Fed Clarida: Policymakers cannot ignore a number of prominent downside global risks

    Fed Vice Chair Richard Clarida gave a speech at a symposium in France today. There he noted that the US economy’s integration with the rest of the word has risk substantially over the past 60 years. That heightened US exposures to external shocks through channels of direct trade links, foreign exchange markets and contagion in financial markets.

    Clarida added recently, US and other financial markets are “attuned to a number of prominent downside global risks”, including Brexit, a sharp slowdown in growth and trade tensions. He noted that Fed policymakers can “hardly ignore these risks”. Indeed, he pointed out three of the most recent FOMC statements have highlighted concerns about global economic and financial developments.

    He also reiterated Fed’s stance that “in the presence of these risks and with inflation pressures muted, we can afford to be patient and data dependent as we assess in future meetings what adjustments in our policy rate might be necessary to sustain growth, employment, and price stability in the U.S. economy.”

    Clarida’s remarks here.

    Into US session: Dollar shrugs GDP downward revision, Sterling weakest, then Euro

      Entering into US session, Sterling is currently the weakest one for today. The indicative votes in the UK House of Commons yesterday indicated again what the MPs didn’t want, but not what they want regarding Brexit. Prime Minister is believed to be continuously working on support for her deal. But such a deal is dead if Northern Ireland’s DUP doesn’t switch than rejection stance. And, EU’s Schinas reminded British government again that if the deal is not ratified this week, Article 50 will only be extended to April 12, not May 22.

      Staying in the currency markets, Euro is the second weakest for now. Eurozone economic sentiment deteriorated in March, as dragged down by markedly lower industrial confidence. German CPI also missed expectation and slowed to 1.3% yoy. Swiss Franc is the third weakest. Meanwhile, Australian, Zealand, US Dollar and Yen are the stronger ones. The greenback is shrugs off downward revision in Q4 GDP growth to just 2.2% annualized.

      In Europe, currently:

      • FTSE is up 0.41%.
      • DAX is up 0.25%.
      • CAC is up 0.11%.
      • German 10-year yield is up 0.006 at -0.072.

      Earlier in Asian:

      • Nikkei dropped -1.61%.
      • Hong Kong HSI rose 0.16%.
      • China Shanghai SSE dropped -0.92%, lost 3000 handle.
      • Singapore Strait Times rose 0.16%.
      • Japan 10-year JGB yield dropped -0.0263 to -0.092, heading towards -0.1 handle.

      US initial claims dropped to 211k, Q4 GDP revised down to 2.2% only

        US initial jobless claims dropped -5k to 211k in the week ending March 23, below expectation of 220k. Four-week moving average of initial claims dropped 3.25k to 217.25k.

        Continuing claims rose 13k to 1.756M in the week ending March 16. Four-week moving average dropped -4.25k to 1.751M.

        Q4 GDP growth was finalized at 2.2% annualized, revised down from 2.6% and missed expectation of 2.4%. That’s sharply slower from Q3’s 3.4%. Real GDP grew only 2.9% in 2018, up from 2.2% in 2017 but was below 3.0% handle.

        BCC Marshall: Messy and disorderly Brexit a flagrant dereliction of duty of MPs

          British Chambers of Commerce Director General Adam Marshall criticized that the uncertainty of the “Brexit black hole” is generating “a growing list of business casualties and a litany of rising costs”. He also urged MPs to do all to avoid no-deal Brexit. He said “messy and disorderly exit would not just be deeply irresponsible – it would be a flagrant dereliction of duty.”

          Prime Minister Theresa May is still meeting Conservative colleagues and Northern Ireland’s Democratic Unionist Party to seek support on her Brexit deal. House of Commons leader announced there will be another Brexit debate tomorrow, and there might be another meaningful vote.

          Hard-line Brexiteer Jacob Rees-Mogg extended his support to May and urged DUP to “come over to the deal”. But DUP insisted they won’t even abstain but just reject it. Another Brexiteer Boris Johnson told Evening Standard newspaper that “May’s deal si dead”.

          European Commission spokesman Margaritis Schinas warned again that “If the Withdrawal Agreement is not ratified by the end of this week, Article 50 will be extended to April 12 and it is now for the UK government to inform about how it sees the next steps.” On the indicative votes, Schinas added, “we counted eight ‘noes’ last night, now we need a ‘yes’ on the way forward.”

          Eurozone economic sentiment dropped to 105.5, dragged by markedly lower industrial confidence

            Eurozone Economic Sentiment Indicator (ESI) dropped to 105.5 in March, down from 106.2 and missed expectation of 105.9. EU28 ESI dropped -0.4 to 105.0. The deterioration of Eurozone ESI was resulted from “markedly lower confidence in industry”. Industrial Confidence dropped to -1.7, down from -0.4 and missed expectation of -0.5. Services Confidence dropped to 11.3, down from 12.1 and missed expectation of 12.0. Consumer Confidence was finalized at -7.2, up from -7.4.

            Amongst the largest Eurozone economies, ESI rose markedly in Spain (+2.3), while it decreased sharply in Germany (−1.8) and the Netherlands (−1.3), and remained broadly unchanged in France (+0.2) and Italy (−0.2).

            Also released, Eurozone Business Climate Indicator dropped to 0.53, down from 0.69 and missed expectation of 0.69. All the five components of the indicator worsened: while managers’ views of the past production, their production expectations, and their assessments of both overall and export order books declined significantly, their appraisal of the stocks of finished products worsened only slightly.

            US Mnuchin look forward to productive meetings in China

              US Treasury Secretary Steven Mnuchin said he’s looking forward to “productive meetings” as he arrived in Beijing with Trade Representative Robert Lighthizer for another round of trade negotiations. Mnuchin told reporter that “ambassador Lighthizer and myself are pleased to be back here in Beijing, and we look forward to productive meetings.”

              China’s Ministry of Commerce confirmed that Vice Premier will hold meetings with Lighthizer and Mnuchin tonight. And, discussions will resume for a full day on Friday. Spokesman Gao Feng said there were some progress achieved during previous phone calls. However, there remains a lot of work to do.

              Chinese Premier Li Keqiang told business executives at the Boao forum that there is no trust deficit with the US and hoped that the trade talks could achieve results. Li also pledged that China must protect intellectual property or there is no hope for transformation in the country. He also sounded upbeat on the economy and said “changes” in March exceeded expectations.

              Besides, Li said China is “quickening the full opening of market access for foreign investors in banking, securities and insurance sectors.” Scope of foreign banks, bank and non-bank card payments will be “expanded sharply”. Restrictions on securities and insurance brokers will also be removed. Li emphasized the measures will be “implemented this year in a relatively forceful way”. In addition, China is drafting rules to relax the restrictions on foreign acquisitions of Chinese listed corporations.

              New Zealand ANZ business confidence dropped, RBNZ cut sooner rather than later

                New Zealand ANZ Business Confidence dropped to -38 in March, down from -30.9. Activity Outlook also dropped to 6.3, down from 10.5. ANZ noted that GDP growth has moderated but is still respectable. However, leading indicators are suggesting that the economy is “running out of steam quite rapidly”.

                In particular, export intentions dropped to levels lower than during the Asian Financial Crisis of 1998-9 and the Global Financial Crisis of 2008-9. Sharply lower export intentions despite a well-behaved exchange rate suggest global factors are a part of slowdown in momentum.

                Overall, ANZ expects next move in RBNZ to be a cut, “with a growing risk that it is sooner rather than later.”

                Full release here.

                Unprecedented progress made on forced technology transfer as new round of US-China trade talks start

                  US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrive in Beijing today for a new round of trade negotiations Ahead of that Reuters reported that there were unprecedented progress on a core issue in technology transfers.

                  Citing unnamed officials, it’s said that China’s proposals went further than in the past, which created hope for an eventual trade deal. The discussions on forced technology transfer covered areas that were not touched before, in terms of both scope and specifics.

                  Meanwhile, the texts of agreements moved forward in all areas even though they’re not where the US want to be. The areas are believed to include forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.

                  Another official noted that some of the tariffs imposed since last year will stay even after a deal is made. And this will be an important issue to resolve, as an important part of the final deal. But for now, there is no clear timeline for completing the deal yet. And negotiations could drag on till June.

                  Fed George: More time and evidence needed to separate signal from noise

                    Kansas City Fed President Esther George said in a speech that weakness in Q1 growth could reflect “transitory factors” such as the government shutdown, financial volatility, an unusually harsh winter, and heightened policy uncertainty. But over the medium term, the “generally positive outlook” of the US economy has “several prominent downside risks”.

                    The biggest risks come from slower growth abroad, “particularly in China, the euro area, and the United Kingdom.” Together with waning fiscal and monetary stimulus, they “represent a stronger headwind” then George’s baseline forecast. Right now, she noted that “data are noisy” and more time and evidence are needed to “separate the signal from the noise”.

                    George’s full speech here.

                     

                    All Brexit alternatives voted down while May gains support for her deal

                      The UK Parliaments once again expressed what they don’t want about Brexit, without saying what they want. With April 12 cliff-edge looming, there is still no sign of a breakthrough.

                      All eight Brexit alternatives were defeated in the UK House of Commons on Wednesday. That means no majority emerged support any options including no deal, a referendum, a customs union and a Norway-style deal. The closet results was for a “permanent and comprehensive UK-wide customs union with the EU”, which was voted down by 264 to 272. The call for confirmatory referendum was voted down by 268 to 295.

                      Meanwhile, Prime Minister Theresa May offered to resign if her Brexit deal gets approved by the parliament in a third meaningful vote. She told the Conservative 1922 Committee that “I know there is a desire for a new approach – and new leadership – in the second phase of the Brexit negotiations, and I won’t stand in the way of that.” She added “I am prepared to leave this job earlier than I intended in order to do what is right for our country and our party.”

                      With May’s offer, more hard-line Brexiteers turned to support her deal. A key consideration is that the change in leadership for the most important of next phase in negotiations. Trade negotiations and futures relationship will be on the line, which Brexiteers would be eager to get a firmer control on. However, it remains uncertain how May could get enough votes as Northern Ireland’s DUP repeated its objection to the deal.

                      Gold losing upside momentum, corrective recovery ending soon

                        Gold’s recovery from 1280.85 lost momentum after hitting 1324.49 and retreats notably today. The structure of the recovery suggests that it’s merely a corrective move. And it could be ending soon.

                        Hence, even in case of another rise through 1324.49, upside should be limited below 1346.71 high to bring another decline. On the downside break of 1303.25 minor support will bring deeper fall to retest 1280.85 support.

                        In the bigger picture, it’s getting more likely that 1346.71 is a medium term bottom on bearish divergence in daily MACD. Channel support will likely be taken out on next decline, which will put 1276.76 cluster support (38.1% retracement of 1160.17 to 1346.17 at 1275.45) back into focus.

                        Decisive break of 1275.45/1276.76 should confirm completion of whole rise from 1160.17. In that case, gold should have started another falling leg inside the long term range pattern. Deeper fall should then be seen back towards 61.8% retracement at 1234.42 and below.

                        But still, as mentioned above, break of 1303.25 support is needed to indicate near term reversal first.

                        UK Bercow firms up on no repeat votes ruling, eight Brexit amendments chosen

                          The prospect of another meaningful vote for UK Prime Minister Theresa May’s Brexit deal is in doubt. House of Commons speaker John Bercow firmed up his “no repeat votes” ruling today. In short, he restated his ruling that a new vote will only be allowed if there is substantial changes. Additional, he pledged to block any attempt by the government to use a procedural rule change to get round such decision.

                          The prospect of another meaningful vote for UK Prime Minister Theresa May’s Brexit deal is in doubt. House of Commons speaker John Bercow firmed up his “no repeat votes” ruling today. In short, he restated his ruling that a new vote will only be allowed if there is substantial changes. Additional, he pledged to block any attempt by the government to use a procedural rule change to get round such decision.

                          Meanwhile, eight amendments are chosen by Bercow to be put to indicative votes today. They include

                          • Conservative John Baron’s No deal
                          • Conservative Nick Boles’s Common Market 2.0
                          • Conservative George Eustice’s Efta and EEA
                          • Conservative Ken Clarke’s – Customs union
                          • Labour’s – Customs union and alignment with single market
                          • SNP Joanna Cherry’s – Revocation to avoid no deal
                          • Dame Margaret Beckett’s – Confirmatory public vote
                          • Marcus Fysh’s – Contingent preferential arrangements

                          Here is Bercow’s statement on no repeat rules:

                          “In the course of answering questions following her statement [on Monday], the prime minister accepted this constraint, saying that “I am very clear about the strictures that Mr Speaker gave when he made his statement last week and, were we to bring forward a further motion to this house, we would of course ensure that it met the requirements he made.”

                          I understand that the government may be thinking of bringing meaningful vote three before the house either tomorrow or even on Friday, if the house opts to sit that day.

                          Therefore, in order that there should be no misunderstanding, I wish to make clear that I do expect the government to meet the test of change. They should not seek to circumvent my ruling by means of tabling either a notwithstanding motion or a tabling motion. The table office has been instructed that no such motions will be accepted.

                          I very much look forward, colleagues, to today’s debate and votes which give the house the chance to start the process of positively indicating what it wants.”

                          Into US session: Sterling higher as consolidation continues, global yields pressured again

                            Entering into US session, New Zealand and Australian Dollar remain the weakest ones undoubtedly. NZD is sold off sharply after RBNZ indicated that next move is a cut. AUD follows as RBNZ’s dovish shift somewhat solidifies that case for RBA cuts too.

                            On the other hand, Sterling is the strongest one today. But again, the Pound is stuck in recently established range against Dollar, Euro and Yen. There is no sign of breakout and current rise is nothing more than part of consolidations. The indicative votes on Brexit alternatives will be carried out in the House of Commons today. And debate is due to start by 1500GMT. We’ll see what alternative Brexit path could gain majority in the Parliament.

                            On development to note is that global treasury yields are back under pressure. Japan 10-year JGB yield closed down -0.0018 at -0.067. German 10-year yield is down -0.0192 at -0.033. US 10-year yield hits as low as 2.379 and is now struggling to climb back above even 2.4 handle. The development might give Yen a little helping hand.

                            In Europe:

                            • FTSE is down -0.06%.
                            • DAX is up 0.35%.
                            • CAC is up 0.42%. German 10-year yield is down -0.0192 at -0.033.

                            Earlier in Asia:

                            • Nikkei dropped -0.23%.
                            • Hong Kong HSI rose 0.56%.
                            • China Shanghai SSE rose 0.85%, back above 3000 handle.
                            • Singapore Strait Times dropped -0.06%.
                            • Japan 10-year JGB yield dropped -0.0018 at -0.067.

                            EU Tusk: Cannot betray increasing majority of British people who want to stay in EU

                              European Commission President Jean-Claude Juncker and European Council President Donald Tusk talked Brexit to the European Parliament day.

                              Tusk said the voices of British people whole wanted to stay in the EU shouldn’t be ignored. And he urged the Parliament to be open to a longer Article 50 extension. He said, “I said that we should be open to a long extension if the UK wishes to rethink its Brexit strategy, which would of course mean the UK’s participation in the European parliament elections. And then there were voices saying that this would be harmful or inconvenient to some of you…. Let me be clear: such thinking is unacceptable. You cannot betray the 6 million people who signed the petition to revoke article 50, the 1 million people who marched for a people’s vote, or the increasing majority of people who want to remain in the European Union.”

                              Juncker said it’s unclear how Brexit would unfold. And, “I told some of you that if you compare Great Britain to a sphinx then the sphinx would seem to me an open book. We will see in the course of this week how this book will speak,”

                              Also, chief Brexit negotiator told lawmakers: “In all scenarios, the Good Friday agreement will continue to apply. The United Kingdom will remain a core guarantor of that agreement and is expected to uphold it in spirit and in letter:” And, “the Commission is ready to make additional resources available to Ireland, technical and financial to address any additional challenges.”

                              ECB de Guindos: Eurozone slowdown raises financial stability risks

                                Vice President Luis de Guindos warned that weak Eurozone growth is raising financial stability risks due to weakening bank profits and rising concern over sovereign debt sustainability.

                                De Guindos said in a conference in Frankfurt that “in an environment where cyclical factors may exert further downward pressure on bank profitability, banks would need to step up their efforts to overcome structural challenges”.

                                Also, “such measures may include cost reductions – including lower staffing costs and streamlining of branch networks, enhanced digitalization – implying initial, one-off large-scale investments, revenue diversification and the reduction of the stock of non-performing loans in the six countries where levels are still high.”

                                UK retail sales volume dropped most in 17 months as Brexit uncertainty escalates

                                  UK CBI Reported Sales dropped sharply to -18 in March, down from 0 and missed expectation of 5. That is, 28% of respondents reported that sales volumes were up on a year ago in March, while 46% said they were down, giving a balance of -18%. It’s the fastest contraction in 17 months, marked four-month run in which sales have not grown.

                                  Anna Leach, CBI head of economic intelligence, said: “Even accounting for Easter timing, the High Street’s poor run continues. While real wage growth is picking up, consumer confidence has been hit by escalating uncertainty over Brexit and concern over the economy’s future. The pain currently being felt on the High Street is yet another reason why it is so vitally important politicians agree a deal in Parliament that is acceptable to the EU and protects our economy. No-deal must be averted at all costs.”

                                  Full release here.

                                  ECB Draghi: Intra- and extra- Eurozone trade growth recoupled downward for the first time since GFC

                                    ECB President Mario Draghi said in a speech that it’s “not yet certain” whether Eurozone is experience a “more lasting deterioration in the growth outlook” right now. The loss of momentum has been “predominantly driven by pervasive uncertainty in the global economy”. Domestic economy has “remained relatively resilient” and expansion drivers “remain in place”. But risks remained “tilted to the downside”.

                                    Draghi pointed to continuing weakness in wold trade which has “significantly affected the manufacturing sector” and Eurozone is now “seeing a more persistent deterioration of external demand”. Intra-euro area trade also slowed steeply last year. And, “recoupling of intra- and extra-euro area trade growth in a downward direction has not occurred since the start of the global financial crisis”. For now, “current data suggest that external demand has not yet spilled over significantly into domestic demand”. But ” risks have risen in the last months and uncertainty remains high”.

                                    Draghi also reiterated that “substantial accommodation is still needed”. At last meeting, ECB decided to extend the date-based leg of the rate guidance “at least through the end of 2019”. That ECB will continue too the “very sizeable stocks of assets” bought under the asset purchase program for even longer. Also, Draghi added that “we would ensure that monetary policy continues to accompany the economy by adjusting our rate forward guidance to reflect the new inflation outlook.” It suggests ECB is ready to extend delay a rate hike further when necessary.

                                    Draghi’s full speech here.

                                    Into European session: NZD weakest on Dovish RBNZ, Yen and Dollar Strongest

                                      Entering into European session, New Zealand Dollar is overwhelmingly the weakest one today. Kiwi dives sharply after RBNZ left OCR unchanged at 1.75% but turned dovish. It indicates that the next move will be a cut. Markets are pricing in full cut in November but it could happen as soon as in May. Australian Dollar follows as the second weakest. RBA is generally expected to cut interest rate twice this year. RBNZ’s turn just adds to the case for dovish RBA.

                                      Meanwhile, Yen is the strongest one for today so far but momentum is not that apparent yet. Dollar follows as the second strongest mainly thanks to weakness elsewhere. In particular EUR/USD’s broke 1.1273 minor support to resume fall from 1.1448 and could be heading back to 1.1176 low. Sterling is awaiting votes on Brexit alternatives in the Commons later today.

                                      In Asia:

                                      • Nikkei closed down -0.23%.
                                      • Hong Kong HSI is up 0.57%.
                                      • China Shanghai SSE is up 0.60%, back above 3000 handle.
                                      • Singapore Strait Times is up 0.30%.
                                      • Japan 10-year JGB yield is down -0.027 at -0.068.

                                      Overnight in US:

                                      • DOW rose 0.55%.
                                      • S&P 500 rose 0.72%.
                                      • NASDAQ rose 0.71%.
                                      • 10-year yield dropped -0.006 to 2.414.

                                      China industrial profits dropped -14%. Autos, oil processing, steel and chemicals dragged

                                        China’s industrial profits in January-February period slumped -14.0% yoy to CNY 708B. It’s the biggest contraction since 2011. National Bureau of Statistics (NBS) said the contract was mainly due to distortions caused by the timing of Lunar New Year.

                                        Meanwhile, there were notable declines in profits in auto, oil processing, steel and chemical industries. Ex-factory prices of Auto, oil processing, steel and chemicals dropped -0.4%, -1.3%, -2.5% and -2.3% respectively. Profits dropped CNY 37B, CNY 32B, CNY, 29B and CNY 19B respectively. Combined the contributed to -14.2% contraction in profits. Excluding them, industrial profits rose 0.2%.

                                        While the set of data is largely ignored by the stock markets, it’s putting some more weight to the upcoming round of trade talks. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will visit Beijing on March 28-29. Even though an eventual trade might might not help reverse the slowdown in China, at least, the drag on exports will likely be eased.

                                        Full NBS Statement in simplified Chinese.

                                        Fed Daly: Patient until data suggests we go one way or another

                                          San Francisco Federal Reserve President Mary Daly said yesterday that “patience is where I’m at right now,” regarding monetary policy. She added the US economy is in “a good place”. And interest rates should be left unchanged “until the data suggests we go one way or another way.”

                                          Though, she predicts that unemployment rate at 3.8% will eventually push wages and prices upward. And “it’s just taking a longer time than it typically does”. She noted “that’s part of what feeds into my patient strategy.”

                                          Daly supported Decembers rate hike when the economy was growing at a faster rate. Now, she noted interest rates are at “neutral” and thus, patience is “the way to go, because you don’t want to guess that you need to do more, or guess that we need to do less, you just want to be patient and look at the data.”