SNB kept interest rate at -0.75%, downgrades inflation forecast

    SNB left “expansionary” monetary policy unchanged as widely expected. Sight deposit rate is held at -0.75%. Three-month Libor target range is also kept at -1.25% to -0.25%. The central bank maintained the pledge to “remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.”

    While Swiss Franc has depreciated slightly since December meeting, SNB said “it is still highly valued” and the currency markets situation remain “fragile”. Thus, negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary therefore remain essential. These measures keep the attractiveness of Swiss franc investments low and reduce upward pressure on the currency.

    Inflation forecast in 2019 is downgraded to 0.3%, down from December projection of 0.5%. For 2020, inflation is projected to be at 0.6%, down from 1.0%. For 2020, inflation is projected to pick up to 1.2%. The forecasts are based on keeping three-month Libor rate at -0.75% over the entire horizon. On growth, SNB expects GDP to grow by around 1.5% in 2019 as a whole.

    Full statement here.

    Yield curve suggests risks of recession intensified after Fed’s dovish turn

      The US markets ended rather terribly overnight despite Fed’s steep dovish turn, with re-emerging trade war threat in the background. Drastic moves were seen in the bond markets with yield curve now indicate intensified risks of recession ahead.

      The most reliable recession indicator is now flashing red after yesterday’s moves in the bond markets. The spread between 3-month yield and 10-year yield has narrowed sharply and at brink of inverting. The slope of 3-month and 10-year yields is watched by most economist and seen as the best recession indicator.

      The technical development in 10-year yield (TNX) suggests that it’s only starting to get worse. TNX dropped -0.079 to close at 2.535. Indeed, the strong break of 2.554 support indicates resumption of fall from 3.248 high with solid downside momentum. Key fibonacci level of 38.2% retracement of 1.336 (2016 low) to 3.248 (2018 high) at 2.554 looks rather vulnerable. Decisive break will confirm medium term reversal, which could open up the case for deeper fall to 61.8% retracement at 2.066, which is close to 2.034 support and 2% psychological level.

      New Zealand GDP grew 0.6% qoq, led by services

        New Zealand GDP grew 0.6% qoq in Q4, up from Q3’s 0.3% qoq and matched expectations. GDP grew 2.8% over the year ended December 2018. While the 0.6% growth missed RBNZ’s forecast of 0.8%, it may not be weak enough to prompt an RBNZ rate cut in this month’s meeting yet.

        Looking at the details, growth was driven by services industries which rose 0.9%, with 9 of 11 services industries recording increases. Agriculture, forestry, and fishing industry contracted -0.6%. construction rose 1.8%. Household spending rose 1.3%. Investment spending rose 1.4%.

        Full release here.

        Australia unemployment rate dropped to 4.9% as participation rate dropped -0.2%

          In seasonally adjusted term, Australian employment market grew 4.6k in February, well below expectation of 15.2k. Full-time employment dropped -7.3k while part-time jobs grew 11.9k. Unemployment rate dropped to 4.9%, down from 5.0%. That’s also the lowest level since June 2011. However, participation rate dropped by -0.2% to 65.6%.

          The seasonally adjusted unemployment rate increased in New South Wales (up 0.3 pts to 4.3%) and Victoria (up 0.2 pts to 4.8%). Decreases were observed in Western Australia (down 0.9 pts to 5.9%), Queensland (down 0.6 pts to 5.4%), South Australia (down 0.6 pts to 5.7%) and Tasmania (down 0.5 pts to 6.5%).

          ABS Chief Economist Bruce Hockman said: “The trend unemployment rate declined 0.5 percentage points over the year, from 5.5 per cent to 5.0 per cent. The pace of decline slowed in recent months, which was consistent with the slowdown seen in recent Job Vacancies and GDP numbers.”

          Full release here.

          UK May to work night and day to secure support for her Brexit deal again

            UK Prime Minister Theresa May said at her Downing Street residence that the Brexit delay is “a matter of great personal regret”. She added “I passionately hope that (MPs) will find a way to back the deal I have negotiated with the EU, a deal that delivers on the referendum and is the very best deal negotiable, and I will continue to work night and day to secure the support” for the deal. Though, she emphasized she’s not preferred t delay Brexit any further than June 30.

            European Council President Donald Tusk offered to approve Article 50 extension. But that would be “conditional on a positive vote on the withdrawal agreement in the House of Commons.” If his proposal is approved by all other 27 EU members, and there is a positive vote in the House of Commons next week, the EU can “finalize and formalize the decision on extension in the written procedure”. Tusk is ready to call for another EU summit next week if needed.

            This position is rather unified in the EU as officials repeated emphasized that there much be a purpose for the extension, be it until May 23 or June 30. But then, the question remains on whether May could secure enough support for her deal. It remains a developing story.

            Fed chair Jerome Powell press conference live stream

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              Dollar risks medium term reversal on much more dovish than expected Fed

                Risks of medium term bearish reversal in Dollar jumps after the much more dovish than expected Fed projections. Break of 1.1419 resistance is taken as the first sign of medium term bottoming at 1.1176. That comes after hitting 61.8% retracement of 1.0339 to 1.2555 at 1.1186, on bullish convergence condition in daily MACD. Sustained trading above 1.1419 will bring further rise to 1.1569 to key resitance to confirm medium term bottoming. Though, it’s still too early to confirm trend reversal as we’ll have to look at the eventual strength and structure of the rise from 1.1176 to make a judgement.

                Dovish Fed economic projections: No hike in 2019, lower GDP growth, higher unemployment rate

                  Fed’s new economic projections are rather dovish. In short, there will be no more rate hike in this year. And the current rate hike cycle could end with interest rate below longer run rate. GDP forecasts for 2019 and 2020 are revised down. Unemployment rate for 2019, 2020, and 2021 are all revised up. Dollar dives sharply after the release.

                  Federal funds rates are projected to be at:

                  • 2.4% in 2019, revised down from 2.9%.
                  • 2.6% in 2020, revised down from 3.1%.
                  • 2.6% in 2021, revised down from 3.1%.

                  Median longer run rate is unchanged at 2.8%.

                  That is, there will be no rate hike this year. And probably just one hike in 2020 and it’s done. The current cycle could end up with interest rate below the longer run level.

                  GDP growth is projected to be at:

                  • 2.1% in 2019, revised down from 2.3%.
                  • 1.9% in 2020, revised down from 2.0%.
                  • 1.8% in 20201, unchanged.

                  Unemployment rate is projected to be at:

                  • 3.7% in 2019, revised up from 3.5%.
                  • 3.8% in 2020, revised up from 3.6%.
                  • 3.9% in 2021, revised up from 3.8%.

                  Core PCE inflation is projected to be at:

                  • 2.0% in 2019, unchanged.
                  • 2.0% in 2020, unchanged.
                  • 2.0% in 2021, unchanged.

                  Fed stands pat, talks down weak Feb NFP and fall in headline inflation

                    Fed left federal funds rate unchanged at 2.25-2.50% as widely expected. It maintained the the Committee will be “patient” regarding future adjustments to interest rates. Nevertheless, Fed talks down the weak NFP growth in February, and maintained that “job gains have been solid, on average, in recent month”. Also, unemployment rate “remained low”.

                    Fed also talks down easing in inflation and said it’s “largely a result of lower energy prices”. Core inflation remains “near 2 percent”. Though, growth in household spending and business fixed investments slowed in Q1.

                    Full statement below:

                    Federal Reserve Issues FOMC Statement

                    Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

                    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

                    In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

                    Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.

                    Trump: Tariffs on China could stay for a long time even if a deal is reached

                      DOW dives instant after Trump said his administration is talking about leaving tariffs on China for a long period of time. That is, even if a trade agreement is reached, the tariffs won’t be limited until China complies with the terms of the deal. Though, he also said a deal is coming as tariff threat makes China eager to reach a deal.

                      He said: “We’re not talking about removing [tariffs], we’re talking about leaving them for a substantial period of time because we have to make sure that if we do the deal with China that China lives by the deal.”

                      His comments come just ahead of USTR Lighthizer’s trip to Beijing next week to resume the negotiation.

                      EU to UK: Article 50 extension only if Brexit deal is approved

                        Responses from EU regarding UK’s request for Article 50 extensions are generally hardline. European Council President Donald Tusk said EU will only approval short Article 50 extension if UK Parliament passes the Brexit deal. And, if the vote is passed in the Commons next week, the extension can then be finalized using a written procedure. Tusk is also ready to call a summit next week if needed.

                        Full statement of Tusk.

                        “In the light of the consultations that I have conducted over the past days, I believe that a short extension would be possible.

                        But it would be conditional on a positive vote on the withdrawal agreement in the House of Commons.

                        The question remains open as to the duration of such an extension.

                        At this time, I do not foresee an extraordinary European council.

                        If the leaders approve my recommendations and there is a positive vote in the House of Commons next week, we can finalise and formalise the decision on extension in the written procedure.

                        However, if there is such a need, I will not hesitate to invite the members of the European council for a meeting to Brussels next week.

                        Although Brexit fatigue is increasingly visible and justified, we cannot give up seeking until the very last moment a positive solution – of course, without opening up the withdrawal agreement.

                        We have reacted with patience and goodwill to numerous turns of events and I am confident that also now we will not lack the same patience and goodwill at this most critical point in this process.”

                        Earlier French Foreign Minister Jean-Yves Le Drian said also said the extension will only be granted if May could provide guarantee for passing the deal. He said: “A situation in which Mrs May was not able to present to the European Council sufficient guarantees of the credibility of her strategy would lead to the extension request being dismissed and opting for a no-deal exit.”

                        German Foreign Minister Heiko Maas said “We’ve always said that if the Council has to decide on a deadline extension for Britain, then we’d like to know why and what for.”

                        EU Juncker warns UK May against Brexit delay past May 23

                          According to his spokesperson, European Commission President Jean-Claude Juncker warned UK Prime Minister Theresa May in a phone call that short Brexit extension has to be complete before May 23.

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                          The spokesman also later said:

                          “President Juncker said to the prime minister that he thinks it’s a good idea she sets out her thoughts to the leaders ahead of the EU Council.

                          However, the president has clearly warned the prime minister against including a date for the extension that will be after the European parliament elections. That’s why he repeated in this call his advice, which he set out in his letter on March 11, that the withdrawal has to be complete before May 23, otherwise we risk facing institutional difficulties and legal uncertainty, given the European elections date.

                          European elections have to be held if the extension date is beyond May 23. This is the position of the commission and this is what the president informed the prime minister again.”

                          Into US session: Sterling weakest as May seeks short Brexit delay to June 30

                            Entering into US session, Sterling is undoubtedly the weakest one as Brexit chaos continue. UK PM May confirmed that she is seeking Article 50 extension till June 30. And she intends to have the third meaningful vote on her Brexit deal. At the same times, it’s reported that EU would only approve extensions till May 23. And most importantly, we’d repeat our doubt that even with an extension, and another MV, would the deal get through the Commons? If not, then what’s next? There is no answer.

                            Staying in the currency markets, Kiwiis second strongest weakest. Canadian Dollar is the third weakest as WTI is back below 59 after failing to take out 60 key resistance zone. Swiss Franc, Euro and Aussie are the strongest ones.

                            Looking ahead, FOMC rate decision, economic projections and press conference are the main focus of the day. Here are some previews.

                            In Europe:

                            • FTSE is up 0.20%.
                            • DAX is down -1.43%.
                            • CAC is down -0.19%.
                            • German 10-year yield is down -0.008 at 0.091.

                            Earlier in Asia:

                            • Nikkei rose 0.20%.
                            • Hong Kong HSI dropped -0.49%.
                            • China Shanghai SSE dropped -0.01%.
                            • Singapore Strait Times dropped -0.41%.
                            • Japan 10-year JGB yield rose 0.0092 to -0.036.

                            EU could only approval Brexit delay to May 23, not June 30

                              While UK PM May is seeking Article 50 extension to June 30, an EU document seen by Reuters noted that it won’t grant any extension beyond May 23.

                              The document noted that “any extension offered to the United Kingdom should either last until 23 May 2019 or should be significantly longer and require European elections.”

                              And, “this is the only way of protecting the functioning of the EU institutions and their ability to take decisions.”

                              UK PM May seeking Article 50 extensions until June 30

                                UK Prime Minister Theresa May confirms at PMQs in parliament that has written to European Council President Donald Tusk to seek extension of article 50 until June 30. She noted that MPs voted for only a short extension last Thursday. Also, holding European election would not be in anyone’s interest. May also said the government will hold another meaningful vote.

                                May said: “As prime minister, I am not prepared to delay Brexit any further than the 30th of June … I have therefore this morning written to President Tusk, the president of the European Council, informing him that the UK seeks an extension to the article 50 period until the 30th June… The government intends to bring forward proposals for a third meaningful vote. If that vote is passed, the extension will give the House time to consider the Withdrawal Agreement Bill. If not, the House will have to decide how to proceed.”

                                Here is May’s letter to Tusk.

                                UK CPI ticked up to 1.9%, house price growth slowest since 2013

                                  In February, UK CPI accelerated to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. It’s close to the two year low in January. Core CPI, on the other hand, slowed to 1.8% yoy, down from 1.9% yoy and missed expectation of 1.9% yoy. RPI was unchanged at 2.5% yoy, matched expectations.

                                  PPI input rose to 3.7% yoy, up from 2.6% yoy. PPI output rose to 2.2% yoy, up from 2.1% yoy. PPI output core slowed to 2.2% yoy, down from 2.4% yoy.

                                  Also from UK, house price index rose 1.7% yoy in January, down from December’s 2.5% yoy and missed expectation of 1.7% yoy. It’s also the slowest pace since June 2013.

                                  Trump to push FTA negotiations with Japan, ignoring Japan’s own will

                                    In the U.S. Economic Report of the President released yesterday, Trump indicated he’s going to push for free trade agreement with Japan even though the latter has repeated rejected the idea. The document said that the administration intends to “enter into free trade agreement negotiations with Japan, and the EU, and with the U.K.”

                                    The document also singled out Australia, who’s a member of Japan led Trans-Pacific Partnership, for having advantages over US exporters in Japan. The TPP is an 11-member FTA that Trump pulled the US out on his own will at the earliest stage of his presidency. The document also noted the FTA between Japan and the EU will put the US farmers and ranchers at a disadvantage.

                                    It pointed out that “A number of international competitors, such as Australia, face much lower Japanese tariffs, so a free trade agreement with Japan could level the playing field for U.S. exporters”. An addition, “other tariffs and nontariff barriers stand in the way of U.S. goods and services exports to Japan.”

                                    US Trade Representative Robert Lighthizer said last month that he’s going to launch trade talks with Japan in March. But given that he’s now engaged in negotiations with China (he’s travel to Beijing next week while Chinese delegate will travel to Washington the week after), the US-Japan negotiations is unlikely to start until April or even May.

                                    Full 700-page report here.

                                    EU Juncker reiterates no re-negotiation, UK May to request short Brexit delay

                                      European Commission President Jean-Claude Juncker reiterated the EU’s stance on Brexit with Germany’s Deutschlandfunk radio. He said “there will be no re-negotiations, no new negotiations, no additional guarantees in addition to those already given”. He added “we have intensively moved towards Britain, there can be no more.”

                                      Juncker also hinted at another EU summit next week and said “my view this morning at quarter past 8 is that we will not get this through this week and we will have to meet again next week”.

                                      Separately, both BBC and Sky reported that UK Prime Minister Theresa May will request only a short delay to Brexit in her letter to European Council President Donald Tusk today. But the actual length will only be confirmed when the letter is published.

                                      Education Secretary Damian Hinds also said “I don’t see how a long delay gives certainty. Actually we’ve had long time already… People are a bit tired of waiting for parliament to get our act together and get the deal passed… Unless and until a deal is finalized, there remains the prospect of the risk of no deal.”

                                      China Xi to strengthen global strategic partnership with Italy

                                        On the eve of his visit to Italy, Chinese President Xi Jinping wrote in Corriere della Sera newspaper saying that the country is ready to strengthen a “global strategic partnership”. Xi added that “with my visit I wish to set out together with Italian leaders the guidelines for bilateral relations and take them into a new era.” Additional, China like to coordinate more closely with Italy in multilateral organizations like UN, WTO and GD20. And both countries could develop joint projects in ports, shipping, telecoms and pharmaceuticals.

                                        Separately, Vice Foreign Minister Wang Yi said “it is hard to avoid misunderstandings occurring during the process of advancing the construction of the Belt and Road. But he emphasized that “facts are the best proof”. Italy is set to send a high-level delegation to the second Belt and Road summit in Beijing next month. And they would be the first G7 nation to join the initiative, which could upset the US and alert EU.

                                        Fed to stand pat, release new projections, may announce end to balance sheet runoff

                                          Fed is widely expected to keep interest rate unchanged at 2.25-2.50% today. Also the central bank is expected to reiterated that it’s in no hurry to make another move. The language that “the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes” should be maintained .

                                          There will be two major focuses for the announcement as well as press conference. Firstly, Fed’s is known to be preparing for ending the balance sheet roll-off this year. The balance sheet surged from less than USD 1T in 2008 to hit a peak of USD 4.5T as a result of the quantitative easing program. It then started to be reduced by USD 50B per month since early last year. The detailed plan might be revealed today with specifics on when and how the runoff would end.

                                          Fed will also publish first set of new economic projections after it shifted to a “patient” stance. Forecasts on GDP, unemployment rate and inflation are important as usual. But a crucial part is projection on federal funds rate. Back in December, the median forecast was for interest rate to rise to 2.9% in 2019, with central tendency at 2.6-3.1%. For 2020, media rate was at 3.1%. The longer run neutral rate was projected to be at 2.8%, with central tendency at 2.5-3.0%. Today’s projections will hopefully answer questions like: Is there one or two expected rate hikes this year? Are some members expecting a rate cut? Where the neutral rate is? Will rate hike continue down the road to surpass neutral?

                                          Here are Fed’s December projections.

                                          Below are some suggested readings on FOMC: