UK PM May: Take the Brexit deal or go back to square one with more division and uncertainty

    UK Prime Minister Theresa May is expected to warn lawmakers today that they either take her agreed Brexit deal with the EU, or crush out with no deal at all. According to the excerpts of her statement to the parliament today, May would say “this has been a long and complex negotiation. It has required give and take on both sides. That is the nature of a negotiation”.

    And she will add “I can say to the House with absolute certainty that there is not a better deal available”. May would call the Commons to back the deal that allows UK to “move on”. Or, “this House can choose to reject this deal and go back to square one … It would open the door to more division and more uncertainty, with all the risks that will entail.”

    Japan PMI manufacturing dropped to 51.8, underlying trend skewed to the downside

      Japan PMI manufacturing dropped to 51.8 in November, down from 52.9 and missed expectation of 53.0. That’s also a two-year low.

      Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

      “October’s six-month peak seems to have been just a transitory month-to-month rebound following September’s weather-hit dip. The November PMI dropped to a two-year low as the rate of output growth weakened and new orders for goods declined for the first time since September 2016.

      “The underlying trend appears to be skewed to the downside. Indeed, the fall in new orders is a worrying development as easing global growth momentum coupled with a weak domestic backdrop could spell further demand woes for Q4. In fact, survey data suggests that manufacturers have already begun to pare back expectations, as confidence fell for a sixth consecutive month.”

      Full release here.

      EU endorsed Brexit deal, Juncker urges UK Commons to ratify

        EU27 leaders swiftly approve the Brexit deal after just taking less than an hour in the special EU summit in Brussels today. They endorsed both the Brexit withdrawal agreement, and the political declaration on future EU-UK relations. The European Council’s full statement here.

        European Council President Donald Tusk said in the press conference that “Ahead of us is the difficult process of ratification as well as further negotiations. But regardless of how it will all end, one thing is certain: we will remain friends until the end of days, and one day longer.”

        European Commission President Jean-Claude Juncker said, “Sad day, no cause for celebrations. I salute unity of EU27 during the negotiations. We stood by Spain on Gibraltar, they have our solidarity. I’m proud of the work of our negotiating team. This is the only deal possible.”

        And, “This is the best deal possible. I invite those who have to ratify it in the U.K. House of Commons, to do so. This is the best deal for Britain. This is the best deal for Europe. It is the only deal possible.”

        Post meeting press conference.

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        Full set of information of the special EU summit.

        US PMIs dropped slightly, enjoying sustained robust economic growth in Q4

          US PMI manufacturing dropped to 55.4 in November, down fro 55.7, missed expectation of 55.8. PMI services dropped to 54.4, down from 54.8, missed expectation of 55.0. PMI composite dropped to 54.4, down from 54.9.

          Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

          “Solid flash PMI numbers for November add to evidence that the US is enjoying sustained robust economic growth in the fourth quarter. The surveys are broadly consistent with the economy growing at an annualized rate of 2.5%, building further on the country’s best growth spell since 2014 seen in the second and third quarters.

          “The November survey does raise some warning flags to suggest growth could slow in coming months. In particular, growth of hiring has waned as companies grew somewhat less optimistic about the outlook. Goods exports also appear to also be coming under increasing pressure, often linked to trade wars having dampened demand. However, it should also be remembered that some pull back in growth was to be expected after October’s numbers were boosted by a post-hurricane rebound, especially given the historically high levels of production, order books and employment.

          “With growth remaining reassuringly robust and price pressures elevated, policymakers will be encouraged that the economy has so far withstood both the headwinds of trade war worries and the steady progress made to date towards normalising interest rates.”

          Full release here.

          Canadian Dollar ignores CPI and retail sales, tumbles as WTI crude oil diving to 50

            Canada headline CPI accelerated to 2.4% yoy in October, up from 2.2% yoy and beat expectations of 2.2% yoy. CPI core was unchanged at 1.9% yoy. CPI core median was unchanged at 2.0% yoy. CPI core trim was also unchanged at 2.1% yoy. Looking at the details, prices rose in all major components.

            Headline retail sales rose 0.2% mom in September, above expectation of 0.0% mom. But ex-auto sales rose 0.1% mom only, below expectation of 0.30%.

            Canadian Dollar drops sharply after the release, mainly as delayed reaction to the free fall in oil prices. WTI is now heading to 50 psychological level.

            European update: Euro pressured by weak PMI, Aussie and Kiwi tumble as Chinese stocks dive

              Euro, New Zealand and Australian Dollars are the weakest ones for today so far, for different reasons. Euro is clearly weighed down by weak PMI data. Eurozone PMI composite dropped to 47-month low of 52.4. Markit also suggested that the weakness in Q3 may not be a just a blip. And, risks to growth outlook have beome increasingly skewed to the downside. EUR/USD’s break of 1.1358 minor support would bring send the pair back to 1.1215 low next.

              Aussie and Kiwi are, on the other hand, pressured by selloff in Chinese stocks. The China Shanghai SSE dropped -2.49% to 2579.48. Looking at the SSE daily chart, the rejection from 55 day EMA and medium term falling channel resistance could now set the stage for a retest on 2449.19 low at least.

              Staying in the currency markets, for now, Yen and Dollar are the strongest ones.

              Eurozone PMI composite dropped to 47-month low, Q3 weakness not just a blip

                Eurozone PMI manufacturing dropped to 51.5 in November, down from 52.0, missed expectation of 52.0. That’s the lowest reading in 30 months. PMI services dropped to 53.1, down from 53.7 and missed expectation of 53.6. That’s the lowest reading in 25 months. PMI composite dropped to 52.4, down from 53.1, lowest in 47 months.

                Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                “The cooling of Eurozone business growth to a four-year low adds to signs that the economy faces a disappointing end of the year.

                “Manufacturing remains the main area of weakness, linked in part to having been hit hard once again by deteriorating exports. The slowdown is also being temporarily exacerbated by persistent disappointing car sales. However, November also brought further signs that the manufacturing-led slowdown is spilling over to services, as consumer and corporate demand was often reported to have weakened in the face of headwinds such as rising political uncertainty, tighter financial conditions and higher prices.

                “As such, the survey data suggest that the weakness of GDP in the third quarter may not have been a blip, and that the underlying trend is one of slower economic growth. The PMI readings so far in the fourth quarter are indicative of 0.3% GDP growth, with forward-looking indicators such as new orders and future expectations remaining worryingly subdued.

                “Although the elevated levels of the survey price gauges will give some encouragement to the ECB in relation to firmer inflationary pressures, the disappointing business activity readings will add to concerns that risks to the growth outlook have become increasingly skewed to the downside.”

                Full release here.

                Germany PMI composite dropped to 47-month low, sustained loss of underlying growth momentum

                  Germany PMI manufacturing dropped to 51.6 in November, down from 52.2 and missed expectation of 52.2. That’s the lowest level in 32 months. PMI services dropped to 53.3, down from 54.7 and missed expectation of 54.5. PMI composite dropped to 52.2, down from 53.4, hit a 47-month low.

                  Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                  “The Germany PMI continued to trend downwards in November, pointing to a sustained loss of underlying growth momentum in the euro area’s largest member state.

                  “The survey data revealed that weakness in external markets continued to act as a restraining factor on performances across the private sector economy. Amid reports of falling sales to China, Italy and Turkey, manufacturers recorded the steepest monthly drop in new exports orders for almost six years, while service providers also noted a reduction in demand from non-domestic-based clients.

                  “A solid rate of job creation was one of few bright spots, though even here the data are showing a lesser appetite for hiring new staff amid weaker business confidence and signs of less pressure on capacity.”

                  Full release here.

                  France PMI manufacturing dropped to 26-month low, service sector robust

                    France PMI manufacturing dropped to 50.7 in November down from 51.2 and missed expectation of 51.3. That’s the lowest in 26 months. PMI services dropped to 55.0, down from 55.3 and matched expectations. PMI composite dropped to 54.0, down from 54.1.

                    Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

                    “The latest flash results pointed to a second consecutive contraction in manufacturing production as goods producers continued to mention weak automotive sector demand. Nonetheless, overall private sector output growth remained solid as the service sector reported robust growth.

                    “Despite input price inflation easing, panellists continued to cite higher raw material prices, particularly for oil. With pricing power muted, margins remained under pressure.

                    “The latest survey responses also revealed that recent protests over fuel taxes adversely affected the economy, with some panellists blaming demonstrations for lengthened delivery times.”

                    Full release here.

                    ECB Mersch: Imperative for all Eurozone states to adhere to the common rules

                      ECB Executive Board member Yves Mersch said in a speech that “it is imperative for all Member States to adhere to the common rules”, without naming Italy. And he emphasized ” two principles that are at the heart of effective policy in a democratic society.” “First, liability and control must be aligned, with important decisions taken only by those who will bear their consequences.” “Second, the discharge of democratic control must lie at the level at which policy decisions are taken.

                      Separately, Chief Economic Peter Praet warned in a Handelsblatt interview published yesterday that “Italy’s current financing conditions are much too tight for a country with weak growth and low inflation.” For now, Praet didn’t see any contagion effect so far. And, ECB won’t intervene if the problems are confined only to Italy. ECB conducts monetary policy for the Eurozone as a whole.

                      BoE Saunders: monetary policy implications of different Brexit outcomes could go either way

                        BoE known hawk Michael Saunders said in a speech that assuming a smooth Brexit, the MPC as a whole judged that further raise hikes are needed over time. And “my own hunch is that, conditioned on our Brexit assumptions, capacity pressures will probably build somewhat faster than envisaged in our latest Inflation Report projections, reinforcing upward pressure on pay growth.” In that case, “we would probably need to return to something like a neutral stance rather earlier than implied by the current yield curve.”

                        Nevertheless, he also acknowledged “that assumption of a smooth Brexit adjustment is itself uncertain”. And, “any such resolution of Brexit uncertainties may change the economic outlook, perhaps substantially”. More importantly, “the monetary policy implications of different Brexit outcomes could go either way, depending on the effects on supply, demand and the exchange rate.”

                        In one example, Saunders said transition to a relatively close economic relationship with the EU could boost confidence and propel investment. The same factors could trigger rise in Sterling exchange rate. The next effect could be higher growth and lower inflation. In this case, it’s unclear if more tightening is appropriate.

                        In another example, revert to WTO trading rules would weaken business confidence and hit investments and hiring. That would drags on growth but at the same time Sterling too. There would also be resultant boost to inflation reinforced by extensions of tariffs. And the net effect is higher inflation and lower growth. The monetary implications “could go in either direction.

                        Saunders’ full speech here.

                        Political declaration on framework for EU-UK relationship, full document

                          Sterling was boosted yesterday by the news that the UK and EU agreed on the draft declaration on future relationship after Brexit. The document is now subject to endorsement by EU leaders on the special summit this Sunday. Here are some highlights from the introduction section:

                          • The Union and United Kingdom are determined to work together to safeguard the rules-based international order, the rule of law and promotion of democracy, and high standards of free and fair trade and workers’ rights, consumer and environmental protection, and cooperation against internal and external threats to their values and interests.
                          • This declaration establishes the parameters of an ambitious, broad, deep and flexible partnership across trade and economic cooperation, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation
                          • This relationship will be rooted in the values and interests that the Union and the United Kingdom share. These arise from their geography, history and ideals anchored in their common European heritage.
                          • The Union and the United Kingdom agree that prosperity and security are enhanced by embracing free and fair trade, defending individual rights and the rule of law, protecting workers, consumers and the environment, and standing together against threats to rights and values from without or within.
                          • The future relationship will be based on a balance of rights and obligations, taking into account the principles of each Party. This balance must ensure the autonomy of the Union’s decision making and be consistent with the Union’s principles, in particular with respect to the integrity of the Single Market and the Customs Union and the indivisibility of the four freedoms. It must also ensure the sovereignty of the United Kingdom and the protection of its internal market, while respecting the result of the 2016 referendum including with regard to the development of its independent trade policy and the ending of free movement of people between the Union and the United Kingdom.

                          Full declaration here.

                          WTO: G20 new trade-restrictive measures surged to record, serious concern for international community

                            A WTO monitoring report released today noted sharp rise in trade restrictive measures in G20 economies between mid-May and mid-Oct 2018. Trade covered of the measures adds up to USD 481B, six time larger than prior reporting period, and highest since record started in 2012.

                            A total of 40 new trade-restrictive measures were applied, averaging eight per month, including tariff increases, import bans and export duties. That’s notably higher than almost six trade-restrictive measures per month during prior period. 33 new trade facilitating, including eliminating or reducing import tariffs and export duties. The number is in line with 2012-17 trend.

                            Commenting on the report, Director-General Roberto Azevêdo said:

                            “This report provides a first factual insight into the trade-restrictive measures which have been introduced over recent months, and which now cover over $480 billion worth of trade. The report’s findings should be of serious concern for G20 governments and the whole international community.

                            “Further escalation remains a real threat. If we continue along the current course, the economic risks will increase, with potential effects for growth, jobs and consumer prices around the world. The WTO is doing all it can to support efforts to de-escalate the situation, but finding solutions will require political will and it will require leadership from the G20.”

                            Full WTO report here.

                            ECB accounts: Weaker growth in H2 2018 would have carry-over effect on 2019

                              In the accounts of Oct 24-25 monetary policy meeting minutes, ECB acknowledged that “recent data and survey results had been generally somewhat weaker than expected”. However, the accounts also noted that incoming data were “still considered consistent with an ongoing broad-based expansion of the euro area economy” as embodied in September staff projections. The weaker growth momentum in 2018 “pointed to an economy that was growing more in line with potential”.

                              Nevertheless, the accounts also noted that weaker growth pattern in H2 “would have a mechanical impact, via the carry-over effect, on the estimate for annual growth in 2019”. Little information was currently available for Q4. “December 2018 Eurosystem staff projections, which would be available at the Governing Council’s next monetary policy meeting, would provide an occasion for a more in-depth assessment.”

                              On external risks ECB policymakers “considered that the uncertainties related to global factors remained prominent, and the risks related to the external environment were assessed to be tilted to the downside.” Risks include “rising protectionism, vulnerabilities in emerging markets and financial market volatility.” Also, the account noted that the limited impact from trade tensions was possible because “an adverse impact from trade tensions on more open economies was being offset by the presently more buoyant imports, particularly in the United States.”

                              On inflation, ECB policymakers consider “medium-term outlook for inflation, as contained in the September 2018 ECB staff projections, had been broadly confirmed.” The disappointing development in core inflation was “mainly due to services prices”. And, “it was recalled that there were a number of special factors underlying services price developments, which were mainly related to administered prices. An increase in underlying inflation for the euro area was to be expected when these base effects disappeared.

                              Overall, “members widely agreed that patience, prudence and persistence with regard to monetary policy remained warranted”.

                              Full accounts here.

                              UK May: It’s now up to EU27 leaders to approvide the declaration on future relationship

                                UK Prime Minister Theresa May hailed the draft declaration of future relationship with the EU as she spoke to reporters in Downing Street. She added, “The British people want this to be settled, they want a good deal that sets us on course for a brighter future … That deal is within our grasp and I am determined to deliver it.”

                                She said “The agreement we’ve reached is between the UK and the European Commission. It is now up to the 27 leaders of the other EU member states to examine this agreement in the days leading up to the special EU council meeting on Sunday.”

                                Regarding Gibraltar, May is confidence after speaking to Spanish Prime Minister Pedro Sanchez. She added “I am confident that on Sunday we’ll be able to agree a deal that delivers for the whole UK family, including Gibraltar.”

                                Sterling soars as UK and EU agreed declaration on future relationship on negotiator level

                                  Sterling surges broadly on news that UK and EU have agreed on the draft political declaration on future relationship. It’s also confirmed by European Council President Donald Tusk’s tweet. The draft is now “subject to the endorsement of the Leaders” of EU. UK Prime Minister Theresa May will make a statement at 1430GMT.

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                                  Reuters reported that the text of the agreement include:

                                  • EU and UK “agree to develop an ambitious, wide-ranging and balanced economic partnership.”
                                  • “This partnership will be comprehensive, encompassing a free trade area as well as wider sectoral cooperation … will be underpinned by provisions ensuring a level playing field.”
                                  • The relationship would respect “the integrity of the Union’s Single Market and the Customs Union as well as the United Kingdom’s internal market, and recognize the development of an independent trade policy by the United Kingdom beyond this economic partnership.”

                                  BoJ Kuroda: Our slowdown in asset purchase different from Fed’s tapering

                                    BoJ is sometimes described as doing “stealth tapering” in slowing down its asset purchases. But Governor Haruhiko Kuroda told the parliament that the slowdown in purchases is different from Fed’s tapering.

                                    He said “the Fed’s tapering is conducted intentionally and in several stages, as part of a normalization of monetary policy.” However, “the slowdown in our government bond buying is different from the Fed’s tapering”.

                                    Also Kuroda reiterated the message that there is no need to take additional easing. Instead, BoJ would maintain the current program patiently as it takes time to lift inflation to target.

                                    UK Hammond: Extension to Brexit transition has to be proportional

                                      UK Chancellor of Exchequer Philip Hammond warned again yesterday that it the Brexit deal is not approved by Parliament, “we will have a political chaotic situation”. And, “we don’t know what the outcome of that will be”.

                                      On extension to the transition period, Hammond emphasized that “it would have to be proportional”. And, ” it certainly wouldn’t be more than that, but it would depend on what we were getting in return.” He added “When we look at the economy and the operation of the economy, getting a smooth exit from the European Union, doing this in an orderly fashion, is worth tens of billions of pounds to our economy.”

                                      UK May: Some further issues needed resolutions on future relationship with EU

                                        UK Prime Minister Theresa May concluded her meeting with European Commission President Jean-Claude Juncker without any breakthrough. And she’s set to fly to Brussels again on Saturday to continue with the work. The objective of the talk now is for finalizing a political blueprint on future relationship between the UK and the EU after Brexit.

                                        May told BBC after the meeting that “I will be returning on Saturday for further meetings, including again with President Juncker, to discuss how we can ensure that we can conclude this process in the way which is in interests in all our people.” And, “there were some further issues that needed resolution, we’ve given further direction to our negotiators this evening. I believe we’ve given sufficient direction for them to be able to resolve those remaining issues. An European Commission spokesman said that “Very good progress was made in the meeting between President Juncker and Prime Minister Theresa May. Work is continuing.”

                                        Today’s top mover: AUD/JPY strikes back after defending 81.24

                                          AUD/JPY is once again the top mover today. But unlike yesterday, it’s now the biggest gainer. The high volatility in AUD/JPY is a clear reflection of what’s happening in the stock markets. Though, we’d like to point out that DOW is so far up just 0.62% for now. DOW it as high as 24657.18 and couldn’t even touch the lowest side of the gap made yesterday. Thus, rebound in the US stocks is not too convincing yet.

                                          Coming back to AUD/JPY, it defended the mentioned key near term support of 81.24 as mentioned yesterday, with just a brief breach to 81.19. It also holds above 55 day EMA. Hence there is no confirmation of rejection by 38.2% retracement of 90.29 to 78.65 at 83.02 yet. Intraday bias stays neutral first.

                                          Whether we can still call that a double bottom (78.67, 78.56) is not that important now. In any case, sustained break of 83.02 will indicate medium term reversal. And, further rally could be seen to 61.8% retracement of 90.29 to 78.65 at 85.79. Meanwhile, firm break of 81.24 confirm the rejection by 83.02 fibonacci level. Also, that would mark rejection by 55 week EMA. And, medium term bearishness would be retained and retest of 78.56 low should be seen next.