UK Prime Minister Theresa May’s office said UK Prime Minister Theresa May and European Commission Jean-Claude Juncker held phone conversation at Sunday night. But talks remained “deadlocked” and thus, there is no plan for May to travel to Brussels again today. Cabinet minister Andrea Leadsom, urged fellow Tories to support May’s deal. And, that would mean “that we can move on” while leaving open the possibility to “potentially amend how we do this.”
Some Conservative MPs are reported to ask May to pull the Brexit meaningful vote on Tuesday, because it’s rather meaningless to hold a vote that will certainly be defeated. But there were also talks that May is planning to push for a vote on a “hypothetical” deal on Tuesday. It could be with a certain Irish backstop arrangement with Attorney General Geoffrey Cox’ input. Then EU could be forced to concede should there be a Commons majority.
In an interview on March 7, published today, ECB Executive Board Member Benoît Cœuré said the economy slowdown “didn’t come as a surprise” even though it has been “stronger than expected and started sooner”. ECB’s decision last week “don’t represent a turnaround in our policy” but just “carefully calibrated to this diagnosis”. And ECB was just :adjusting to the new reality rather than reversing our course”.
Coeure added “we don’t see signs of a recession at present” and “we don’t see the need” to resume asset purchases. Economic growth is “robust” although it’s “less strong than before”. And it will “take longer for inflation to reach our objective, but it will get there”.
Coeure also said Italy is “in a difficult juncture” and it’s the “only euro area country that is experience a technical recession”. There was no improvement in the labor market and in the long term, Italy’s problem is well known and it’s “productivity growth”. But “I don’t believe that any of this has to do with the euro, otherwise it would be a general problem across the euro area.”
UK now enters into a crucial week with important Brexit votes. Prime Minister Theresa May failed to secure the needed changes to Irish backstop. EU chief negotiator Michel Barnier threw out a package of “concessions” that was rejected bluntly by the UK government. Foreign Minister Jeremy Hunt insisted that the meaningful vote on the Brexit deal will still go ahead on Tuesday, March 12. But the Sunday Times predicted that May will lose by 230 votes again, the same margin of defeat as in January for effective the same deal in the Commons.
Hunt now turned to Brexiteer Tories and threatened that vote down the deal would open the door to no Brexit. He said, “If you want to stop Brexit you only need to do three things: kill this deal, get an extension, and then have a second referendum. Within three weeks those people could have two of those three things … and quite possibly the third one could be on the way.”
On the other hand, the EU is trying to push the UK to make up it’s mind clearly, rather that getting an extension with no purpose. France’s EU affairs minister Nathalie Loiseau said “More time, to do what? We’ve had two years … If there’s nothing new, more time will not do anything other than usher in more uncertainty, and uncertainty just creates anxiety… It’s not time that we need, but a decision.”
Manfred Weber, the chairman of the European People’s Party in the European Parliament also said “May should end her zigzag course.” Also, “British politicians, and I mean Labour leader Jeremy Corbyn in particular, must finally put their own careers and party considerations behind them and look at the country’s interests again.”
In short, there will be another parliamentary vote on the Brexit deal on March 12, next Tuesday. As it’s defeated, a vote on no-deal Brexit will then be held on March 13 to see if there is explicit consent on this path. If not, there will be another vote on Article 50 extension on March 14.
Comments from Chinese officials over the weekend suggested they’re trying to push back on US demand regarding currency manipulation. China PBoC Governor Yi Gang said over the weekend that both sides reached consensus of many important issues, including competitive devaluation of currencies. But he also emphasized that yuan exchange-rate formation mechanism is in line with G20 standard.
Yi went further to noted that US and China discussed respecting the “autonomy” of each other’s monetary policy. Vice Commerce Minister Wang Shouwen also said on Saturday that any “enforcement mechanism for a prospective trade deal must be “two way, fair and equal.” Apparently, Chinese officials were avoiding any mention of one-sided pledge on currency.
On the other hand, White House economic advisor Larry Kudlow said there was a breakthrough with China agreeing to promote “stable currency and avoid competitive devaluation. He’s “positive and bullish” on a US-China trade deal. And he expects the agreement to be finalized by April. He also hailed that Trump administration is making “headway” in the negotiations and is “making great progress”. Currently, Kudlow added that negotiators are “working out some of the difficult final points” And, “it’s got to be good, it’s got to be fair and reciprocal, and it has got to be enforceable — that’s an important point.”
In CBS’s 60 Minutes show, Fed Chair Jerome Powell reiterated that current interest rates are “appropriate” while inflation is “muted”. He also described the current rate setting as “roughly neutral”. Fed is patient regarding policy adjustment and that means “we don’t feel any hurry to change our interest rate policy”.
On the economy, he said “the outlook for the U.S. economy is favorable.” And, “the principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit.”
Powell added that “what’s happened in the last 90 or so days is that we’ve seen increasing evidence of the global economy slowing down” and “we’re going to wait and see how those conditions evolve before we make any changes to our interest-rate policy.”
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US Non-Farm Payrolls grew only 20k in February, well below expectation of 185k. Unemployment rate dropped to 3.8%, down from 4.0% and missed expectation of 3.9%. Average hourly earnings rose 0.4% mom, beat expectation of 0.3% mom. Labor force participation rate was unchanged at 63.2%.
Also from US, housing starts rose to 1.23M annualized rate in January, above expectation of 1.18M. Building permits rose to 1.35M, beat expectation of 1.29M.
Canada employment data is strong, showing 55.9k growth in February, versus expectation of -2.5k fall. Unemployment rate was unchanged at 5.8%.
ECB announced yesterday to start a new quarterly targeted longer-term refinancing operations (TLTRO-III). in September. That’s three month later than some expected. Some lenders might start to face a funding gap in June already. ECB Governing Council member Ewald Nowotny said “to make this a successful program, it has to be well-prepared.” Meanwhile, Nowotny also hailed that “what the ECB did was the correct reaction” to risks in the external situation.
Another ECB Governing Council member Vitas Vasiliauskas said the central bank has time up until September to decide details of the TLTRO-III. He added that the program won’t be extended to mortgages.
Ireland Prime Minister Leo Varadkar said today that “it requires a change of approach by the UK government to understand that Brexit is a problem of their own creation.” And, “what was agreed was already a compromise” by the EU. UK government failed to secure ratification of the deal and “it should be a question of what they are now willing to offer us.”
Varadar also emphasized that “we have made a lot of compromises already and what is not evident is what the UK government is offering to the European Union and Ireland should they wish us to make any further compromises”. He added, “we were and remain happy to apply the backstop only to Northern Ireland if they want to go back to that. It doesn’t have to trap, or keep, all of Great Britain in the customs territory at all.”
European Commission spokesman Alexander Winterstein said “Technical discussions are ongoing. The EU side has offered ideas how to give further reassurances regarding the backstop, you are aware of all this, so there is no need for me to repeat it”.
UK Foreign Minister Jeremy Hunt said “History will judge both sides very badly if we get this wrong” And, “we want to remain the best of friends with the EU, that means getting this agreement through in a way that doesn’t inject poison into our relations for many years to come”.
Separately, it’s also reported that the trip of UK Attorney General Geoffrey Cox and Brexit Minister Stephen Barclay to Brussels has been called off. And there is no plan for Prime Minister Theresa May to meet EU officials over the weekend.
Risk aversion extended from US to Asian session today. It started off overnight after the all-round dovish turn of ECB which triggered steep decline in stocks as well as treasury yields. Asian markets picked up and are sent further lower by terrible trade data from China. In short, China’s exports contracted steeply by -20.7% yoy in February, largest decline since 2016. Trade surplus shrank to just USD 4.1B. The data highlights the “tough struggle” that Chinese Premier Li Keqiang mentioned earlier. Difficult export environment is a primary reason for lowering growth target to 6.0-6.5%, which lower bound is slowest in three decades.
Adding to negative sentiments, Citic Securities surprisingly advised clients to sell shares of People’s Insurance Company of China saying it’s “significantly overvalued”. Some speculate that such a sell rating must be have greenlight from regulators. That is, the Chinese government could be seeing recent surge in stocks as overheating and prefer to cool it down into a slow bull market. China Shanghai SSE is currently down -3.09% but stays above 3000 handle nevertheless.
In the currency markets, Yen is overwhelmingly the biggest winner for today and the week, followed by Swiss Franc. Global treasury yields staged a u-turn this week with German 10-year yield back at 0.067, after hitting as high as 0.21 earlier in the week. US 10 year-yield also lost 2.7 handle again. Japan 10-year JGB yield only turned positive for a brief little while. As for today, Australian Dollar is the worst performing one, followed by Dollar and Canadian. Focus will turn to job data from both US and Canada later in the day.
In Asia:
Nikkei dropped -2.01%.
Hong Kong HSI is down -1.62%.
China Shanghai SSE is down -3.07%.
Singapore Strait Times is down -0.81%.
Japan 10-year JGB yield is down -0.0254 at 0.035.
Overnight:
DOW dropped -0.78%.
S&P 500 dropped -0.81%.
NASDAQ dropped 01.13%.
10-year yield dropped -0.056 to 2.636.
30-year yield dropped -0.046 to 3.025, still above 3.0 handle
China’s February trade balance data is rather terrible. Trade surplus shrank sharply to USD 4.1B, well below expectation of USD 27.2B. That’s primarily due to steep contraction in exports by -20.7% yoy, largest decline since February 2016. The data could be distorted by the timing of the New Year. But January and February combined, exports still dropped -4.6% yoy while imports dropped -3.1% yoy.
Looking at some January and February combined details, trade with the US continued to deteriorate drastically . Total trade with US dropped -19.9% yoy, exports dropped -14.1% yoy but imports dropped -35.1% yoy. Trade with EU wasn’t too bad, still recorded 3.7% yoy growth in total trade, 2.4% yoy rise in exports and 5.7% rise in imports. One interesting point to note is that imports from Brazil jumped 33.5% yoy while imports from Canada rose 34.9% yoy.
According to the pre-released extracts, UK Prime Minister Theresa May is expected to tell EU in a speech today that “it is in the European interest for the UK to leave with a deal”. And, “just as MPs will face a big choice next week, the EU has to make a choice, too.”
May is still seeking legally binding assurances from EU that the Irish backstop, if triggered, will be temporary. May will say “we are working with them but the decisions that the European Union makes over the next few days will have a big impact on the outcome of the vote.”
Without any fundamental change regarding Irish backstop, there is practically no chance for May to get her Brexit deal through the Parliament on March 12, next Tuesday. A vote on no-deal Brexit will then be held on March 13 to see if there is explicit consent on this path. If not, there will be another vote on Article 50 extension on March 14.
EU Trade Commissioner Cecilia Malmstrom said she had productive meetings with US Trade Representative Robert Lighthizer in Washington this week. She noted that both sides have agreed on a problem as “China is dumping the market, China is subsidizing their industry, this creates global distortions”.
However, there was obvious disagreement in the solution. Malmstrom complained that “the solution to these problems is not imposing tariffs on the European Union. Why is that so hard to understand?” And, she added “if you want an ally and partner, this is not the way to go about it.”
She emphasized that “we should work on common threats and common challenges and not impose tariffs on each other.” If US imposes auto tariffs to EU cars, Malmstrom pledged to, “with a very heavy heart”, retaliate against EUR 20b US imports.
On EU-US trade agreement, Malmstrom noted there is “no support” for a full comprehensive trade agreement in the EU right now. She reiterated EU’s stance that “if we start with industrial goods, which is much less complicated, and which will be beneficial from both sides, we maybe can rebuild that trust and then maybe we’ll see later” about agriculture”.
Japan Q4 GDP growth was finalized at 0.5% qoq, revised up from 0.3% qoq and beat expectation of 0.4%. GDP deflator was finalized at -0.3% yoy, unrevised. In January, overall household spending rose 2.0% yoy, beat expectation of -0.6% fall. Current account surplus widened to JPY 1.8T.
Japan Economy Minister Toshimitsu said Q4’s data showed modest recovery but weak external demand warranted attention. He sounded confident that steady recovery has been confirmed. However, the government is watching overseas risks including slowdown in China.
Vice Finance Minister for International Affairs Masatsugu Asakawa also sounded cautious regarding China. He noted that it’s “inevitable for Chinese economy to slow, with its potential growth lowering as a trend:. Though, he also noted that “it is unlikely to falter greatly as there’s room for authorities’ stimulus measures.”
The global financial markets seem to have taken ECB’s dovish turn rather negatively. Instead of cheering prolonged low interest rate environment and cheap loans, investors take the warning that the worst is yet to come. At the time of writing, DOWN is down nearly -200 pts while Europe indices all closed in red. Bond yields suffered steep decline as German 10-year yield hit as low as 0.063 so far, lowest since at least the start of 2017. And, it hit as high as 0.210 just on March 1.
In the currency markets, Euro is no doubt the biggest loser. EUR/USD’s break of 1.1215 support now indicates resumption of medium term down trend from 1.2555. The common currency also drags down Sterling and Swiss Franc. Meanwhile, Yen is the strongest one, with help from risk aversion as well as falling global yields. Canadian is surprisingly the second strongest for today. But the Loonie is just paring some of yesterday’s steep loss.
In the US:
DOW is down -0.81%.
S&P 500 is down -0.55%.
NASDAQ is down -0.53%.
10-year yield is down -0.038 at 2.654. It kissed 2.7 handle goodbye earlier this week.
30-year yield is down -0.031 at 3.040, still holding on to 3.0 handle.
In ECB’s post meeting press conference, President Mario Draghi said there are signs that “some of the idiosyncratic domestic factors dampening growth are starting to fade”. However, the weakening in data points to a “sizeable moderation in the pace of the economic expansion that will extend into the current year”. Underlying inflations “continues to be muted”. And weaker economic momentum is “slowing the adjustment of inflation” towards target.
Draghi added that Incoming have continued to be weak, in particular in manufacturing, “reflecting the slowdown in external demand compounded by some country and sector-specific factors”. And the impact is “turning out to be somewhat longer-lasting”Thus near-term growth outlook will be weaker than previously anticipated
In the new staff projections, GDP growth was “revised down substantially in 2019 and slightly in 2020”. GDP is projected to grow by 1.1% in 2019, 1.6% in 2020 and 1.5% in 2021. They compare to December’s projection of 1.7% in 2019, 1.7% in 2020 and 1.5% in 2021. Risks surrounding outlook are “still tilted to the downside”, due to “geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.”
HICP inflation is projected to be at 1.2% in 2019, 1.5% in 2020 and 1.6% in 2021. They compare to December’s projection of 1.6% in 2019, 1.7% in 2020 and 1.8% in 2021.
US initial jobless claims dropped -3k to 223k in the week ending March 12, slightly below expectation of 225k. The four-week moving average of initial claims dropped -3k to 226.25k. Continuing claims dropped 50k to 1.755M in the week ending February 23. Four-week moving average of continuing claims rose 4.75k to 1.767M.
Also release, US non-farm productivity was finalized at 1.9% in Q4, unit labor cost at 2.0%. Canada building permits dropped -5.5% mom in January.
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, we have conducted a thorough assessment of the economic and inflation outlook, also taking into account the latest staff macroeconomic projections for the euro area. As a result, the Governing Council took the following decisions in the pursuit of its price stability objective.
First, we decided to keep the key ECB interest rates unchanged. We now expect them to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Second, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Third, we decided to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III), starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy. Under TLTRO-III, counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation. Like the outstanding TLTRO programme, TLTRO‑III will feature built-in incentives for credit conditions to remain favourable. Further details on the precise terms of TLTRO-III will be communicated in due course.
Fourth, we will continue conducting our lending operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021.
Today’s monetary policy decisions were taken to ensure that inflation remains on a sustained path towards levels that are below, but close to, 2% over the medium term. While there are signs that some of the idiosyncratic domestic factors dampening growth are starting to fade, the weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year. The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment. Moreover, underlying inflation continues to be muted. The weaker economic momentum is slowing the adjustment of inflation towards our aim. At the same time, supportive financing conditions, favourable labour market dynamics and rising wage growth continue to underpin the euro area expansion and gradually rising inflation pressures. Today’s decisions will support the further build-up of domestic price pressures and headline inflation developments over the medium term. Significant monetary policy stimulus will continue to be provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs. In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.2%, quarter on quarter, in the fourth quarter of 2018, following growth of 0.1% in the third quarter. Incoming data have continued to be weak, in particular in the manufacturing sector, reflecting the slowdown in external demand compounded by some country and sector-specific factors. The impact of these factors is turning out to be somewhat longer-lasting, which suggests that the near-term growth outlook will be weaker than previously anticipated. Looking ahead, the effect of these adverse factors is expected to unwind. The euro area expansion will continue to be supported by favourable financing conditions, further employment gains and rising wages, and the ongoing – albeit somewhat slower – expansion in global activity.
This assessment is broadly reflected in the March 2019 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 1.1% in 2019, 1.6% in 2020 and 1.5% in 2021. Compared with the December 2018 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down substantially in 2019 and slightly in 2020.
The risks surrounding the euro area growth outlook are still tilted to the downside, on account ofthe persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.5% in February 2019, after 1.4% in January, reflecting somewhat higher energy and food price inflation. On the basis of current futures prices for oil, headline inflation is likely to remain at around current levels before declining towards the end of year. Measures of underlying inflation remain generally muted, but labour cost pressures have strengthened and broadened amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth.
This assessment is also broadly reflected in the March 2019 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.2% in 2019, 1.5% in 2020 and 1.6% in 2021. Compared with the December 2018 Eurosystem staff macroeconomic projections, the outlook for HICP inflation has been revised down across the projection horizon, reflecting in particular the more subdued near-term growth outlook.
Turning to the monetary analysis, broad money (M3) growth decreased to 3.8% in January 2019, from 4.1% in December 2018. M3 growth continues to be backed by bank credit creation, notwithstanding a recent moderation in credit dynamics. The narrow monetary aggregate M1 remained the main contributor to broad money growth.
The annual growth rate of loans to non-financial corporations declined to 3.3% in January 2019, from 3.9% in December 2018, reflecting a base effect but also, in some countries, the typical lagged reaction to the slowdown in economic activity, while the annual growth rate of loans to households remained at 3.2%. Borrowing conditions for firms and households are still favourable, as the monetary policy measures put in place since June 2014 continue to support access to financing, in particular for small and medium-sized enterprises. The policy measures decided today, and in particular the new series of TLTROs, will help to ensure that bank lending conditions remain favourable going forward.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. This is particularly important in view of the overall limited implementation of the 2018 country-specific recommendations, as recently communicated by the European Commission. Regarding fiscal policies, the mildly expansionary euro area fiscal stance and the operation of automatic stabilisers are providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. All countries should continue to increase efforts to achieve a more growth-friendly composition of public finances. Likewise, the transparent and consistent implementation of the European Union’s fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing work and urges further specific and decisive steps to complete the banking union and the capital markets union.
Entering into US session, European majors are the weakest ones today. Euro dips notably after ECB left interest rate unchanged and revised forward guidance. It will now keep interest rates at present level through the end of 2019, prolonged from summer of 2019. Also a new round of quarterly TLTRO-III is announced. These are actually not surprising given the deterioration in Eurozone outlook. Focus will turn to ECB President Mario Draghi’s press conference and new economic projections. Sterling in the currency markets, Sterling is the weakest as there is sign of any breakthrough in Irish backstop impasse. Commodity currencies are generally higher even though outlook for BoC, RBA and RBNZ are all dovish.
In Europe, currently:
FTSE is down -0.29%.
DAX is down -0.19%.
CAC is down -0.06%.
German 10-year yield is down -0.0165 at 0.113, heading back to 0.1 handle.
Earlier in Asia:
Nikkei dropped -0.65%.
Hong Kong HSI dropped -0.89%.
China Shanghai SSE rose 0.14%.
Singapore Strait Times rose 0.21%.
Japan 10-year JGB yield dropped -0.0062 to -0.001.
ECB keeps interest range unchanged at 0.00% as widely expected. The central bank now expects to keep interest rates at present levels “at least through the end of 2019”, prolonged from “summer of 2019”.
Also, TLTRO-III is announced, quarterly from September 2019 through March 2021. It’s aiming at preserving favourable bank lending conditions, and smooth transition of monetary policy.
Euro weakens after the release, taking Sterling and Swiss lower too. Focus will now turn to ECB President Mario Draghi’s press conference and new economic projections.
Here is the full statement:
Monetary Policy Decisions
At today’s meeting the Governing Council of the European Central Bank (ECB) took the following monetary policy decisions:
(1) The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
(2) The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
(3) A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy. Under TLTRO-III, counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation. Like the outstanding TLTRO programme, TLTRO-III will feature built-in incentives for credit conditions to remain favourable. Further details on the precise terms of TLTRO-III will be communicated in due course.
(4) The Eurosystem’s lending operations will continue to be conducted as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
BoE MPC member Silvanna Tenreyo said the “effect of that Brexit uncertainty on demand has become increasingly evident in recent months”. The effect is most apparent in business as “investment has been falling in the UK at a time when it has been growing in our international peers; business confidence surveys have slumped; hiring intentions have fallen back.”.
There were also signs of impact on households as “housing market is weakening; consumer confidence has deteriorated. This all happened at a time when household real incomes are rising and all else equal, one might normally have expected spending to be rising too.”
On monetary policy in case of disorderly Brexit in a speech. She echoed the view that seems to be the consensus in the MPC now. That is, “a situation where the negative demand effects outweigh those other effects is more likely, which would necessitate a loosening in policy.”
But she also noted reiterated that “the monetary policy response to such a scenario will depend on the balance of these effects on supply, demand and the exchange rate”. And, it is “to envisage other plausible scenarios requiring the opposite response.”
UK PM May said to mull hypothetical vote to break Brexit deadlock
UK Prime Minister Theresa May’s office said UK Prime Minister Theresa May and European Commission Jean-Claude Juncker held phone conversation at Sunday night. But talks remained “deadlocked” and thus, there is no plan for May to travel to Brussels again today. Cabinet minister Andrea Leadsom, urged fellow Tories to support May’s deal. And, that would mean “that we can move on” while leaving open the possibility to “potentially amend how we do this.”
Some Conservative MPs are reported to ask May to pull the Brexit meaningful vote on Tuesday, because it’s rather meaningless to hold a vote that will certainly be defeated. But there were also talks that May is planning to push for a vote on a “hypothetical” deal on Tuesday. It could be with a certain Irish backstop arrangement with Attorney General Geoffrey Cox’ input. Then EU could be forced to concede should there be a Commons majority.