Tue, Jan 31, 2023 @ 16:02 GMT

Johnson confirms he’ll vote for Brexit Withdrawal Agreement

    UK MP Boris Johnson’s tweets today confirmed he will vote for the Withdrawal Agreement even if it’s “very painful”. Ans in short, “a bad deal that we have a chance to improve in the next stage of negotiations must be better than those alternatives” of “worse version of Brexit or losing Brexit altogether.”

    Attorney General Geoffrey Cox said in the Brexit debates in the Commons that any Brexit deal will require Withdrawal Agreement to be approved today. And it’s the last chance for MPs to secure UK’s “legal right” to an Article 50 extension until May 22.

    Cox also said the government will agree to legislate to ensure MPs can vote to set the negotiating mandate for the next phase of the Brexit talks. Some MPs indeed see the next phase of trade agreement and future relationship as the most important.

     

    Canadian Trudeau: We work on a good NAFTA deal, not just any deal

      The bilateral NAFTA talks between the US and Mexico continued to drag on. Mexican Economy Minister Ildefonso Guajardo said in Washington yesterday that “we’re on a path that can take us into the weekend and next week.” And, “we are well advanced (but) not there yet.” Guajardo also said “we need to get an engagement with Canada and the only way that can happen is if we continue through the weekend and into next week.”

      Separately, Canadian Prime Minister Justin Trudeau said in British Columbia the “we are encouraged by the optimism expressed by the U.S. and Mexico”. But he emphasized that “we will only sign a good deal for Canadians.” And, “we’re working to achieve a good deal, not just any deal.”

      Foreign Minister Chrystia Freeland added, “in order to get to the ultimate goal that we all share of modernizing and updating Nafta, obviously it’s important to resolve the bilateral issues.” And, “our plan is then ultimately to move on to the trilateral issues.”

      UK GDP dropped -0.3% mom in Nov, weakening services and lackluster manufacturing

        UK GDP dropped -0.3% mom in November, well below expectation of 0.0% mom. Services dropped -0.3% mom. Production dropped -1.2% mom, manufacturing dropped -1.7% mom. Construction and agriculture rose 1.9% mom and 0.1% mom respectively.

        In the three months to November, GDP grew only 0.1% 3mo3m. Services grew 0.1% 3mo3m, contributing 0.08% to the rolling three months GDP growth. Production contracted -0.6% 3mo3m, contributing -0.08% fall in GDP growth. Construction rose 1.1% 3mo3m, contributing 0.07% to GDP growth.

        Head of GDP Rob Kent-Smith said: “Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing. The UK economy grew slightly more strongly in September and October than was previously estimated, with later data painting a healthier picture. Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012. The underlying trade deficit narrowed as exports grew faster than imports.”

        Also released from UK, industrial production dropped -1.2% mom, -1.6% yoy in November, below expectation of -0.2% mom, -1.4% yoy. Manufacturing production dropped -1.2% mom, -2.0% yoy, below expectation of -0.2% mom, -1.6% yoy. Goods trade deficit narrowed to GBP -5.3B in November versus expectation of -11.8b.

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

          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.

          UK Hammond: We will have the numbers

            Former UK Chancellor of Exchequer Philip Hammond said there should be enough rebel Conservative and opposition MPs to block no-deal Brexit in the vote today. The told BBC Radio that “I think we will have the numbers. I think there will be enough people to get this over the line.” “Many colleagues have been incensed by some of the actions over the last week or so,” he said. “I think there’s a group of Conservatives who feel very strongly that now is a time where we have to put the national interest ahead of any threats to us personally or to our careers.”

            Labour’s top legal policy chief Shami Chakrabarti also said “we’ve got to get a locked-in guarantee that Britain would not crash out of the EU in an election campaign period.” “We’ve also got to try as best as possible to ensure that it wouldn’t be possible for the sitting squatting prime minister in this period to set a general election and then change the date. The priority this morning is preventing this no-deal crash out.”

            China Caixin PMI manufacturing rose to 50, pandemic impacts demand, supply and circulation

              China Caixin PMI Manufacturing rose from 49.2 to 50.0 in September, above expectation of 49.6. Caixin said new orders returned to growth. Output fell at softer pace. Inflation pressures picked up amid material shortages.

              Wang Zhe, Senior Economist at Caixin Insight Group said: “On the one hand, the epidemic continued to impact demand, supply, and circulation in the manufacturing sector. The state of the epidemic overseas and the shortage of shipping capacity also dragged down total demand. Epidemic control measures have clearly impacted the logistics industry.”

              Also released, the official NBS PMI Manufacturing dropped from 50.1 to 49.6 in September, versus expectation of 50.2. PMI Non-Manufacturing rose from 47.5 to 53.2, above expectation of 50.8.

              ECB preview; EUR/AUD to break 1.5591 support

                ECB meeting is a focus today but it’s likely to be non-eventful. Monetary policy should be left unchanged. Following the recalibration in December, ECB would leave the size of the Pandemic Emergency Purchase Program (PEPP) at EUR 1850B and that of the Asset Purchase Program (APP), its traditional QE program, EUR 20B per month. The deposit rate will also stay unchanged at -0.5%. Some attention will be on policymakers’ view on recent Euro strength, discussions on QE tapering and economic impacts of renewed lockdown.

                Here are some previews:

                Euro is under some pressure this week along with Dollar, Yen and Swiss Franc. It’s clearly overwhelmed by the power in commodity currencies, on broad based risk-on sentiment. EUR/CAD has taken out 1.5313 support yesterday to resume the decline from 1.5978. EUR/AUD is a focus today, on when (more than whether) it would break through 1.5591 support to resume the down trend from 1.9799. Next near term target is 161.8% projection of 1.6827 to 1.6144 from 1.6420 at 1.5315.

                Japan PMI composite rose to 51.1, domestic-led economic recovery

                  Japan PMI Manufacturing rose to 49.3 in January, up from 48.4, beat expectation of 48.7. PMI Services rose notably to 52.1, up from 49.4, back in expansion. PMI Composite also rose to 51.1, up from 48.6, turned into expansion.

                  Joe Hayes, Economist at IHS Market, said: “Positive signs have emerged for Japan’s economy at the start of 2020, with flash PMI data pointing to a domestic-led economic recovery”. While Q4 would likely post an “ugly decline in GDP”, January PMI will “certainly allay fears” of an “impending technical recession”.

                  Full release here.

                  China industrial production, retail sales, investment missed expectations

                    Industrial production rose 6.4% yoy in July, below expectation of 7.8% yoy. Retail sales rose 8.5% yoy, below expectation of 11.5% yoy. Fixed asset investment grew 10.3% ytd yoy, below expectation of 11.3% ytd yoy.

                    “Given the combined impact of sporadic local outbreaks of Covid-19 and natural disasters on the economy of some regions, the economic recovery is still unstable and uneven,” said NBS. “We should not only look at the growth to analyze the economic situation, but also need to look at the overall picture of employment, prices and residential incomes.”

                    Eurozone economic sentiment dropped to 92.5, EU down to 90.9

                      Eurozone Economic Sentiment Indicator fell from 93.6 to 92.5 in October. Industrial confidence dropped form -0.3 to -1.2. Services confidence dropped from 4.4 to 1.8. Consumer confidence improved from -28.8 to -27.6. Retail trade confidence rose from -8.4 to -6.9. Construction confidence rose from 1.8 to 2.6. Employment Expectations Indicator dropped from 106.6 to 104.9.

                      EU Economic Sentiment Indicator dropped from 92.4 to 90.9. Amongst the largest EU economies, the ESI fell in Germany (-1.0) and Italy (-0.9), while it remained essentially unchanged in the Netherlands (-0.3) and France (0.0) and improved in Poland (+0.4) and Spain (+1.4).

                      Full release here.

                      ECB Schnabel: Vaccines puts us back in our baseline scenario

                        ECB board member Isabel Schnabel said new restrictions in Europe “dampened substantially, the outlook for the fourth quarter, and then also for the first quarter of next year.” Though, there was “excellent news” regarding coronavirus vaccine”. And that “puts us back in our baseline scenario”, which sees a strong rebound 2021.

                        Separately, Governing Council member Pablo Hernandez de Cos also said, “the vaccine is very positive news, regarding investor confidence, consumers confidence and economic activity. But I would like to be cautious. In the short term, restrictions will continue across Europe.”

                        US ISM manufacturing ticked down to 52.8, prices fell to acceptable level at 60.0

                          US ISM Manufacturing PMI dropped from 53.0 to 52.8 in July, above expectation of 52.0. Looking at some details, new orders dropped -1.2 to 48.0. Production dropped -1.4 to 53.5. Employment rose 2.6 to 49.9. Prices dropped sharply by -18.5 to 60.0.

                          ISM said: “”The U.S. manufacturing sector continues expanding — though slightly less so in July — as new order rates continue to contract, supplier deliveries improve and prices soften to acceptable levels.”

                          “The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI® for July (52.8 percent) corresponds to a 1.4-percent increase in real gross domestic product (GDP) on an annualized basis.”

                          Full release here.

                          ECB Lane: Economy unlikely to return to pre-crisis level before 2021

                            ECB chief economic Philip Lane said in an interview by El Pais that “the speed at which the economy bounces back will then hinge on whether consumers are more reluctant to consume and businesses hold back on investment.” “From today’s perspective, it looks in any case unlikely that economic activity will return to its pre-crisis level before 2021, if not later.”.

                            Regarding the upcoming June ECB meeting, Lane said policymakers are “in the process of analyzing the situation”. “If we see that financial conditions are too tight, or the pressure on individual bond markets is not reflecting economic fundamentals, we can adjust the size or duration of our purchases, which we can anyway allocate flexibly over time and market segments, he added.

                            Full interview here.

                            S&P 500 hit new records, shrugs off FOMC minutes

                              US stocks regained bullishness overnight, with S&P 500 and NASDAQ closing at new record highs. FOMC minutes noted that tapering of asset purchases would happen “somewhat earlier” than expected, after seeing more data over the “coming months”. Meanwhile, rate hike could also come “somewhat earlier” than expected. The overall messages were largely consistent with the prior statement and projections.

                              Suggested readings on FOMC minutes:

                              S&P 500 rose 0.34% or 14.59 pts to close at 4358.13. The current medium term up trend is still on track to 100% projection of 2191.86 to 3588.11 from 3233.94 at 4625.94. In any case, near term outlook will stays bullish as long as 4257.16 support holds, in case of retreat.

                              UK PMI composite finalized at 13.8, suggest -7% GDP contraction in Q2 or more

                                UK PMI Services was finalized at 13.4 in April, down from March’s 34.6. The data indicated a contraction in the service sector activity on an unprecendented scale since survey started in July 1996. PMI Composite was finalized at 13.8, down from March’s 36.0. That’s by far the lowest recorded since the series began in 1998.

                                Tim Moore, Economics Director at IHS Markit: “Historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with the economy falling at a quarterly rate of approximately 7%, but we expect the actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector.

                                “While output, new work and employment indices all hit all-time lows in April, survey respondents indicated a tentative upturn in their business expectations amid hopes that a gradual re-opening of the economy can be achieved in the summer. However, service providers looking to re-establish business operations overwhelmingly commented that capacity would remain well below previous levels for an extended period and any timings remain highly uncertain.”

                                Full release here.

                                New Zealand BusinessNZ PMI: Weak spot in production

                                  New Zealand BusinessNZ Performance of Manufacturing Index (PMI) dropped -1.1 to 52.2 in March. That’s also the second consecutive decline in 2018 even though it still signaled expansion.

                                  BusinessNZ’s executive director for manufacturing Catherine Beard:

                                  • “On a positive note, the proportion of positive comments in March (55.1%) picked up from both February (51.4%) and January (50.7%).  Those who provided negative comments typically noted a lack of finding the right staff, reduced orders (both domestically and offshore) and general uncertainty in the market.”

                                  BNZ Senior Economist, Craig Ebert:

                                  • “The weak spot in March’s PMI was its production index.  With a seasonally adjusted outcome of 50.8 this was close to stalling. Compare this to February’s 53.7 and the exceptionally high reading of 61.0 back in November and a sense of sharp deceleration arises”.

                                  Dollar jumps as FOMC members pull ahead rate hike projections

                                    Dollar jumps as Fed raised median federal funds rate projection in 2023 to 0.6%, from 0.1%. That is, there could be two rate hikes by the end of 2023. Also, seven FOMC members penciled in a rate hike or more in 2022, comparing to four in March. 13 members expected at least one hike by 2023, comparing the just seven in March.

                                    Full statement here.

                                    Full projections here.

                                    EUR/USD is now eyeing 1.1985 support next, as fall from 1.2265 accelerates downwards.

                                    OPEC raised both supply and demand forecasts, concerned with US trade relations

                                      In May’s Monthly Oil Market Report, OPEC rated both 2018 oil supply and demand forecasts.

                                      For 2018, oil demand growth is forecast to increase by around 1.65mb/d to average 98.85 mb/d. Growth was revised higher from prior month by 25tb/d. China is anticipated to lead oil demand growth in 2018, followed by Other Asia and OECD Americas. Non-OPEC supply growth was revised up by 0.01mbs in 2018 to 1.75mb/d, averaging 59.62mb/d in total. Meanwhile, OPEC production rose 12tb/d to average 31.93mb/d in April.

                                      In the section regarding world economy, OPEC warned of the risk of development in trade relations. In particular, it “the latest rounds of US sanctions on Russia, tariffs on Chinese products in combination with considerable requests by the US in trade negotiations with China, US tariffs on steel and aluminium, prolonged North American Free Trade Agreement (NAFTA) negotiations, as well as the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) with IR Iran all point to rising uncertainty.

                                      Full report can be found here.

                                      Australia AiG services dropped to 56.2, intensifying price and wage pressures

                                        Australia AiG Performance of Services Index dropped -3.8 pts to 56.2 in March. Sales dropped sharply by -14.9 to 53.7. Employment dropped -0.3 to 54.4. But new orders rose 2.4 to 63.5. Input prices jumped 11.5 to 77.5. Selling prices also rose 4.2 to 64.5. Average wages surged 11.8 to 67.7.

                                        Innes Willox, Chief Executive of the national employer association Ai Group, said: “Australia’s services sector continued its positive run in March although the pace of growth slowed in the face of intensifying input price pressures, difficulties in finding staff and further wage pressures.”

                                        Full release here.