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USTR Robert Lighthizer testimony on China trade negotiations

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    Canada CPI slowed to 1.4%, CAD rise as CPI risks cleared

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      Canada headline CPI slowed to 1.4% yoy in January, down from 2.0% yoy, matched expectations. CPI core-common was unchanged at 1.9% yoy. CPI core-median was unchanged at 1.8% yoy. CPI core-trim was unchanged at 1.9% yoy. Energy costs declined 6.9%, while the growth in the price of services slowed to 2.7% as transitory pressures from the air transportation, telephone services and travel tours indexes dissipated.

      Full release here.

      USD/CAD drops again as the CPI risk is now cleared. Rebound in oil price is helping the Loonie. WTI crude is now back above 56.7, comparing to this week’s low at 55.11.

      Into US session: Sterling extends rally, Swiss Franc strong on Pakistan/India tensions

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        Entering US session, Sterling is back in the driving seat again and is extending this week’s rally on fading chance of no-deal Brexit. Swiss Franc follows as the second strongest, lifted by escalating Pakistan/India tensions after both shot down each others’ fighter jets. Canadian Dollar is now the third strongest, as oil price rebound. WTI is back above 56.7 as the impact of Trump’s tweet fades. Meanwhile, Aussie and Kiwi are the weakest ones.

        Focus will now turn to Canadian CPI first. US will also release trade balance pending home sales and factory orders. Fed chair Jerome Powell will have the second day of Congressional testimony. But testimony of USTR Robert Lighthizer’s testimony will catch more attention. Lighthizer might reveal some of the little known substantial progress in trade talks with China.

        In Europe, currently:

        • FTSE is down -0.70%.
        • DAX is down -0.37%.
        • CAC is down -0.15%.
        • German 10-year yield is down -0.0127 at 0.107.

        Earlier in Asia:

        • Nikkei closed up 0.50%.
        • Hong Kong HSI dropped -0.05%.
        • China Shanghai SSE rose 0.42%.
        • Singapore Strait Times dropped -0.36%.
        • Japan 10-year JGB yield rose 0.0019 to -0.024.

        Bundesbank Weidmann: OIl price and growth expectation could temporarily influence inflation

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          More from Bundesbank President Jens Weidmann, he said that ECB should looks through short term fluctuations in inflation caused by oil prices to temporary slowdown. He emphasized that ECB’s “price stability target is medium term, so we should look through these fluctuations”.

          Also, “it is clear that short-term fluctuations in oil prices — like the sharp decline at the end of 2018 — but also corrections in growth expectations for 2019, could temporarily influence the inflation outlook.”

          Bundesbank Wedimann, growth to fall well short of 1.5% potential this year

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            Bundesbank President Jens Weidmann said today that German economy growth will “fall well short of the potential rate of 1.5 percent in 2019”. That’s because “there is much to suggest that the dip in growth here in Germany has persisted into the current year”.

            However, he emphasized that the prerequisites for growth remain intact, including low financing cost, expansion in employment market and rising wages. Thus, there is no reason for pessimism yet.

            Separately, it’s reported that German cabinet gave green-light for a second eight-year term for Weidmann, as the current term expires at the end of APril.

            Eurozone economic sentiment dropped to -0.2, business climate unchanged at 0.69

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              Eurozone Economic Sentiment Indicator dropped -0.2 to 106.1 in February, slightly above expectation of 106.0. The broadly unchanged reading resulted from “weaker industry and construction confidence in combination with more upbeat signals from the services sector, as well as, to a lesser extent, retail trade and consumers”. Meanwhile the ESI dropped in Franc (-0.9%) and Italy (-1.6), practically flat in Germany (-0.1) and Spain (0.0), but improved in the Netherlands (+3.0).

              Eurozone Business Climate Indicator is flat at 0.69 in February, slightly above expectation of 0.67. Eurostats noted “Managers’ production expectations, as well as their assessments of the stocks of finished products, overall- and export order books clouded over. Meanwhile, the appraisals of past production rebounded from last month’s sharp drop.”

              Rees-Mogg could back May’s Brexit deal with reasonably effective time limit on Irish backstop.

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                Jacob Rees-Mogg, a high profile Brexiteer Conservative, said that the could back Prime Minister Theresa May’s Brexit deal if there is a reasonably effective time limit on the Irish backstop.

                Rees-Mogg told BBC ratio that “I can live with the de facto removal of the backstop…. I mean that if there is a clear date that says the backstop ends, and that is in the text of the treaty or equivalent of the text of the treaty”.

                But he also insisted that the time limit should be “a short date, not a long date, then that would remove the backstop in the lifetime of parliament and that would have a reasonable effect from my point of view.”

                Swiss Franc surges after Pakistan shot down two Indian jets in its airspace

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                  Swiss Franc jumps notably on escalating tension between India and Pakistan. It’s reported that Pakistan said its fighter planes have shot down two Indian jets. Pakistan army spokesman Asif Ghafoor said Indian jets entered its airspace. Two Indian pilots are arrested.

                  Ghafoor said in a news conference “this was not a retaliation in true sense, but to tell Pakistan has capability, we can do it, but we want to be responsible, we don’t want an escalation, we don’t want a war.” The country’s foreign ministry also said in a statement “If India is striking at so called terrorist backers without a shred of evidence, we also retain reciprocal rights to retaliate against elements that enjoy Indian patronage while carrying out acts of terror in Pakistan,”

                  It come just a day after India claimed it attacked a terrorist camp in Pakistan. That’s the first time Indian jets struck inside Pakistan since 1971.

                  Into European session: Yen strongest as markets turn cautious, Europeans soft

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                    Yen buying emerges in early European session as markets turn cautious again. Rally in Asian stocks lost steam in the afternoon with China Shanghai SSE turning red. But for now, Canadian Dollar and New Zealand Dollar are both firm for now. WTI crude oil breached 56 handle on recovery and lifted the Loonie overnight. But the recovery is so far rather weak with corrective look. We might seen more downside in oil price ahead, which drags down Canadian again. On the other hand, European majors are generally the weakest ones today.

                    For the week, Sterling remains overwhelmingly the strongest one. While there is no sign of having an approvable Brexit deal yet, no-deal scenario is a big step further away. It will now take explicit consent in the Commons, by a vote on March 13, to trigger no-deal Brexit. Otherwise, it’s more likely that Article 50 will be extended for a short, limited time. Australian Dollar follows as second strongest for the week but it’s rather vulnerable. Canadian is the weakest on fall in oil prices after Trump tweeted it down.

                    In Asia:

                    • Nikkei closed up 0.50%.
                    • Hong Kong HSI is up 0.10%.
                    • Shanghai SSE is down -0.01%.
                    • Singapore Strait Times is flat.
                    • Japan 10-year JGB yield is up 0.0043 at -0.021.

                    Overnight:

                    • DOW dropped -0.13%.
                    • S&P 500 dropped -0.08%.
                    • NASDAQ dropped -0.7%.
                    • 10-year yield dropped -0.037 to 2.636.
                    • 30-year yield dropped -0.028 to 3.006. 3% handle looks vulnerable again.

                    Trump to friend Kim: Denuclearize and thrive like Vietnam

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                      Trump arrived in Vietnam for the summit with Korean leader Kim Jong-un. Ahead of the meeting, he urged his “friend” Kim to denuclearize and said North Korea could be like Vietnam, “thriving like few places on earth”. He added that “he potential is AWESOME, a great opportunity, like almost none other in history”.

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                      The two are expected to meet at French-colonial-era Metropole Hotel in Hanoi at 1130 GMT and have a 20-minute one-on-one conversation before a dinner.

                      BoJ Kataoka: Uncertainty heightened if current monetary easing is prolonged

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                        BoJ board member Goushi Kataoka continued his call for more monetary stimulus in a speech to business leaders today. He argued that the central bank should ramp up its monetary easing to achieve inflation target earlier.

                        And he warned, “if the current monetary easing is prolonged, it would mean the period in which Japan’s economy faces various uncertainties will be longer. That means uncertainty on achieving our price target will heighten.”

                        Kataoka is a known dove who persistently vote against BoJ’s policy in push for more easing.

                        UK Gov’t: Lack of preparation by businesses on no-deal Brexit, particular SMEs

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                          In a report titled “Implications for Business and Trade of a No Deal Exit on 29 March 2019”, the UK government noted that businesses and individuals are under-prepared for no-deal Brexit because they see it as unlikely. But it’s warned that the disruption risk could heighten if it does eventually take place.

                          The reported noted that “despite communications from the government, there is little evidence that businesses are preparing in earnest for a no-deal scenario, and evidence indicates that readiness of small and medium-sized enterprises in particular is low”.

                          The government “judges that the reason for this lack of action is often because a no-deal scenario is not seen as a sufficiently credible outcome to take action or outlay expenditure”. And “the lack of preparation by businesses and individuals is likely to add to the disruption experienced in a no-deal scenario”.

                          Full report here.

                          Brexit debates will continue today and some amendments will be voted for. But the overall plan should now be set after Prime Minister Theresa May’s statement yesterday. There will be another meaningful vote on the Brexit deal on March 12. May could get a last minute provisional agreement from EU on March 11, if any, with needed change on Irish backstop. If the deal is voted down, there will be a vote on March 13 for the Parliament to give explicit consent to no-deal Brexit. Then on March 14, if no-deal Brexit is ruled out, there will be another vote on Article 50 extension.

                          Fed Powell: We’re going to be patient to allow things to clarify

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                            In the semi-annual testimony, Fed Chair Jerome Powell said there were “crosscurrents and conflicting signals” in the past few months. He explained that the conflicting signals include disappointing data, like retails, that’s in contrast to strong job data. And there will be drags from slowdown overseas that US may “feel more of” in the coming months. But he emphasized that the “baseline outlook is a good one”.

                            For now, Powell added, “we have the makings of a good outlook and our committee is really monitoring the crosscurrents, the risks, and for now we are going to be patient with our policy and allow things to take time to clarify.”

                            He also reiterated that “going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve.”

                            US consumer confidence rose to 131.4, moderate economic expectation in 2019

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                              US Conference Board Consumer Confidence jumped sharply to 131.4 in February, up from 120.2 and beat expectation of 124.1. Present Situation Index improved to 173.5, up from 170.2.

                              “Consumer Confidence rebounded in February, following three months of consecutive declines,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index improved, as consumers continue to view both business and labor market conditions favorably. Expectations, which had been negatively impacted in recent months by financial market volatility and the government shutdown, recovered in February. Looking ahead, consumers expect the economy to continue expanding. However, according to The Conference Board’s economic forecasts, the pace of expansion is expected to moderate in 2019.”

                              Full release here.

                              Fed Powell: There were crosscurrents and conflicting signals in the past few months

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                                In his prepared remark for semi-annual testimony to Congress, Fed chair Jerome Powell acknowledged “crosscurrents and conflicting signals” in the past few months. Financial markets became “more volatile” toward year-end. Financial conditions are now “less supportive”. Also, growth slowed in some major foreign economies, “particularly China and Europe”. And there is “elevated” uncertainty in issues including Brexit and trade negotiations.

                                Domestically, the US is facing “important longer-run challenges”. Productivity “has been too low”. Labor force participation among “prime-age men and women” is now lower in the US than in most other advanced economies. “relatively stagnant incomes”, “lack of upward economic mobility” are also important challenges. Federal government debt is also on an “unsustainable path”.

                                On monetary policy, Powell reiterated that “the extent and timing of any further rate increases would depend on incoming data and the evolving outlook.” He noted that inflation pressure were “muted” in January. and the cumulative development warranted “taking a patient approach” to future policy changes. Also, Fed will evaluate the appropriate timing and approach for the end of balance sheet runoff.  ahead.

                                Full remarks here.

                                ECB Lane: Down revisions to forecasts mean slower path of normalization

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                                  ECB Governing Council member Philip Lane said earlier today that there will be only be “reasonably small adjustments” in the upcoming economic forecasts in March. And, the “downward revisions in data to mean a slower path of normalization”.

                                  But he believed the current strategy can “cater to limited downside revisions” and the “forward guidance can accommodate revision to the projections. Currently, ECB maintained that interest rates will stay at present levels at least through Summer of 2019.

                                  Lane is currently the only candidate to replace ECB chief economist Peter Praet from June.

                                  UK PM May: There’ll be a second vote on Brexit deal, a vote on no-deal, then a vote on extension

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                                    UK Prime Minister Theresa May announced three additional commitments in the parliament regarding Brexit. Firstly, there will be a second meaningful vote on the withdrawal agreement by March 12. Secondly, If the government loses the meaningful vote, on March 13, there will be a vote on whether to leave without a deal. And UK will only leave EU on March 29 without a deal, with explicit consent of the House.

                                    Then, if both the withdrawal agreement and no-deal Brexit are voted down, there will be another vote on a short, limited extension to Article 50 on March 14. If the parliament passes the motion, the government will seek to get that extension. Though, May insisted that she doesn’t not want to see Article 50 extension, and the focus is still on leaving on March 29.

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                                    Into US session: Sterling breaks key resistance as UK PM May ready to rule out no-deal Brexit

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                                      Entering into US session, Sterling remains the overwhelmingly strongest one. It started as a rumor earlier today. But it’s now widely reported that UK Prime Minister Theresa May is proposing to formally rule out a no-deal Brexit. There are many versions and one option is to have a vote on no-deal or Brexit delay for March 12 in the parliament, if the withdrawal agreement is voted down. May is due to speak soon and we’ll quickly finally within an hour.

                                      Technically, GBP/USD broken 1.3173/3217 key resistance zone. A head and should bottom would be formed if GBP/USD can sustain above this zone. EUR/GBP also broke key support level at 0.8617/20, resuming medium term decline.

                                      For now, Yen follows as the second strongest as global stock markets lose ground. Commodity currencies are all under pressure. Canadian Dollar is getting little help from oil prices, which is recovering from yesterday’s low. Dollar is mixed awaiting Fed chair Jerome Powell’s testimony.

                                      In Europe, currently:

                                      • FTSE is down -1.02%.
                                      • DAX is down -0.29%.
                                      • CAC is down -0.27%.
                                      • German 10-year yield is up 0.0055 at 0.119.

                                      Earlier in Asia:

                                      • Nikkei dropped -0.37%.
                                      • Hong Kong HSI dropped -0.65%.
                                      • China Shanghai SSE dropped -0.67%.
                                      • Singapore Strait Times dropped -0.33%.
                                      • Japan 10-year JGB yield rose 0.0089 to -0.027.

                                      BoE Vlieghe: Easing or extended pause in monetary policy more likely in case of no-deal Brexit

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                                        BoE MPC external member Gertjan Vlieghe reiterate his view that in case of no-deal Brexit, not all paths are equally likely. He said that “in the case of a no-deal scenario I judge that an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening.”

                                        Also, BoE “will have to judge in real time how well inflation expectations remain anchored, and how households and businesses are reacting to the disruptions.” And “even if the direction and scale of monetary policy changes are unknown beforehand, monetary policy will do what it needs to do to bring inflation back to target within a horizon that is consistent with our mandate.”

                                        Full report here.

                                        BoE Carney: Short-term data volatility less of a signal about medium-term outlook

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                                          In the annual report to the Treasury Select Committee, BoE Governor Mark Carney said UK growth “slowed sharply in late 2018 and appears to have remained weak in early 2019”. The slowdown reflects both “softer activity abroad” and “greater effects from Brexit uncertainties”. Brexit uncertainties is “creating a series of tensions for business, households and in financial markets”. But that will only cause “short-term volatility in the economic data” and provide “less of a signal about the medium-term outlook”.

                                          Carney added that the ” fundamentals of the UK economy are sound. The financial sector is resilient. Corporate balance sheets are strong. And the labour market is tight.” If the economic conditions evolve in line with BoE projections, which are conditioned on a smooth Brexit, “limited and gradual rate rises are likely to be needed to return inflation sustainably to target.”

                                          Full report here.

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