EU Moscovici: Brexit has to be dealt with in London first

    European Commissioner for Economic and Financial Affairs Pierre Moscovici reiterated the EU’s stance that regarding Brexit, the ball is in UK’s court now. He said “Certainly the EU is there, the EU is waiting, the EU is ready but first we need to know clearly what are the British intentions and we need some clarifications from London”.

    He added that “Of course the door is always open for discussion but it’s not up to us to tell now the British side where it wants to go. The ball clearly is in the British side again. It’s not a problem that can be solved by Brussels, maybe in Brussels later, but it has to be first dealt with in London.”

    Also on the possibility of hard Brexit, Moscovici said “Nobody wants a no-deal (Brexit), that is clear. The British parliament doesn’t want a no-deal, the British government doesn’t want a no-deal, and the EU is not willing a no-deal, so we need to explore all options which are not a no-deal.”

    Asia update: Sentiments stabilized but lacks steam for rebound, Yen lower after BoJ

      Sentiments in Asian markets stabilized today despite the selloff in US overnight. However, rebound in Asia is rather weak. Nikkei indeed closed down -0.14% while other major indices fluctuate between gains and losses.

      In the currency markets, New Zealand leads the way higher, additionally boosted by solid CPI data. Australian and Canadian are the next strongest. Yen is back under pressure after BoJ revised fiscal 2019 inflation forecasts steeply. Swiss Franc follow as the second weakest.

      In Asia:

      • Nikkei closed down -0.14% at 20593.72.
      • Hong Kong HSI is up 0.02%.
      • China SSE is up 0.01%.
      • Singapore Strait Times is down -0.48%.
      • Japan 10-year JGB yield is up 0.0016 at 0.003, turned positive.

      Overnight in the US:

      • DOW dropped -1.22%.
      • S&P 500 dropped -1.42%.
      • NASDAQ dropped -1.91%.
      • 10-year yield dropped -0.054 to 2.730.

      NZD jumps on solid CPI, AUD/NZD complete post flash crash rebound

        New Zealand Dollar is lifted notable today but better than expected consumer inflation data. CPI rose 0.1% qoq in Q4 versus expectation of 0.0% qoq. On annual basis, CPI was unchanged at 1.9% yoy, above expectation of 1.8% yoy. The data eased worries that inflation outlook is worsening and chance for a rate cut by RBNZ is reduced. Majority of economists are still expecting the next move to be a hike. But for now, there is no time frame for that move yet.

        Meanwhile, the outlook is still clouded by fading momentum in the economy, as show in recent forward-looking indicators. There is question on whether domestic inflation could sustain. And should data ahead disappoint, there bets on rate cut will re-emerge.

        Full release here.

        AUD/NZD’s fall from 1.0670 accelerates today. Break of 1.0536 minor support now suggests that the rebound from 1.0107 flash crash low has completed at 1.0670 already. Further decline is now in favor back to retest 1.0107.

        BoJ stands pat, sharp downward revision in fiscal 2019 inflation forecast

          BoJ left monetary policies unchanged today as widely expected. New economic projections are also released with upgrade in fiscal 2019 and 2020 GDP forecasts. But inflation forecasts was lowered rather sharply for fiscal 2019.

          The short term interest rate is held unchanged at -0.1%. And under the yield curve control frame work, BoJ will continue to kept 10-year JGB yield at around 0%, with some upward and downward movements allowed. The annual amount of JGB purchase will be kept at JPY 80T.

          Member G. Katakoa dissented as usual, pushing to strengthen monetary easing. Y Harada also dissented again, criticizing that allowing the long-term yields to move upward and downward to some extent was too ambiguous

          On economy, BoJ maintained that “Japan’s economy is likely to continue on an expanding trend through fiscal 2020.” Also, “overseas economies are expected to continue growing firmly on the whole, although various developments of late warrant attention such as the trade friction between the United States and China.”

          In the new GDP projections, comparing with October forecasts:

          • Fiscal 2018 is revised to 0.9% to 1.0% (median 0.9%), down from 1.3% to 1.5% (median 1.4%).
          • Fiscal 2019 is revised to 0.7% to 1.0% (median 0.9%), up from 0.8% to 0.9% (median 0.8%).
          • Fiscal 2020 is revised to 0.7% to 1.0% (median 1.0%), up from 0.6% to 0.9% (median 0.8%).

          The revisions showed that while BoJ is optimistic for 2019, it also sees larger uncertainties.

          In new core CPI projections, comparing with October forecasts, and exclude effect of sales tax hike:

          • Fiscal 2018 is revised to 0.8% to 0.9% (median 0.8%), down from 0.9% to 1.0% (median 0.9%).
          • Fiscal 2019 is revised to 0.8% to 1.1% (median 0.9%), down sharply from 1.3 to 1.5% (median 1.4%).
          • Fiscal 2020 is revised to 1.2% to 1.4% (median 1.4%) down from 1.4% to 1.6% (median 1.5%).

          The downside revision in fiscal 2019 core CPI is rather steep.

          US Senate to hold competing votes to end government shutdown

            The US Senate will hold two competing votes on Thursday as effort to end the record government shut down. Trump’s plan, which includes USD 5.7B for border wall will be voted on. Also, Democrat’s proposal, to reopen government through February 8, will also be voted on. It’s seen as a concession by Senate Majority Leader Mitch McConnell who previously refused to vote on a bill that Trump would veto.

            Trump includes a provisional three-year work permits for the youngsters under Deferred Action for Childhood Arrivals program as bargaining chip. But his plan is still likely to be voted down as Democrats have open rejected to compromise on the issue.

            The Democrats could gain enough support from Senate Republicans rebels to vote for their proposal, which was already pass in the House. However, even so, Trump will likely veto even if the Democrat’s bill is passed in the Senate. The Democrats are way short of two-third majority to override Trump’s veto.

            So, the shutdown might still extend beyond Thursday.

            WH Kudlow denies cancelling meeting with China, reiterates importance of enforcing promises

              There were rumors that Trump’s administration declined, or cancelled, a second deputy-level meeting with China on trade. The meeting was intended for preparation on the top level meeting between US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He. There were various versions of the rumor. But the key message was that the US is not satisfied with the lack of concrete progress on intellectual property theft and forced technology transfer. China’s offer to buy more goods from the US is simply not enough.

              But White House economic advisor Larry Kudlow came out denying the rumor and said there was “no cancellation”. And he maintained the high-level meeting later this month between Lighthizer and Liu was “very, very important” and “determinative.” And, “There were no other intermediate meetings scheduled,” while “The story is unchanged. We are moving towards negotiations.”

              Yet, Kudlow also emphasized that “enforcement is absolutely crucial to the success of these talks.” “Promises are great but enforcement is what we want — things like deadlines and timetables and full coverage of the various structural issues,” he said. “Will this all be solved at the end of the month? I don’t know. I wouldn’t dare to predict.”

              EU: No-deal Brexit pretty obviously means a hard Irish border

                European Commission spokesman Margaritis Schinas warned today that a hard Irish border will inevitably be resulted from no-deal Brexit. He said in a press conference that “If you’d like … to push me and speculate on what might happen in a no-deal scenario in Ireland, I think it’s pretty obvious — you will have a hard border.” But he also reiterated EU’s commitment to the Good Friday Agreement and pledged to ” take inevitably into account this fact”.

                Irish government spokesman said “We will not accept a hard border on this island and therefore we are not planning for one.” Though, he added “Working out suitable customs and trade arrangements compatible with our EU membership will require detailed discussion with the Commission, while the UK will also need to live up to its responsibilities. We are under no illusions about how challenging that would be.”

                SNB Maechler: Exchange rate is important to Swiss monetary conditions and prices

                  SNB Governing Board member Andrea Maechler said the central bank is maintaining negative interest rates. And it’s ready to intervene in the forex markets.

                  She clarified that “our mandate is not to defend the Swiss franc, but price stability.” However, she added that”we are a small, open country, which means the exchange rate is important for our monetary conditions and is linked to prices.”

                  Also, “we have seen that if the franc is too strong, inflation goes negative”.

                  Into US session: AUD weakest, Yen strongest. China SSE drags global sentiments

                    Entering into US session, Australian Dollar is trading as the weakest one today, followed by Canadian and then Euro. Yen is the strongest one, followed by Dollar an Sterling. Risk aversion seems to be back as led by Asian markets, in particular China and Hong Kong. DOW future is currently down -140 pts but we’ll have to see if US stocks could regain strength.

                    Sterling is boosted by strong employment data, which saw acceleration in wage growth. Unemployment rate also dropped to lowest since 1975. But there is apparently no progress in Brexit negotiation, which is the ultimate driver in Sterling’s trend. Euro got little support from mixed German ZEW economic sentiment, which saw improvement in the sentiment index but sharp deterioration in current condition index.

                    In Europe, currently:

                    • FTSE is down -0.44%.
                    • DAX is down -0.49%.
                    • CAC is down -0.51%.
                    • German 10-year yield is down -0.0137 at 0.242.

                    Earlier in Asia:

                    • Nikkei dropped -0.47%.
                    • Hong Kong HSI dropped -0.70%
                    • China Shanghai SSE dropped -1.18%
                    • Singapore Strait Times dropped -0.86%
                    • Japan 10-year JGB yield dropped -0.006 to -0.001, turned negative.

                    Today’s sharp fall in SSE is the first since of notable weakness since rebound started on Jan 4. 2557.71 is now a support level to defend and break will be an early sign of reversal, which could drag global sentiments lower.

                    Polish suggestion of 5-year limit on Irish backstop is not EU position

                      Polish Foreign Minister Jacek Czaputowicz suggested limiting the Irish backstop arrangement to five years, to help get the Brexit deal through UK parliament. However, European Commission spokesman Margaritis Schinas said that is not EU’s position.

                      Schinas told reports that “we have a unanimous, and I repeat unanimous, EU 27 position on the Withdrawal agreement and it’s clear that the doorstep statement you’re referring to was not part of the EU position.”

                      German ZEW rose to -15, remarkable for no deterioration on risks

                        German ZEW economic sentiment improved to -15 in January, up from -17.5, and beat expectation of -18.5. ZEW current situation, however, dropped to 27.6, down from 45.3 and missed expectation of 43.3. ZEW noted that the indicator is still well below the long-term average of 22.4. And current economic situation once again decreased considerably.

                        ZEW President Achim Wambach said  “It is remarkable that the ZEW Economic Sentiment for Germany has not deteriorated further given the large number of global economic risks. The financial market experts have already considerably lowered their expectations for economic growth in the past few months. New, potentially negative factors such as the rejection of the Brexit deal by the British House of Commons and the relatively weak growth in China in the last quarter of 2018 have thus already been anticipated,”

                        Eurozone ZEW economic sentiment, however, rose just marginally to -20.9, up from -21.0 and missed expectation of -20.1. Eurozone current situation also dropped -6.8 pts to 5.3.

                        Full release here.

                        UK unemployment rate dropped to 4.0%, lowest since 1975, Sterling jumps

                          Sterling rises mildly after better than expected job data. Unemployment rate dropped to 4.0% in November, down from 4.1% and beat expectation of 4.1%. That’s also the lowest level since February 1975. Wage growth also shows sign of pick up. Average earnings including bonus accelerated to 3.4% 3moy, above expectation of 3.3% 3moy. Average earnings excluding bonus rose 3.3% 3moy, unchanged. Claimant count rose 20.8k in December, slightly above expectation of 20.0k.

                          Full release here.

                          UK Barclay: Interest of both EU and UK to have a Brexit deal

                            UK Brexit Minister Stephen Barclay told BBC today that the government is working on what to ask from the EU to get the deal approved in the parliament. He noted that “the EU don’t want to be in a situation of having no deal – that would have a big impact not just on the Irish economy but other economies, the Dutch economy – so it’s in both sides’ interest to have a deal.”

                            Separately, German Minister for European Affairs Michael Roth expressed disappointment on UK Prime Minister Theresa May’s statement yesterday. He tweeted “Where is the plan B? Just asking for a friend…” German Justice Minister Katarina Barley also said she was “disappointed” and “that’s not the way forward”.

                            Asia update: Aussie lower on stocks, Canadian Dollar as oil lost momentum

                              Australian Dollar is under some selling pressure today, as Asian stocks weaken broadly. Canadian Dollar follows as the second weakest as oil price is starting to lose momentum. On the other hand, Yen and Dollar are trading as the strongest ones so far, with prospects of more upside for the day. Sterling slightly softer after UK Prime Minister Theresa May’s uninspiring statement on Brexit overnight. The Pound will now look into job data while Euro will look at ZEW economic sentiment.

                              In Asia:

                              • Nikkei is down -0.66%.
                              • Hong Kong HSI is down -1.14%.
                              • China Shanghai SSE is down -0.98%
                              • Singapore Strait Times is down -0.42%
                              • Japan 10 year JGB yield is down -0.0031 at 0.002, still positive.

                              One development to note is the loss of upside momentum in WTI crude oil. Bearish divergence condition is seen in 4 hour MACD and RSI. WTI is also close to an important resistance at 54.61 and 38.2% retracement of 77.06 to 42.05 at 55.42. First line of defense is at 4 hour 55 EMA (now at 52.01). Sustained break should confirm reversal and send WTI through 50.59 support. USD/CAD’s rebound from 1.3180 should accelerate should the fall in oil extends.

                              China NDRC: Downward pressure on economy will be passed onto jobs

                                China National Development and Reform Commission spokeswoman Meng Wei warned that the job market faces “new changes” ahead and slowdown in the economy will pressure the job markets. She also noted that some factories in the export hub of Guangdong province have shut earlier than usual ahead of Lunar new year holiday.

                                Meng said “from the viewpoint of ‘changes’, the external environment is complex and austere.” And, “Within the changes, there is something to worry about, and there is downward pressure on the economy. To a certain extent, the pressure will be passed onto jobs.”

                                Her comments came after survey-based data showed unemployment rate rose 0.1% to 4.9% in December, release yesterday.

                                Businesses respond to UK PM May: Fundamentals have not changed and the stasis continues

                                  In response to May’s statement on Brexit yesterday, CBI director general Carolyn Fairbairn said ” the government’s move to consult more widely is welcome, as is the commitment to scrap the settled status charge for EU citizens”. But she criticized that “the fundamentals have not changed” as “Parliament remains in deadlock while the slope to a cliff edge steepens.” She urged that “government should accept that no-deal in March 2019 must be off the table”.

                                  Allie Renison, head of Europe and trade policy at the Institute of Directors also complained “the stasis continues”. She also noted that “two-thirds of our members say that leaving without a deal would be negative for their businesses and nearly 80% made clear they don’t want to see it happen.” And, “we desperately need politicians to get serious about finding a way forward.”

                                  UK May pledged change in Brexit approaches, oppose to second referendum

                                    UK Prime Minister Theresa May’s statement on Brexit plan B yesterday was rather uninspiring. In short, she finally acknowledged the need to have in change in her approach and laid out three areas. Those include, being “more flexible, open and inclusive” in engaging the parliament, embedding the “the strongest possible protections on workers’ rights and the environment”. And finally, ensuring the “commitment to no hard border in Northern Ireland and Ireland”. They’re hardly anything new.

                                    Meanwhile, she continued to oppose to a second referendum as that would “damage social cohesion by undermining faith in our democracy.” And she doesn’t believe there is a majority for a second referendum. On Article 50 extension, she claimed that EU would not approve it unless UK had a plan for approving a deal. And the only way to avoid a no-deal Brexit would be to revoke Article 50.

                                    May will continue cross-party talks and provide further update next Tuesday.

                                    SNB Zurbruegg: Expansive monetary policy still warranted

                                      SNB Vice Chairman Fritz Zurbruegg spoke at an economic forum in Landquart, Switzerland, yesterday. He noted that expansive monetary policy is still warranted for the central bank, due to heightened uncertainties, highly valued franc exchange rate, low inflationary pressure and global low interest rates.

                                      In particular, he noted that uncertainties have risen recently, due to protectionism, Brexit, Italy. The Swiss Fran remains highly valued and that remains a risk. But overall, outlook for the Swiss economy remains favorable.

                                      The comments echoed those by Chairman Thomas Jordan, who noted the need to block a surge Franc on safe-haven flow.

                                      IMF lowers 2019 global growth forecast to 3.5%, risks rising

                                        IMF revised down global growth forecasts and warned that “the global expansion is weakening and at a rate that is somewhat faster than expected.” Also, ” risks to more significant downward corrections are rising.”

                                        And, “while financial markets in advanced economies appeared to be decoupled from trade tensions for much of 2018, the two have become intertwined more recently, tightening financial conditions and escalating the risks to global growth.”

                                        In particular, IMF warned that “an escalation of trade tensions and a worsening of financial conditions are key sources of risk to the outlook.” Meanwhile, China’s slowdown could be worsened by trade tensions and trigger “abrupt sell-offs in financial and commodity markets”. “Brexit cliffhanger”, “financial risk in Italy ” and “protracted US federal government shutdown” are other risks.

                                        To summarize, for 2019:

                                        • Global growth is projected at 3.5%, down from prior 3.7% (October forecast).
                                        • US growth is projected at 2.5%, unrevised.
                                        • Eurozone growth is projected at 1.6%, down from prior 1.9%.
                                        • Japan growth is projected at 1.1%, up from prior 0.9%
                                        • China growth is projected at 6.2%, unrevised.
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                                        Full release here.

                                        Into US session: CHF weakest in quiet markets, Brexit plan B awaited

                                          Swiss Franc’s selloff pick up momentum in a rather quiet day today. USD/CHF has broken 0.9963 resistance while EUR/CHF is pressing 1.1348. More downside is in favor in the Franc. But it’s just the second weakest one, next to New Zealand Dollar. Australia Dollar and Canadian Dollar follow even though there is no clear sign of risk aversion. WTI crude oil is also staying firm at around 54. Meanwhile, Yen is the strongest one in very tight range, followed by Euro and Sterling. Overall, the forex markets are mixed except for that weakness in Franc.

                                          The US markets are on Martin Luther King Day holiday today. Main focus is across the Atlantic on UK Prime Minister Theresa May’s Brexit plan B. She’s due to make a statement in the parliament at 1530 GMT. Her spokesman said the Brexit will have to be changed if it’s to be approved by lawmakers. And there were talks going on to understand what exact changes are needed.

                                          Currently in European markets:

                                          • FTSE is up 0.13%.
                                          • DAX is down -0.45%.
                                          • CAC is down -0.16%.
                                          • German 10 year yield is down -0.013 at 0.251.

                                          Earlier in Asia:

                                          • Nikkei rose 0.26%.
                                          • Hong Kong HSI rose 0.39%.
                                          • China Shanghai SSE rose 0.56%.
                                          • Singapore Strait Times dropped -0.12%.
                                          • Japan 10-year JGB yield dropped -0.0099 to 0.004, stayed positive.