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Into US session: Yen weakest as Airbus deal boosts CAC, Sterling higher

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    ActionForex.com
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    Entering into US session, Yen is the weakest one for today as risk appetite returns to the European markets. Swiss Franc is the second weakest naturally, followed by New Zealand Dollar In particular, Franc CAC is lifted solidly by the massive 300 jet planes purchase from Airbus by China as President Xi Jinping visits EU. German 10-year yield also rises to -0.004, attempting to turn positive.

    Meanwhile Sterling is the strongest one, lifted mildly by news that Brexiteers are starting to offer support for Prime Minister Theresa May’s Brexit deal. The argument is that, to them, May’s deal is definitely much better no Brexit, and even second referendum which could lead to no Brexit too. Also, after leaving EU, there are still chances to adjust the relationship by future Prime ministers. For now, Australian Dollar is the second strongest, follow by Canadian.

    On the data front, German Gfk consumer confidence dropped to 10.4 but economic expectations improved. UK BBA mortgage approvals dropped notably to 35.3k in February. US will release housing starts and building permits, house price indices, and more importantly, consumer confidence.

    In Europe, currently:

    • FTSE is up 0.28%.
    • DAX is up 0.25%.
    • CAC is up 0.74%.
    • German 10-year yield is up 0.0219 at -0.004.

    Earlier in Asia:

    • Nikkei rose 2.15%.
    • Hong Kong HSI rose 0.15%.
    • China Shanghai SSE dropped -1.51%.
    • Singapore Strait Times rose 0.55%.
    • Japan 10-year JGB yield rose 0.0176 to -0.66.

    Rees-Mogg and Fabricant agree May’s Brexit deal is better than no leaving at all

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      Brexit hardliner Jacob Rees-Mogg reiterated his backing to Prime Minister Theresa May’s deal as it’s better than no Brexit. He tweeted that “The choice seems to be Mrs May’s deal or no Brexit.” Also, Rees-Mogg explained in the Monday Moggcast podcast that “I’ve always thought that no deal is better than Mrs. May’s deal, but that Mrs. May’s deal is better than not leaving at all.” While May’s deal is “in no way a good deal, Rees-Mogg said: “against that there are the threats of a long delay, and many people in Parliament who want to frustrate the result of the referendum.”

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      Conservative MP Michael Fabricant echoed as that it’s the “dreadful conclusion” he came to too. And “a new PM can then negotiate a better and more distanced relationship with the EU after Brexit. (Of course this is the least worst option but the only practical way forward for now.)”

      Fabricant also said: “The practical alternatives are far worse that the Withdrawal Agreement including keeping us in the Customs Union and Single Market indefinitely so no control of immigration or having to obey EU directives.”

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      Chinese Xi meets EU leaders as Juncker called for trade reciprocity

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        ActionForex.com
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        Chinese President Xi-Jingping met European leaders in Pair today, including European Commission President Jean-Claude Juncker, German Chancellor Angela Merkel, and the host French President Emmanuel Macron. Xi said that cooperation is the mainstream in China-Europe relations, and even if there are differences and competition, it is benign competition.

        Juncker called for China to open up the markets for the EU. He urged clearer reciprocity so that “European businesses could have the same degree of access to the Chinese market as Chinese businesses have in Europe.” Macron said: “We would like to make progress renovating multilateralism. We have divergences, obviously in the history of humanity power does not go without rivalry, none of us are naive,” Macron added “But we respect China and are determined to have dialogue and cooperation.”

        Abenomics architect said BoJ ought to buy government bonds more aggressively

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          ActionForex.com
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          Kozo Yamamoto, a senior ruling LDP lawmaker and a key architect of Abenomics, complained that BoJ made a mistake in 2016 to change its policy to target interest rate under than yield curve control, instead of the pace of monetary base expansion. He said BoJ “ought to buy government bonds more aggressively”. But it’s difficult under the current YCC.

          Also, Yamamoto said he opposes the plan sales tax hike in October and discussed with Prime Minister Shinzo Abe. But he cannot convince Abe to put off the twice-delayed sales tax hike. He said, “the prime minister told me while I may be theoretically right, it was politically difficult”.

          Gfk: German consumers certainly not assuming recession this year

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            ActionForex.com
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            German Gfk consumer sentiment for April, dropped slightly to 10.4, down from 10.7 and missed expectation of 10.8. Gfk noted that consumer mood looks “somewhat more balanced” than in previous months. And more importantly, decline in economic expectation halted, “at least temporarily. The index rose 7 pts to 11.2 even though it’s way off last year’s 45.9.

            Consumers are “certainly not assuming that Germany will fall into recession this year”, just a “noticeable cooling off of economic activity”. Gfk k added that this is due to the so called “Five Sages” have lowered lowered their original growth forecast for this year from 1.7 to just 0.8 percent.

            Also, the downturn is more due to foreign than domestic economic factors, including the “lack of decisiveness” regarding Brexit data and nature, as well as US-EU trade conflicts.

            Full release here.

            UK Parliament seized control over Brexit, to vote on alternatives on Wednesday

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              The UK Parliament seized control over Brexit from the government after passing a cross-party amendment by 329 to 302 late Monday. The amendment was tabled by former Tory minister Oliver Letwin involving Labour’s Hilary Benn. It gives MPs a series of votes on alternatives to Prime Minister Theresa May’s Brexit deal, including a second referendum, staying the the customs union, no-deal and even revoking article 50.

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              Three Conservative ministers resigned from the government to support the amendment, including Foreign Affairs Minister Alistair Burt, Health Minister Steve Brine and Business Minister Richard Harrington. A total of 29 Conservatives rebelled to vote for the amendment.

              The Brexit department issued a quick email statement after the vote. It criticized that the results “upends the balance between our democratic institutions and sets a dangerous, unpredictable precedent for the future.” And it warned that “while it is now up to parliament to set out next steps in respect of this amendment, the government will continue to call for realism – any options considered must be deliverable in negotiations with the EU.

              Earlier in the day before the vote, May declined to commit to abide by the outcome of the indicative votes. She said: “No government could give a blank cheque to commit to an outcome without knowing what it is. So I cannot commit the government to delivering the outcome of any votes held by this house. But I do commit to engaging constructively with this process.”

              BoJ opinions: Downside risks to economy clearly heightening recently

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                ActionForex.com
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                In the summary of opinions at the March 14/15 monetary policy meeting, BoJ noted that “while uncertainties regarding overseas economies started to become apparent from around last autumn, slowdowns have materialized.”. And, “reflecting these developments, downside risks to Japan’s economy clearly have been heightening recently.”

                Also, it is concerning that developments toward an economic downturn could heighten, depending on developments in overseas economies and the effects of the scheduled consumption tax hike.

                On monetary policy, BoJ maintained that it should “persistently continue with the current monetary policy stance”. But it also emphasized that “in case developments in economic activity and prices undergo a phase shift, it is important to make preemptive policy responses.”

                Full summary of opinions here.

                Canada Freeland: Illegal US 232 steel tariffs should be removed to move ahead with USMCA

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                  ActionForex.com
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                  After meeting with US Trade Representative Robert Lighthizer in Washington yesterday, Canadian Foreign Minister Chrystia Freeland warned that the US steel tariffs raised serious questions on support for ratification of the new NAFTA, now known as USMCA.

                  She said “the existence of these tariffs for many Canadians raises some serious questions about NAFTA ratification”. And, “in order to move ahead with that deal, I think Canadians feel the right thing is, there should be no 232 tariffs or retaliatory tariffs between our two countries.”

                  Freeland raised the issue to Lighthizer clearly and emphasized “these tariffs are completely unacceptable to Canada,” repeating the words “illegal,” “unjustified” and “absurd” several times in describing them.

                  RBA Ellis: Nexus between labor, households and housing are crucial to economic outlook assessment

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                    ActionForex.com
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                    RBA Assistant Governor Luci Ellis said in a speech that the disconnect between “apparently weak national accounts” and “noticeably stronger labor market data” can be traced to the “household sector”. In contrast to the positive picture implied by the labor markets, she noted that “growth in household income has been slow”. Besides, “growth in consumption has weakened recently”.

                    While there were talks of “wealth effects” from fall in house prices on spending, Ellis noted that the link is “a bit more subtle than” simply that rise in wealth boost spending directly. At the same time, fundamentally demand for housing rests on the household sector’s confidence and capacity to take on the financial commitments involved in the purchase or rental of a home. Without enough income, and so without a strong labour market, that confidence and capacity would be in doubt.

                    Ellis emphasized that “the nexus between labour markets, households and housing are crucial to our assessment of the broader outlook.

                    Her full speech here.

                    Fed Rosengren: Balance runoff didn’t cause Q4 market turbulence

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                      ActionForex.com
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                      Boston Fed President Eric Rosengren defended against claims that Fed’s balance sheet run-off caused financial markets turbulence during last Q4. He said, “concerns about the international economy, potential trade disputes, and a U.S. government shutdown are much more plausible explanations”. Rosengren pointed out that the balance reduction is “still quite gradual”. Meanwhile, equity markets experienced a “substantial recovery” in the first two months this year, even though the runoff was “slightly faster” than in Q4.

                      Also, as Fed purchased long-term securities, it encouraged investors to “big up” the price and lower rates on other higher-duration securities. Thus, there was spillover to a wide array of other asset prices. With “quantitative tightening”, Treasury yields and term premia would move higher. But back in December, treasury rate indeed feel and term premium remained quit low. That shouldn’t be the reaction to the balance sheet runoff.

                      Looking forward, Rosengren said it’s “unrealistic to expect the Federal Reserve’s balance sheet to return to the size it was before the financial crisis”. Meanwhile, in a hypothetical next recession, central banks will have little room to reduce short-term rates. Thus, there will be increased need to utilize the balance sheet as stimulative tool of monetary policy.

                      Full speech here.

                      EU completes April 12 no-deal Brexit preparation

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                        ActionForex.com
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                        In a statement released today, EU said it completes the preparations for no-deal Brexit on April 12. It also noted that it is “increasingly likely” that UK will leave EU without a deal. EU also urged all EU citizens and businesses to continue informing themselves about the consequences of a possible “no-deal” scenario and to complete their no-deal preparedness.

                        EU’s no-deal contingency measures cover PEACE programme, EU budget, fishing rights and compensation, financial services, air connectivity and safety, road connectivity, rail connectivity, ship inspects, re-alignment of the North Sea – Mediterranean core network corridor, climate policy, Erasmus+ programme, social security entitlements and Visa reciprocity.

                        EU explained again that in a no-deal scenario, UK will “become a third country” without any transitionary arrangements. And this week “cause significant disruption for citizens and businesses”. In such case, relations between UK and EU will be government by general international public law, including rules of the World Trade Organization. Tariffs will immediately apply at the borders. And these controls could sauce significant delays at the border.

                        Full statement here.

                        Former Fed chair Yellen: Yield curve inversion signals Fed cut, not recession

                          By
                          ActionForex.com
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                          Former Fed Chair Janet Yellen said in a conference in Hong Kong that yield curve inversion doesn’t indicate recession in the US economy ahead. Rather, the development suggests that Fed might need to cut interest rate.

                          Simply, put she said “my own answer is no, I don’t see it as a signal of recession”. She explained, “in contrast to times past, there’s a tendency now for the yield curve to be very flat”. Thus, it’s now easier for it to invert.

                          On the other hand, Yellen said “it might signal that the Fed would at some point need to cut rates, but it certainly doesn’t signal that this is a set of developments that would necessarily cause a recession.”

                          Into US session: German Ifo helps stabilize sentiments, 10-year bund yield turned positive briefly

                            By
                            ActionForex.com
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                            Entering into US session, the forex markets remain generally in tight range as risk sentiments are stabilized by slightly better than expected German Ifo. Most notably, German 10-year bund yield recovered some ground and turned positive to 0.006 briefly. However, it should be noted that the implications of Ifo data were not much different from last week’s PMIs. That is, manufacturing remains a weak spot in the German economy, with the component declined for the six month in a row. The improvements in headline Business Climate was due to improvements in services, trade and construction.

                            Australian and New Zealand Dollar are the strongest ones for today so far. Sterling is the weakest, await resumption of Brexit debate in the Commons. Yen is the second weakest as risk aversion receded mildly.

                            In Europe, currently:

                            • FTSE is down -0.48%.
                            • DAX is down -0.19%.
                            • CAC is down -0.21%.
                            • German 10-year yield is up 0.0082 at -0.003.

                            Earlier in Asia:

                            • Nikkei dropped -3.01%.
                            • Hong Kong HSI dropped -2.03%.
                            • China Shanghai SSE dropped -1.97%.
                            • Singapore Strait Times dropped -0.91%.
                            • Japan 10-year JGB yield dropped -0.119 to -0.085.

                            Fed Harker: Risks tilt very slightly to the downside, at most one hike this year

                              By
                              ActionForex.com
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                              Philadelphia Fed President Patrick Harker said in a speech in London that “potential risks tilt very slightly to the downside” in the US. Though he emphasized the work “slight” as he saw “outlook as positive” and economy “continues to grow” and is on pace to the the longest economic expansion in history.

                              Harker added there was “continued strength” in the labor market. He’d “cautious against” getting caught up in a single data point in February’s dismal job data. Meanwhile, inflation is running around 2% target and “does not appear to be on a strong upward trajectory”. Rather inflation is “edging slightly downward”.

                              Combining all, Harker stays in “wait-and-see mode”. He expects “at most, on rate hike this year, and one in 2020”. But his stance will be “guided by data”.

                              Harker’s full speech here.

                              German Ifo rose to 99.6, resilient economy except manufacturing

                                By
                                ActionForex.com
                                -

                                Germany Ifo Business Climate improved to 99.6 in March, up from 98.7 and beat expectation of 98.5. That’s also the first increase following six declines in a row. Current Assessment rose 0.2 to 103.8, beat expectation of 102.9. Expectations gauge also rose to 95.6, versus consensus of 94.0.

                                Looking at the details, manufacturing dropped from 9.1 to 6.6, seventh decline in a row. But services rose from 21.3 to 26.0. Trade rose from 4.9 to 8.2. Construction rose from 18.0 to 20.3.

                                Ifo President Clemens Fuest noted “sentiment among German business leaders has improved somewhat”. And “companies are somewhat more satisfied with their current business situation, and they are decidedly more optimistic regarding business in the coming six months.” He added “the German economy is showing resilience.”

                                Ifo economist Klaus Wohlrabe said, “Brexit uncertainty is particularly hitting the industrial sector. The other sectors don’t appear to be affected” .

                                Full release here.

                                Fed Evans: May need to loosen monetary policy if activity softens more than expected

                                  By
                                  ActionForex.com
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                                  More from Chicago Fed President Charles Events. He warned that “at the moment, the risks from the downside scenarios loom larger than those from the upside ones”. And, “if activity softens more than expected or if inflation and inflation expectations run too low, then policy may have to be left on hold — or perhaps even loosened — to provide the appropriate accommodation to obtain our objectives.”

                                  On the other hand, “if growth runs close to its potential and inflation builds momentum, then some further rate increases may be appropriate over time to ensure that the economy settles in on its long-run sustainable growth path and that inflation runs symmetrically about our 2 percent target”. He added “in this scenario, the path for rates will depend crucially on any signals of an acceleration in core inflation.”

                                  Though, he emphasized that US economy is still in good shape. He pointed to Fed’s forecasts of 1.75-2.0% GDP growth in 2019. Evans said “the lower end of this range is actually in line with my view of the economy’s long-run growth potential. So we’re not looking at a bad number.” Though, “:the economy won’t feel like it is doing very well compared with last year’s very strong performance.”

                                  BoJ Harada: Unemployment rate won’t be below 2.5% without QQE

                                    By
                                    ActionForex.com
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                                    BoJ board member Yutaka Harada hailed that the quantitative and qualitative easing (QQE) program boosted productivity and drove down unemployment rate. He said in a speech that “the biggest contribution QQE has made to Japan’s economy was to boost its productivity.” Also, “without QQE, Japan’s jobless rate would not have fallen below 2.5 percent”.

                                    Harada is a persistent dissent in BoJ’s monetary policy decisions. He complained regularly that allowing the long-term yields to move upward and downward to some extent was too ambiguous as the guideline for market operations. Also, he urged to introduce forward guidance that would further clarify its relationship with the price stability target.

                                    UK to resume Brexit debate as campaigns for second referendum and Bremain gather momentum

                                      By
                                      ActionForex.com
                                      -

                                      Brexit debate will resume in the House of Commons today to find a majority for a way forward that breaks the current impasse. Prime Minister Theresa May said she hopes to hold a vote on her deal again this week. But so far, there is no signs the twice-defeated deal could make a turnaround. Instead, May could unveil plans to hold indicative votes.

                                      The push for second referendum gained momentum over the weekend with with over a million people joined the “Put It To The People” March in London. Speakers at the rally included Labour’s deputy leader Tom Watson, Scotland’s First Minister Nicola Sturgeon, London Mayor Sadiq Khan. Separately, the “Revoke Article 50 and remain in the EU” petition now gathered over 5.3M signatures.

                                      It appears that Chancellor of Exchequer Philip Hammond doesn’t object to a referendum. He said: “I’m not sure there’s a majority in parliament in support of a second referendum… Many people will be strongly opposed to it, but it’s a coherent proposition and it deserves to be considered along with the other proposals.”

                                      However, Brexit Minister Stephen Barclay warned that “at its logical conclusion, the risk of a general election increases because you potentially have a situation where parliament is instructing the executive to do something that is counter to what it was elected to do.”

                                      Meanwhile, the Sunday Times  reported that 11 unidentified senior ministers could try to oust May today as she has become a toxic and erratic figure whose judgment has “gone haywire”. Two leading candidate Cabinet Minister David Lidington and Environment Secretary Michael Gove backed May though. Also, it’s reported that hardline Brexiteer including Jacob Rees-Mogg & Iain Duncan Smith demanded May to set a timeline to step done for get their support on the Brexit deal.

                                      With short Article 50 extension granted by EU last week, if UK parliament could approve a deal, Brexit is delayed to May 22. If no deal is approved, UK will have to leave with no withdrawal agreement on April 12, or provide an alternative.

                                      ECB Rehn: Markets too relaxed on Brexit risks

                                        By
                                        ActionForex.com
                                        -

                                        ECB Governing Council member Olli Rehn warned that the risks of no-deal Brexit are underestimated by the markets. Talking to Germany’s Die Welt newspaper, he said “in the short term Brexit is surely the biggest threat”. And, “financial markets seem to be too relaxed and appear to underestimate the risk.”

                                        On Eurozone economy, Rehn said “growth has indeed slowed down significantly and we must be worried about the economy.”

                                        Fed Evans: No rate hike until H2 2020

                                          By
                                          ActionForex.com
                                          -

                                          Chicago Fed President Charles Evans said at a conference in Hong Kong that he now doesn’t expect a rate hike until second half of next year. He noted the US economy is in a strong position. Fed funds rate is seen as close to neutral. And it’s good time to pause and be cautious. Yet, that’s a rather abrupt turn as just back in January, he expected Fed could hike as many as three times this year, assuming the economy remains reasonably strong.

                                          Evans described the inversion of 3-month to 10-year yield curve as “pretty narrow”. But he also noted that there’s be a “secular decline” in long term interest rates. Some of his is “structural” having to do with “lower trend growth, lower real interest rates.” Hence, “in that environment, it’s probably more natural that yield curves are somewhat flatter than they have been historically.”

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