since February. Ex-auto sales dropped -0.1% mom, also worse than expectation of 0.2% mom. Annually, retail sales rose 0.4% yoy over September 2018. Total sales for the July 2019 through September 2019 period were up 4.0% from the same period a year ago.

                                        Full release here.

                                        Brexit negotiations still ongoing, Varadkar hopes to complete today

                                          UK Prime Minister Boris Johnson’s spokesman said Brexit negotiations with EU were still ongoing with issues to be resolved. At the same time, discussions also continued with Conservative and Northern Ireland’s DUP MPs.

                                          Irish Prime Minister Leo Varadkar also said that “we are making progress but there are issues yet to be resolved and hopefully that can be done today.” “But if it’s not, there is still more time. October 31 is still a few weeks away and there is the possibility of an additional summit before that if we need one”.

                                          EU chief Brexit negotiator delayed the briefing to EU leaders to 1500GMT today, from 1200GMT.