Japan Finance Minister Taro Aso urged G20 members to renew their commitment against protectionism. He noted in openings of G20 deputy financial leaders meeting that “dissatisfaction with economic inequality is growing. There is a serious risk that we will revert to a closed and fragmented world.”
And he warned that “Protectionism and unfair trade practices lead to instability and perverse economic outcomes. We must renew our commitment to international cooperation and openness.”
Dollar is trading generally higher together with Japanese Yen in Asian markets today. Sterling is also firm after UK Prime Minister Theresa May narrowly won the confidence vote in Commons. Commodity currencies are the weaker ones. But fresh selling is seen in Euro and Swiss Franc entering into European session. We won’t be surprised to see Euro and Swissy overtake Aussie and Kiwi as weakest later in the day. Over the week, Sterling remains the strongest one. It’s followed by Dollar and then Canadian. New Zealand and Australian Dollars are the weakest.
Stocks markets in Asia are rather quiet.
Nikkei is down -0.26%.
Hong Kong HSI is up 0.07%.
China Shanghai SSE is up 0.30%.
Singapore Strait Times is down -0.21%.
Japan 10-year JGB yield is down -0.0025 at 0.005, still positive.
Overnight:
DOW rose 0.59%.
S&P 500 rose 0.22%.
NASDAQ rose 0.15%.
All three indices are now facing 55 day EMA resistance.
10-year yield rose 0.20 to 2.731 but 30-year yield rose just 0.006 to 3.077.
Yield curve remain inverted from 1-year (2.579) to 2-year (2.545) to 3-year (2.525) and 5-year (2.542). But it’s looking was better than just a few weeks ago.
In a keynote speech at the G20 symposium in Tokyo, BoJ Governor Haruhiko Kuroda said Japan is “facing the most aged society in the world.” And he discussed the impacts of aging and declining population on macroeconomy, fiscal conditions and social security systems, and monetary policy and financial system.
On monetary policy market, Kuroda said “As a low interest rate environment persists and credit demands become stagnant amid declining population, banks might accelerate their search-for-yield activities such as expanding their exposures to overseas assets and increasing loans and investments to firms with higher credit risks. If that were the case, the entire financial system could become less stable. ”
According to Fed’s Beige Book economic report, 8 of 12 districts reported modest to moderate growth in the period through January 7. Two districts reported flat or slight growth. Another two reported slower pace of growth.
The report noted that “outlooks generally remained positive, but many districts reported that contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices and elevated trade and political uncertainty”.
On prices, most Districts indicated that firms’ input costs had risen due to :rising materials and freight prices”. And, “a number of Districts said that higher tariffs were also a factor.”
UK Prime Minister Theresa May won the confidence vote narrowly by 325-306 in the Commons, a day after her Brexit plan was rejected. Now, she has started meeting some party leaders to “find solutions that are negotiable and command sufficient support” from the House. May also plans to return to the House on Monday to “table an amendable motion and to make a statement about the way forward.” And she reiterated the pledge to deliver Brexit.
However, there is no meeting with opposition Labour leader Jeremy Corbyn yet. Corbyn insisted that there will be not talks unless no-deal Brexit is ruled out. His spokesman said “Of course (Labour leader) Jeremy is prepared to meet the prime minister but if we’re talking about substantive talks on how to resolve the crisis over Brexit … then the starting point for that needs to be that no deal comes off the table.”
In the UK, eyes are now first on no-confidence vote on Prime Minister Theresa May at 1900GMT. After yesterday’s humiliating 432 to 202 defeat of her Brexit deal, May told the parliament today that “What the government wants to do is first of all to ensure that we deliver on the result of the referendum”.
She added that “We want to do it in a way that ensures we respect the votes of those who voted to leave in that referendum. That means ending free movement, it means getting a fairer deal for farmers and fishermen, it means opening up new opportunities to trade with the rest of the world.”
Opposition Labour leader Jeremy Corbyn urged a new election. He said “if a government cannot get its legislation through parliament, it must got to the country for a new mandate”. And, “there can be no doubt that this is indeed a zombie government.”
Conservative backbencher Dominic Grieve, proposed two new bills that would enable preparations for a second referendum. He expected the government to disregard it as it controls the time and schedule for debates. But he added “if Parliament seizes control, then I imagine time will be found for it,” and “it’s a marker, so once it’s down it can be used.”
German news paper Handelsblatt reported that Germany, the Netherlands and some other EU countries are trying to explore some concessions regarding the issue of Irish border backstop. But we’ll tend not to pay too much attention to rumors, until they’re confirmed.
Entering into US session, the markets are relatively steady. Eyes are on no-confidence vote on UK Prime Minister Theresa May, and debate is going on in the parliament. Sterling is somewhat trading firm as chance of a delay in Brexit or even no Brexit increased after yesterday’s meaningful vote. We’d laid out several scenarios here. But we’ll have to see if May is still the Prime Minister tomorrow first.
Staying in the currency markets, Canadian and US Dollar are also firm today. The former is helped by recovery in oil price. WTI crude oil is back 51.85. Dollar continues to ignore record government shutdown in the US. At this point, New Zealand and Australian Dollar are the weakest ones. But Euro and Swiss Franc are not performing much better.
In other markets, major European indices are mixed:
ECB Governing Council member Ewald Nowotny warned that “nothing is as damaging as this long, prolonged uncertainty,” regarding Brexit. However, he added that “from the point of view of the banking side perhaps it’s not so much a technical problem because I think here we are pretty well prepared for whatever outcome there might be”.
Nowotny said “it could be a psychological problem … So if that is something that could create some kind of self-fulfilling negative perspectives, that is something that might be really dangerous.”
UK CPI slowed more than expected to 2.1% yoy in December, down from 2.3% yoy, missed consensus of 2.2% yoy. Core CPI, however, accelerated to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. Full CPI release here.
Also from UK, RPI slowed to 2.7% yoy, down from 3.2% yoy and missed expectation of 2.8% yoy. PPI input dropped to 3.7% yoy, down from 5.6% yoy, below expectation of 4.6% yoy. PPI output dropped to 2.5% yoy, down from 3.1% yoy, missed expectation of 2.9% yoy. PPI output core rose to 2.5% yoy, up from 2.4% yoy and beat expectation of 2.4% yoy. House price index rose to accelerated to 2.8% yoy in November, below expectation of 3.0% yoy.
BoE Governor Mark Carney told the parliament that after yesterday’s vote in the Commons, the risk of a no-deal Brexit has diminished, or the process would be extended.
But Carney emphasized that “I’m not giving my view, I’m giving the markets’ initial take”. Also he added “I wouldn’t put much weight on these very short term-moves. The market is waiting.”
Andrea Leadsom, leader of the UK Conservative Party in the Commons, expressed her confidence that Prime Minister Theresa May will survive the confidence vote today.
She added that, “the prime minister will then not necessarily be looking for brand new ideas that no one has thought of before, but actually seeking a consensus, actually a fresh initiative to find a solution that is negotiable with the European Union and that would command a majority in the House of Commons,”
On what’s next, she emphasized “what we need to do is to find a way that (May’s) deal or some part of it or an alternative deal that is negotiable can then be put to the European Union so that we will get this Brexit through by March 29.”
Separately, United Kingdom Independence Party leader Nigel Farage predicted that in case of the second referendum, “leave” vote will even be bigger. He said “The British may be a very placid people, very laid back but I promise you: if they get pushed too far it’s a lion that will roar. We will be even more defiant if we have to fight a second referendum and we will win it by a bigger majority.”
Reuters reported, quoting unnamed source that BoJ will likely lower inflation forecasts at next week’s meeting. It’s noted that oil prices have fallen significantly since the last economic projections back October. And that would have a negative impact on the upcoming projections to be published along with the meeting last week. Though, on growth, BoJ will likely maintain its upbeat assessment.
Back on October, BoJ projects core CPI to hit 1.4% in fiscal 2019 and then 1.5% in fiscal 2020. Such projections would be trimmed to reflect the decline in oil as well as global slowdown.
A lot of volatility is seen in Sterling in the past 12 hours. The Pound was sold off on the historical defeat of Prime Minister Theresa May in the Commons. But it found its footing quickly. For now, there is still prospect of extending recent rebound against Dollar and Euro.
Though, at the time of writing, Yen is the strongest one for today. Australian Dollar is the weakest. But all are bounded in yesterday’s range after all.
For the week, Sterling remains the strongest followed by Yen, Euro is the worst performing followed by Swiss Franc.
In Asian markets, major indices are staying in tight range:
Nikkei is down -0.65%
Hong Kong HSI is down -0.13%
China Shanghai SSE is down -0.08%
Singapore Strait Times is up 0.21%
Japan 10 year JGB yield is down -0.0079 at 0.007, still positive
Overnight:
DOW rose 0.65%
S&P 500 rose 1.07%
NASDAQ rose 1.71%
Treasury yields continued to show strength at the long end
The People’s Bank of China injected record amount of cash into the market to “maintain “reasonably ample” liquidity in the banking system. The central bank said the act was to provide support for the current peak period for tax payments. And it came at a time when “the banking system’s overall liquidity is falling rapidly”.
PBoC injected CNY 350B through 7-day reverse bond repurchases and CNY 220B through 28-day reverse bond repurchases. At the same time, CNY 10B reverse repose are set to mature today. The net CNY 560B, or USD 83B, is the largest daily injection on record.
The act is seen as a sign of consensus in the Chinese government for decisive stimulus to the economy, in light of the ugly trade data as released earlier this week.
Regarding the outcome of the Brexit meaningful vote in the UK Commons, European Commission responded with a quick statement. President Jean-Claude Juncker warned that “time is almost up”. and urged the UK to “clarify its intentions as soon as possible”. He also noted that “the risk of a disorderly withdrawal of the United Kingdom has increased with this evening’s vote. While we do not want this to happen, the European Commission will continue its contingency work to help ensure the EU is fully prepared.”
European Council President Donald Tusk also tweeted that “If a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?”
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Statement by President Juncker on the outcome of the Meaningful Vote in the United Kingdom House of Commons
I take note with regret of the outcome of the vote in the House of Commons this evening.
On the EU side, the process of ratification of the Withdrawal Agreement continues.
The Withdrawal Agreement is a fair compromise and the best possible deal. It reduces the damage caused by Brexit for citizens and businesses across Europe. It is the only way to ensure an orderly withdrawal of the United Kingdom from the European Union.
The European Commission, and notably our Chief Negotiator Michel Barnier, has invested enormous time and effort to negotiate the Withdrawal Agreement. We have shown creativity and flexibility throughout. I, together with President Tusk, have demonstrated goodwill again by offering additional clarifications and reassurances in an exchange of letters with Prime Minister May earlier this week.
The risk of a disorderly withdrawal of the United Kingdom has increased with this evening’s vote. While we do not want this to happen, the European Commission will continue its contingency work to help ensure the EU is fully prepared.
I urge the United Kingdom to clarify its intentions as soon as possible.
UK Prime Minister Theresa May suffered humiliating defeat over her Brexit deal. It’s voted down by 432 to 202, the biggest loss in modern UK history. It’s uncertain what the path will be exactly like after this point. But what’s sure is that opposition Labour Party leader Jeremy Corbyn has swiftly called for a no-confidence vote in the government. And that would be held at 1900GMT on Wednesday, today.
In a well-prepared statement, May said in the parliament after the defeat that “It is clear that the House does not support this deal. But tonight’s vote tells us nothing about what it does support. Nothing about how – or even if – it intends to honor the decision the British people took in a referendum Parliament decided to hold.”
She added that the first thing to do is to “confirm whether this government still enjoys the confidence of the House.” Secondly, she will meet with Conservatives, DUP and other senior parliamentarians from across the house to find “ideas that are genuinely negotiable and have sufficient support in this House.” Thirdly, she will go back to EU with those ideas.
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“Mr Speaker, the House has spoken and the Government will listen.
It is clear that the House does not support this deal. But tonight’s vote tells us nothing about what it does support. Nothing about how – or even if – it intends to honor the decision the British people took in a referendum Parliament decided to hold.
People, particularly EU citizens who have made their home here and UK citizens living in the EU, deserve clarity on these questions as soon as possible. Those whose jobs rely on our trade with the EU need that clarity. So with your permission Mr Speaker I would like to set out briefly how the Government intends to proceed.
First, we need to confirm whether this government still enjoys the confidence of the House. I believe that it does, but given the scale and importance of tonight’s vote it is right that others have the chance to test that question if they wish to do so.
I can therefore confirm that if the Official Opposition table a confidence motion this evening in the form required by the Fixed Term Parliaments Act, the Government will make time to debate that motion tomorrow. (Wednesday)
And if, as happened before Christmas, the Official Opposition decline to do so, we will – on this occasion – consider making time tomorrow to debate any motion in the form required from the other opposition parties, should they put one forward.
Second, if the House confirms its confidence in this government I will then hold meetings with my colleagues, our Confidence & Supply partner the DUP and senior parliamentarians from across the House to identify what would be required to secure the backing of the House.
The government will approach these meetings in a constructive spirit, but given the urgent need to make progress, we must focus on ideas that are genuinely negotiable and have sufficient support in this House.
Third, if these meetings yield such ideas, the Government will then explore them with the European Union.
Mr Speaker I want to end by offering two reassurances.
The first is to those who fear that the government’s strategy is to run down the clock to 29th March (Britain’s exit date from the EU).
That is not our strategy. I have always believed that the best way forward is to leave in an orderly way with a good deal and have devoted much of the last two years negotiating such a deal.
As you confirmed Mr Speaker, the amendment to the business motion tabled last week by my Right Honorable and Learned Friend the Member for Beaconsfield (Dominic Grieve) is not legally binding, but the government respects the will of the House.
We will therefore make a statement about the way forward and table an amendable motion by Monday.
The second reassurance is to the British people, who voted to leave the European Union in the referendum two and a half years ago.
I became Prime Minister immediately after that referendum. I believe it is my duty to deliver on their instruction and I intend to do so.
Mr Speaker, every day that passes without this issue being resolved means more uncertainty, more bitterness and more rancor.
The government has heard what the House has said tonight, but I ask Members on all sides of the House to listen to the British people, who want this issue settled, and to work with the government to do just that.”
Euro is apparently knocked down by ECB President Mario Draghi’s downbeat comments. He told the European Parliament today that the Eurozone economy is weakening more than expected.
Thus, “a significant amount of monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term,”
Draghi added that “Our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of assets we have acquired, continues to provide the necessary degree of monetary accommodation.”
Empire State manufacturing index dropped sharply to 3.9 in January, down from 10.9, and missed expectation of 11.6. That’s also the lowest level in “well over a year” since mid-2017. Also, the headline index has already fallen a cumulative 18 pts since November. Additionally, firms were “less optimistic about the six-month outlook than in recent months.”The index for future business conditions fell thirteen points to 17.8, and the indexes for future new orders and shipments also declined.
Also from the US, in December, headline PPI dropped -0.2% mom rose 2.5% yoy, versus expectation of 0.0% mom, 2.5% yoy. PPI core dropped -0.1% om, rose 2.7%, versus expectation of 0.2% mom, 2.7% yoy.
Risk appetite had a brief come back in Asia earlier today, after China pledges to strive to have a good start in 2019. But sentiments turned cautious in European session, ahead of the Brexit meaningful vote in UK commons. Sterling is clearly paring some gains because of that. On the other hand, Euro is weighed down by recession worries on Germany. The country reported annual growth of 1.5% in 2018, slowest since 2013. And there is risk of technical recession in Q3 and Q4 of last year.
For now, Canadian Dollar is the strongest one for today so far, followed by Dollar. Swiss Franc is the weakest one, followed by Euro. Markets could turn more cautious ahead of the Brexit vote. There is no exact time set, but it’s believed to be somewhere between 1900-2100 GMT.
UK Prime Minister Theresa May’s spokesman reiterated the stance that “the prime minister said the government is the servant of the people and she believes passionately that we must deliver on the result of the 2016 referendum”
And, “she added that after the vote has taken place, she would respond quickly to the result.”
Japan FM Aso warned protectionism and unfair trade practices lead to instability and perverse economic outcomes
Japan Finance Minister Taro Aso urged G20 members to renew their commitment against protectionism. He noted in openings of G20 deputy financial leaders meeting that “dissatisfaction with economic inequality is growing. There is a serious risk that we will revert to a closed and fragmented world.”
And he warned that “Protectionism and unfair trade practices lead to instability and perverse economic outcomes. We must renew our commitment to international cooperation and openness.”