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Fed Williams: It’s a healthy economy from pure monetary policy perspective

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    ActionForex.com
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    New York Fed President John Williams said in a speech that US is “closing in on the longest economic expansion on record, unemployment is at historically low levels, and inflation is close to our 2 percent target “. And, from a “pure monetary policy perspective”, this is a “healthy economy”.

    However, he also noted that Fed’s monetary policy decisions ” don’t affect the kinds of jobs that are created or who benefits from growth.”

    William’s full speech here.

    UK PM May urged Mps to use Easter recess for Brexit reflections

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      ActionForex.com
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      In the parliament, Prime Minister Theresa May insisted that UK can still pass the Brexit Withdrawal Agreement by May 22 to avoid taking part in European parliament elections. And it can still leave EU by the end of next month. May also emphasized the important of cross-party negotiations with Labours and she hoped to reach an agreement in the coming days.

      May urged MPs to “use the opportunity of the recess to reflect on the decisions that will have to be made swiftly on our return after Easter. And let us then resolve to find a way through this impasse.”

      US initial jobless claims dropped to 196k, another lowest since 1969

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        ActionForex.com
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        US initial jobless claims dropped -8k to 196k in the week ending April 6, below expectation of 210k. It’s also the lowest since October 4, 1969, which it was 193k. Four-week moving average of initial claims dropped -7k to 207k, lowest since December 6 1969.

        Continuing claims dropped -13k to 1.713M. Four-week moving average of continuing claims dropped -11k to 1.735M.

        Also from the US, headline PPI accelerated to 2.2% yoy in March, well above expectation of 1.9% yoy. Core PPI slowed to 2.4% yoy, matched expectations.

        CBI Fairbairn” Businesses not dancing in the streets for Brexit delay

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          ActionForex.com
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          CBI Director General Carolyn Fairbairn, criticized that the Brexit delay till October 31 only provides “brief relief” for businesses. And they wouldn’t be “dancing in the streets”. Instead, it will be quickly followed by ” frustration, exasperation, we’re still here.”

          She added that “our huge hope off the back of this six-month reprieve is that it’s used to set up a process and it’s not just people locked in a room on their own which we’ve seen in the last few days.”

          US Mnuchin on China trade talks: Both sides agreed to set up enforcement offices

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            ActionForex.com
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            In a CNBC interview yesterday, US Treasury Secretary Steve Mnuchin talked about some concrete progress in US-China trade negotiations, including the core issue of enforcement.

            Mnuchin said: “We’ve pretty much agreed on an enforcement mechanism. We’ve agreed that both sides will establish enforcement offices that will deal with the ongoing matters. This is something both sides are taking very seriously… We are really focused on the execution of the documents.”

            Nevertheless he refused to put a timeline of the talks. “We are hopeful we can do this quickly, but we are not going to set an arbitrary deadline,” Mnuchin said. “If we can complete this agreement, this will be the most significant changes to the economic relationship between the U.S. and China in really the last 40 years. The opening of the Chinese economy will be a tremendous opportunity with structural changes that will benefit U.S. workers and U.S. companies.”

            Chinese commerce ministry confirmed today that senior trade negotiators from both countries held phone calls earlier this week. Gao Feng, the ministry’s spokesman said “in the next step, both trade teams will keep in close communication, and work at full speed via all sorts of effective channels to proceed with negotiations.”

            ECB SPF: Economists downgrade eurozone growth and inflation forecasts for 2019 and 2020

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              ActionForex.com
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              In the latest ECB survey for Q2, professional forecasters revised down growth, inflation and core inflation forecasts for both 2019 and 2020. Inflation are projected to be below ECB’s 2% target over the whole forecast horizon. Also, the reported noted that “probability distributions continued to indicate relatively high uncertainty around expected inflation in two years’ time.”

              On growth, “respondents considered the current level of uncertainty to be very high and to be having an economic impact, mainly via companies’ investment decisions.” Also “risks to the forecasts for real GDP growth remained to the downside.” The most cited downside risks was “potential impact of a hard Brexit. Many respondents refer to “further escalation of trade conflict between US and China, an the apparent slowdown in China”. “Very few”mentioned upside risks.

              HICP inflation forecasts (previous at Q1 2019):

              • 2019 at 1.4% (down from 1.5%)
              • 2020 at 1.5% (down from 1.6%)
              • 2021 at 1.6% (down from 1.7%)
              • Longer term at 1.8% (unchanged)

              HICP core inflation forecast:

              • 2019 at 1.2% (down from 1.3%)
              • 2020 at 1.4% (down from 1.5%)
              • 2021 at 1.6% (unchanged)
              • Longer term at 1.7% (unchanged)

              GDP growth forecast:

              • 2019 at 1.2% (down from 1.5%)
              • 2020 at 1.4% (down from 1.5%)
              • 2021 at 1.4% (unchanged)
              • Longer term at 1.4% (down from 1.5%).

              Asian update: GBP lifted by Brexit extension, AUD digests gains, EUR and USD mixed

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                ActionForex.com
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                Asian markets are in mild risk aversion today as dragged down by pull back in Chinese and Hong Kong stocks. But such sentiments is not much reflected in the currency markets, except that Australian Dollar retreats broadly after this week’s rally run. Sterling is one of the strongest for today as UK was granted “medium” flexible Brexit delay till October 31. But still it’s unsure how the government could achieve the needed consensus in the parliament to get a withdrawal agreement through. More time might just mean more torture and fatigue.

                Dollar is mixed for now after FOMC minutes solidified Fed’s patience stance. It’s a consensus among policy makers Fed will stand pat for the rest of the year. Inflation is close to target without little sign of heating up. Fed indeed has a lot of room to keep interest rates at current level for longer. At the same time, several members noted their openness to rate cut should development warrants it. It could depend on how the risks play out. Euro is mixed too. The dovish ECB meeting yesterday triggered some knee jerk reactions. But the common currency quickly found its footing.

                For the week, Aussie is the far the strongest one, followed by Yen. While risk aversion is not apparent, both seem to be lifted by falling treasury yields elsewhere. US 10-year yield is back at 2.477 while Germany 10-year yield is negative. There was no extra bearish development in Australia to push RBA to deliver a rate cut yet. Swiss Franc is the weakest one, thanks to rally in oil prices. Dollar follows as second weakest.

                Released in Asian session:

                • UK RICS house price balance improved to -24 in March, above expectation of -29.
                • Japan M2 rose 2.4% yoy in March, matched expectations.
                • Australian consumer inflation expectation slowed to 3.9% in April, down from 4.1%.
                • China CPI accelerated to 2.3% yoy in March, matched expectations. PPI also rose to 0.4% yoy, matched expectations.

                Looking ahead: Germany CPI, Canada new housing price index, US PPI and jobless claims will be featured. A number of Fed officials will speak today, including Clarida, Williams, Bullard and Bowman.

                In Asia, currently:

                • Nikkei is down -0.12%.
                • Hong Kong HSI is down -0.96%.
                • China Shanghai SSE is down -0.95%.
                • Singapore Strait Times is up 0.23%.
                • Japan 10-year JGB yield is down -0.0044.

                Overnight:

                • DOW rose 0.03%.
                • S&P 500 rose 0.35%.
                • NASDAQ rose 0.69%.
                • 10-year yield dropped -0.022 to 2.477.

                FOMC minutes: Several members noted interest rate could shift in either direction

                  By
                  ActionForex.com
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                  Minutes of March 19-20 FOMC meeting released overnight solidify Fed’s patience stance. Additionally, the minutes indicated that some members are open to rate cut if incoming data and development warrant so.

                  It’s noted that a “majority” of participants expected that evolution of economy and risks would likely warrant leaving interest rate unchanged for the rest of year. Some of them noted current interest rate was “close to” neutral.

                  At the same time, participants continued to “emphasize” decisions at coming meetings would depend on their ongoing assessments of the economic outlook and how risks evolved. “Several” participants noted their view on interest rate “could shift in either direction based on incoming data and other developments.”

                  Full minutes here.

                  UK given “medium” Brexit delay while EU urges not to waste this time

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                    ActionForex.com
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                    EU agreed to give UK flexible Brexit extension at the special European Council meeting on Wednesday. The extension should last “only as long as necessary and, in any event, no longer than October 31 2019”. If the Withdrawal Agreement cannot be ratified by then, Brexit will take place on November 1. During the extension, UK remains a EU remember with full right, and has a right to revoke Article 50 at any time.

                    In the statement, EU emphasized that “the extension cannot be allowed to undermine the regular functioning of the Union and its institutions.” UK must hold European Parliament elections if it’s still a EU member on May 23-26, or Brexit will happen on June 1. Also, EU reiterated there will be no renegotiations. And, the extension “cannot be used to start negotiations on the future relationship”. Though, EU is open to reconsider the Political Declaration.

                    In the post summit press conference, European Council President Donald Tusk said “this extension is as flexible as I expected, and a little bit shorter than I expected, but it’s still enough to find the best possible solution.” He urged UK “please don’t waste this time”.

                    German Chancellor Angela Merkel said: “We looked at the matter and decided to shift the date to October. We want an orderly exit of Great Britain and an orderly exit of Great Britain can be best ensured if we give it some time”. And, “the decisive point was when will the British parliament consent to the withdrawal agreement and we made it clear that that exit agreement applies and will not be changed”.

                    French President Emmanuel Macron said: “It’s true that the majority was more in favor of a very long extension. But it was not logical in my view, and above all, it was neither good for us, nor for the UK.” And, “I take responsibility for this position, I think it’s for the collective good.”

                    EU grants UK flexible Brexit extension till Oct 31, full text

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                      ActionForex.com
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                      1. The European Council takes note of the letter of Prime Minister Theresa May of 5 April 2019 asking for a further extension of the period referred to in Article 50(3) TEU.

                      2. In response, the European Council agrees to an extension to allow for the ratification of the Withdrawal Agreement. Such an extension should last only as long as necessary and, in any event, no longer than 31 October 2019. If the Withdrawal Agreement is ratified by both parties before this date, the withdrawal will take place on the first day of the following month.

                      3. The European Council underlines that the extension cannot be allowed to undermine the regular functioning of the Union and its institutions. If the UK is still a Member of the EU on 23-26 May 2019 and if it has not ratified the Withdrawal Agreement by 22 May 2019, it must hold the elections to the European Parliament in accordance with Union law. If the United Kingdom fails to live up to this obligation, the withdrawal will take place on 1 June 2019.

                      4. The European Council reiterates that there can be no opening of the Withdrawal Agreement, and that any unilateral commitment, statement or other act should be compatible with the letter and the spirit of the Withdrawal Agreement and must not hamper its implementation.

                      5. The European Council stresses that such an extension cannot be used to start negotiations on the future relationship. However, if the position of the United Kingdom were to evolve, the European Council is prepared to reconsider the Political Declaration on the future relationship in accordance with the positions and principles stated in its guidelines and statements, including as regards the territorial scope of the future relationship.

                      6. The European Council notes that, during the extension, the United Kingdom will remain a Member State with full rights and obligations in accordance with Article 50 TEU, and that the United Kingdom has a right to revoke its notification at any time.

                      7. The European Council takes note of the commitment by the United Kingdom to act in a constructive and responsible manner throughout the extension in accordance with the duty of sincere cooperation and expects the United Kingdom to fulfill this commitment and Treaty obligation in a manner that reflects its situation as a withdrawing Member State. To this effect, the United Kingdom shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardize the attainment of the Union’s objectives, in particular when participating in the decision-making processes of the Union.

                      8. In addition to meetings under Article 50 TEU, the 27 Member States and the Commission, where appropriate together with other institutions, bodies, offices and agencies of the Union, will continue to meet separately at all levels to discuss matters related to the situation after the withdrawal of the United Kingdom.

                      9. The European Council will remain seized of the matter and will review progress at its meeting in June 2019.

                      Full document.

                      US: Headline CPI accelerated to 1.9%, but core slowed to 2.0%

                        By
                        ActionForex.com
                        -

                        Dollar turns mixed in early US session after March CPI release. Headline CPI accelerated to 1.9% yoy, up from 1.5% yoy and beat expectation of 1.8% yoy. However, core CPI slowed to 2.0% yoy, down from 2.1% yoy and missed 2.1% yoy.

                        Full release here.

                        ECB Draghi: Persistence of uncertainties is leaving markets on economic sentiment

                          By
                          ActionForex.com
                          -

                          Euro weakens broadly today even though ECB delivered little news with the rate decision and press conference. The main refinancing rate is kept at 0.00%. Marginal lending facility rate and deposit rate are kept at 0.25% and -0.40% respectively. Also, forward guidance is unchanged. ECB expects to keep key interest rates at present level “at least through the end of 2019”. No detail of the TLTRO III is provided as they will be released at one of the next meetings.

                          President Mario Draghi’s overtone in the post meeting conference is dovish. He noted that incoming data “confirms slower growth momentum extending into the current year.” “Global headwinds continue to weigh on euro area growth developments”. Also, “persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, is leaving marks on economic sentiment.”

                          Meanwhile, risks surrounding growth outlook remain “tilted t the downside”. They’re “on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.” Draghi also urged “other policy areas” to contribute more decisively to raise longer-term growth potential and reducing vulnerabilities. Those include structure reforms and fiscal policies.

                          Draghi’s press conference statement here.

                          UK GDP grew 0.2% in Feb, 0.3% in rolling three-month period

                            By
                            ActionForex.com
                            -

                            UK GDP rose 0.2% mom in February, down from January’s 0.5% mom but beat expectation of 0.0% mom. Index of services rose 0.1% mom, while index of production rose 0.6% mom. Manufacturing rose 0.9% mom. Construction rose 0.4% mom. Agriculture dropped -1.3% mom.

                            Rolling three-month growth rate (Dec to Feb) was unchanged at 0.3%. Services contributed 0.29%, production 0.02% and construction -0.04%.

                            Commenting on today’s GDP figures, Head of GDP Rob Kent-Smith said: “GDP growth remained modest in the latest three months. Services again drove the economy, with a continued strong performance in IT. Manufacturing also continued to recover after weakness at the end of last year with the often-erratic pharmaceutical industry, chemicals and alcohol performing well in recent months.”

                            Also from UK, in February, industrial production rose 0.5% mom, 0.1% yoy versus expectation of 0.1% mom, -0.8% yoy. Manufacturing production rose 0.9% mom, 0.6% yoy, versus expectation of 0.2% mom, -0.7% yoy. Construction output rose 0.4% mom versus expectation of -0.3% mom. Visible trade deficit widened to GBP -14.1B.

                            RBA Debelle: Lenses of labor market and GDP in sharp contrast, business surveys sit in between

                              By
                              ActionForex.com
                              -

                              Australian Dollar rebounds after initial selling as speech of RBA Deputy Governor Guy Debelle echoed much of recent communications. There was no extra dovishness in his comments.

                              He noted that the weaker than expected GDP growth in second half of last year was primarily due to considerable slower growth in consumption. The main explanation is low growth in household income, and an increasing expectation that it is likely to remain low

                              However, other parts of GDP have evolved broadly as we had expected. Business investment outside mining has been “growing at a rate”. Exports have “continued to grow as expected”. Residential construction is at a “historically high level”. Also, labor market has been “surprisingly strong”.

                              Debelle noted that “the two lenses on economic growth provided by the labour market and the GDP data are in stark contrast”. Meanwhile, “a third lens, in the form of business surveys, sits in between the two”. And he noted that “the tension highlighted by these different lenses on economic growth is of crucial importance. Hopefully we will get some resolution of this tension in the coming months with the incoming flow of data.”

                              Debelle’s full speech here.

                              ECB to stand pat and maintain forward guidance. Some previews

                                By
                                ActionForex.com
                                -

                                ECB rate decision and press conference are two major focuses in a busy day. UK GDP and productions, US CPI and FOMC minutes will also be featured. ECB will keep monetary policies unchanged, without a doubt. There shouldn’t be any change in ECB’s plan on forward guidance too. That is, it will indicate to keep interest rates unchanged at least through the end of 2019. Details regarding the TLTRO III should be released later in June, rather than at this meeting.

                                Though, markets might be eager to know more on two topics. Firstly, March meeting minutes revealed that some members indeed favored to extend forward guidance until first quarter of 2020. President Mario Draghi would be asked to elaborate more on the discussions. Secondly, members’ comments over the past weeks have given rise to the possibility of a move to a “tiered deposit rate” system in order to save bank profitability.

                                Here are some previews:

                                Fed Clarida: Flatter Philips curve makes anchoring long-run inflation expectations more important

                                  By
                                  ActionForex.com
                                  -

                                  In a speech, Fed Vice Chair Richard Clarida said neutral interest rates appear to have fallen in the US and abroad. And, “this global decline in r* is widely expected to persist for years”. He emphasized the importance of the trend as “all else being equal, a fall in neutral rates increases the likelihood that a central bank’s policy rate will reach its effective lower bound (ELB) in future economic downturns. ” And that in turn “could make it more difficult during downturns for monetary policy to support household spending, business investment, and employment, and keep inflation from falling too low.”

                                  Clarida pointed to another key development in decreasing responsiveness of inflation to resource slack. That is, “short-run Phillips curve appears to have flattened, implying a change in the dynamic relationship between inflation and employment”. He warned that a flatter Philips curve increases the cost of reversing unwelcome increase in long-run inflation expectations. And “a flatter Phillips curve makes it all the more important that longer-run inflation expectations remain anchored at levels consistent with our 2 percent inflation objective.”

                                  Clarida’s full speech here.

                                  Kuroda: BoJ seeking to create positive economy cycle, not just rise in inflation

                                    By
                                    ActionForex.com
                                    -

                                    Speaking to the parliament, BoJ Governor Haruhiko Kuroda said the central bank isn’t seeking to push up inflation alone. Instead, it’s aiming at creating to situation where wage and employment conditions improve with corporate profits too. That is, creating a “positive economy cycle”.

                                    Meanwhile, Kuroda added the 2% inflation target helps in long-run currency stability. But for now, inflation is likely hover around 1% since wages growth is not fast enough yet.

                                    Separately, Finance Minister Taro Aso also told the parliament that pushing up inflation alone “won’t do any good” without improvement in people’s livelihoods.

                                    EU Tusk proposes 1-year flexible Brexit extension, UK free to leave whenever it’s ready

                                      By
                                      ActionForex.com
                                      -

                                      In a letter to European Council member, President Donald Tusk urged EU27 states to considering UK’s request for Article 50 extension at the meeting on Wednesday, to “do our utmost” to avoid disorderly Brexit.

                                      However, Tusk noted that there is “little reason to believe” that ratification of the Withdrawal Agreement would be completed by the end of June. He also warned granting extension to June 30 would “increase the risk of a rolling series of short extensions and emergency summits, creating new cliff-edge dates.”

                                      Thus, Tusk proposed a “flexible extension”, which would last only as long as necessary and no longer than one year. UK is free to leave “whenever it is ready”. And, importantly, a long extension would provide more certainty and predictability, while UK is allowed to rethink its Brexit strategy.

                                      Tusk also laid out the conditions for the extension: no re-opening of the Withdrawal Agreement; no start of the negotiations on the future, except for the Political Declaration; the UK would have to maintain its sincere cooperation also during this crucial period, in a manner that reflects its situation as a departing member state.

                                      Tusk’s letter to EU27 members here.

                                      EU and China reaffirms comprehensive strategic partnership with post summit joint statement

                                        By
                                        ActionForex.com
                                        -

                                        The EU-China Summit in Brussels, with European Commission President Jean-Claude Juncker, European Council President Donald Tusk, and Chinese Premier Li Keqiang, concludes with a seven-page joint statement today.

                                        EU said that both sides reaffirm the strength of their Comprehensive Strategic Partnership, their resolve to work together for peace, prosperity and sustainable development and their commitment to multilateralism, and respect for international law and for fundamental norms governing international relations, with the United Nations (UN) at its core. The two sides commit to uphold the UN Charter and international law, and all three pillars of the UN system, namely peace and security, development and human rights.”

                                        In short, the two sides pledged their joint commitment to uphold and update rule based orders, including WTO reform. Also bilateral talks will be setup for industrial subsidies. Both promised to have no forced transfer of technologies as price for investment. And both commit to create a level playing field.

                                        Full statement here.

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                                        IMF lowers 2019 global growth forecast to 3.3%, but expects pick up in H2

                                          By
                                          ActionForex.com
                                          -

                                          In the World Economic Outlook report, IMF revised down global growth forecasts as weakness in the second half of 2018 is expected to persist into the first half of 2019. IMF expects slowdown in 70% of world economy. Global growth would dropped from 3.6% in 2018 to 3.3% in 2019, revised down by -0.2%. There were negative revisions for several major economies including the euro area, Latin America, the United States, the United Kingdom, Canada, and Australia.

                                          Nevertheless, IMF still expects growth to pickup again in second half of the year. There will be support from “significant monetary policy accommodation by major economies”. Fed, ECB, BoJ and BoE have “all shifted to a more accommodative stance”. Meanwhile, China has ramped up its fiscal and monetary stimulus. Outlook for US-China trade tensions has also “improved as the prospect of a trade agreement take shape”. “Global recession is not in the baseline projections,

                                          However, IMF maintained “there are many downside risks”, including trade tensions that could “could flare up again and play out in other areas (such as the auto industry), with large disruptions to global supply chains.: Growth in Eurozone and China “may surprise on the downside”. Brexit risks remain “heightened”.

                                          Here is a summary of the growth forecasts (comparing with January forecasts):

                                          • World in 2019 at 3.3% (down -0.2%)
                                          • World in 2020 at 3.6% (unchanged).
                                          • US in 2019 at 2.3% (down -0.2%)
                                          • US in 2020 at 1.9% (up 0.1%)
                                          • Eurozone in 2019 at 1.3% (down -0.3%)
                                          • Eurozone in 2020 at 1.5% (down -0.2%).
                                          • Japan in 2019 at 1.0% (down -0.1%).
                                          • Japan in 2020 at 0.5% (unchanged).
                                          • China in 2019 at 6.3% (up 0.1%).
                                          • China in 2020 at 6.1% (down -0.1%).

                                          Full report here.

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