EU to seek China agreement to open up market in upcoming summit

    Reuters reported that EU is seeking China’s agreement to open up its market by summer 2019. An EU drafted six-page joint communique obtained reads China and the EU will “agree by summer 2019 on a set of priority market access barriers and requirements facing their operators.” It’s intended to be the deliverable of the EU-China summit on April 9 in Brussels. Chinese Premier Li Keqian is expected to be there, meeting European Commission President Jean-Claude Juncker and European Council President Donald Tusk.

    While there is no other detail reported, we believed it’s released to the proposed 10 actions by the European Commission on relations with China release last week. The proposal will be discussed and endorsed at the European Council meeting this week on March 21. There, EU described China as a “cooperation partner” and “negotiating partner” as well as “systemic rival promoting alternative models of governance.” Some important actions focus on issues like subsidies and forced technology transfers, reciprocity and open up procurement opportunities in China.

    Gold recovered ahead of 1275/6 support zone, maintains bullishness

      Gold drew support from rising channel line and recovered after hitting 1280.85. So far, it’s held above 1276.76 cluster support (38.1% retracement of 1160.17 to 1346.17 at 1275.45). Thus, there is no indication of trend reversal yet. Rise from 1160.17 could extend further. Break of 1346.71 will target key fibonacci level of 38.2% retracement of 192.070 to 1046.37 at 1380.36. For now, we don’t see enough momentum to break through this 1380.36 key fibonacci level yet.

      On the downside, decisive break of 1275.45/1276.76 should confirm completion of whole rise from 1160.17. In that case, gold should have started another falling leg inside the long term range pattern. Deeper fall should then be seen back towards 1160.17 support.

      BCC downgrades UK growth forecasts on Brexit and global slowdown

        The British Chambers of Commerce (BCC) has downgraded UK growth forecast on “weaker outlook for business investment and trade amid continued Brexit uncertainty and slower expected global economic growth”. For 2019, growth forecast was downgraded from 1.3% to 1.2%. For 2020, growth forecasts was downgraded from 1.5% to 1.3%. in 2021, growth is projected to pick up slightly to 1.4%.

        Also, BCC noted that business investment is projected to contract by -1.0% in 2019. And that would be the weakest outturn in a decade since the financial crisis in 2009. BCC blamed that “ongoing uncertainty over the UK’s future relationship with the EU is expected to continue to weigh on investment intentions.” And, “diversion of resources to prepare for no deal and the high upfront cost of doing business in the UK is also projected to limit the extent to which investment activity will bounce back over the near term.”

        Full release here.

        UK Hammond: Significant number of colleagues changed minds and backed the Brexit deal

          The UK Parliament will have meaningful vote on Prime Minister Theresa May’s Brexit deal for the third time this week. Ahead of that Chancellor of Exchequer Philip Hammond said a significant number of Conservatives have changed their mind last week to back the plan. And he expected more to come even though the government hasn’t had enough numbers yet. And, “it is a work in progress”.

          Hammond said “What has happened since last Tuesday is that a significant number of colleagues, including some very prominent ones who have gone public, have changed their view on this and decided that the alternatives are so unpalatable to them that they on reflection think the prime minister’s deal is the best way to deliver Brexit.”

          Last Tuesday, the Commons voted 391-242 to reject May’s “improved” deal. Back in January, the deal was voted down by 432-202.

          US Empire State Manufacturing index dropped to 3.7

            US Empire State Manufacturing index dropped to 3.7 in March, down from 8.8 and missed expectation of 10. It’s also the third consecutive month of sub-10 reading, suggesting “growth has remained quite a bit slower so far this year than it was for most of 2018.

            Looking at some details, new orders index dropped -5pts to 3.0, indicating orders grew at a slower pace. Shipments dropped -3 pts to 7.7, indicating modest shipments growth. Employment index rose to 13.8. But average work week turned negative for the firs time since 2016, at -3.4.

            Full release here.

            Eurozone CPI finalized at 1.5% in Feb, core at 1.0%

              Eurozone CPI was finalized at 1.5% yoy in February, up from January’s 1.4% yoy. Core CPI was finalized at 1.0%yoy, down from 1.1% yoy. EU CPI was finalized at 1.6% yoy, up from 1.6%.

              The lowest annual rates were registered in Ireland (0.7%), Greece, Croatia and Cyprus (all 0.8%). The highest annual rates were recorded in Romania (4.0%), Hungary (3.2%) and Latvia (2.8%). Compared with January 2019, annual inflation fell in seven Member States, remained stable in one and rose in nineteen.

              Full release here.

              ECB Rehn urged policy framwork rethink as interdependence of economy and inflation weakened

                ECB Governing Council member Olli Rehn urged the central bank to rethink it’s policy framework after failing to lift inflation back to target. One explanation for the failure could is that “trust in central banks’ ability to influence the inflation rate may have eroded.”

                He noted that “the interdependence of economic activity and inflationary pressures seems to have weakened in recent years.” And, “should this phenomenon prove to be lasting, it would imply a weakening of the impact monetary policy exerts on inflation via aggregate demand.”

                But he also emphasized that “this would not mean questioning the primary objective of price stability”. Instead, the policy rethink would “entail a comprehensive review of the guiding principles, key assumptions and tools used for the implementation of monetary policy”.

                UK Lidington still hope to leave EU asap in orderly fashion

                  UK Cabinet Minister David Lidington told BBC radio the default for the government is still to leave the EU on March 29. He said “I hope still we can leave as soon as possible in an orderly fashion but that depends upon parliamentary approval both in principle of a withdrawal agreement but also then the implementing legislation that has to follow before lawfully we can ratify that treaty”.

                  And, by the end of March we have to have an alternative in place, not just a resolution of the House of Commons, a preference, but a solution in place that enables us to have an extension so there isn’t crash out on March 29.”

                  German Justice Minister Katarina Barley told rbb broadcaster that “the EU would be ready to delay Brexit, but one has to have a plan on what is supposed to happen during this period.” She added that delaying Brexit doesn’t bring a solution.

                  BoJ Kuroda: Likely to take longer to achieve inflation target

                    In the post meeting press conference, BoJ Governor Haruhiko Kuroda admitted that “Japan’s exports and output are being affected by lean overseas growth”. However, he also pointed out “domestic demand continues to grow.” Hence, BoJ maintained the baseline view that “economy is expanding moderately”. Though, regarding inflation he said “it is likely to take longer to achieve our target”.

                    Kuroda also defended BoJ’s policy and noted “We are not saying that we only care about achieving our price target.” Instead, BoJ’s goal is that “prices should rise gradually, reflecting an improvement in corporate profit and job growth rate”. For now, there is no need to make any change to the price target.

                    BoJ stands pats, expects exports to show some weakness

                      BoJ kept monetary policy unchanged today as widely expected. Short term interest rate is held at -0.1%. The central bank will continue to buy JGBs to keep 10-year yield at around zero percent. But yields are allowed to move upwards and downwards to some extent. Annual pace of monetary expansion is kept at around JPY 80T. Goushi Kataoka and Yutaka Harada dissented again in 7-2 vote.

                      BoJ continues to expect the economy to continue its “moderate expansion”. However, it noted that the economy is “being affected by the slowdown in overseas economies for the time being”. In particular, exports are projected to “show some weakness” for the time being. CPI is still “likely to increase gradually toward 2 percent”.

                      Full BoJ statement here.

                      Separately, Japanese Finance Minister Taro Aso warned BoJ against insisting on the 2% inflation target. He said “things could go wrong if insist too much on achieving the 2 percent inflation target”. Earlier in the week, he said “no one in the public would be angry even if the inflation target isn’t achieved.”

                      Trump: We’ll have news on China in three to four weeks, one way or the other

                        Trump indicated at the White House that it may take another three to four weeks to know whether there would be a trade deal with China. He said “we’ll have news on China. Probably one way or the other, we’re going to know over the next three to four weeks.” He added that China has been “very responsible and very reasonable”. And he repeated the usual rhetoric that “if that one gets done, it will be something that people will be talking about for a long time.”

                        Separately, Treasury Secretary Steven Mnuchin also confirmed that there will be no Trump-Xi summit this month. He added that both sides are “working in good faith” to try to reach a deal “as quickly as possible.” While there’s a lot of work to do, Mnuchin said “we’re very comfortable with where we are”.

                        China’s Xinhua news agency said again that Chinese Vice Premier Liu He spoke by telephone with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer and the two sides made further substantive progress on trade talks. As usual from the Chinese side, no other detail was unveiled.

                        Yet another vote on May’s Brexit deal ahead after parliament voted for seeking extension

                          UK parliament passed the motion to seek Brexit delay by 413 to 202 votes. Under the motion, if a Brexit deal is approved, the government will seek 30 days Article 50 extension till June 30, 2019. If a deal is not approved, the length of the extension will depends on the purpose of it. But in the latter case, it will most likely be a long extension.

                          Prime Minister Theresa May is expected to bring her twice-defeated Brexit deal back to the Commons for another meaningful vote on Tuesday March 19, just ahead of EU Council meeting on March 21-22. Meanwhile, May also promised that she will give Parliament the chance to take over on March 25 if her deal is defeated again. The development after March 25 is wide open, with possibilities of a softer Brexit, a second referendum and a general election.

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                          US initial jobless claims rose 9k to 229k, import price rose 0.6% mom

                            US initial jobless claims rose 6k to 229k in the week ending March 9, above expectation of 225k. Four-week moving average of initial claims dropped -2.5k to 223.75k.

                            Continuing claims rose 18k to 1.776M in the week ending March 2. Four-week moving average of continuing claims dropped -1k to 1.766M.

                            Import price index rose 0.6% mom in February, fasting in 9 months, well above expectation of 0.3% mom.

                            Into US session: Dollar strongest as US-China trade negotiation may drag on

                              Entering into US session, Dollar is trading as the strongest one on talks that US-China trade negotiation is dragging on, and the Trump-Xi summit would be postponed to April. Swiss Franc is the second strongest, followed by Euro. Sterling is the weakest one so far as a third day of Brexit vote is awaited. The Commons will vote on seeking Article 50 extensions. Australian Dollar is following as the second weakest, weighed down by China economic data which suggests longer slowdown.

                              US will release import price index, jobless claims, and new home sales. Canada will release new housing price index.

                              In Europe:

                              • FTSE is up 0.69%.
                              • DAX is up 0.24%.
                              • CAC is up 0.70%.
                              • German 10-year yield is up 0.0095 at 0.075.

                              Earlier in Asia:

                              • Nikkei dropped -0.02%.
                              • Hong Kong HSI rose 0.15%.
                              • China Shanghai SSE dropped -1.20% to 2990.69, below 3000.
                              • Singapore Strait Times rose 0.07%
                              • Japan 10-year JGB yield rose 0.0053 to -0.04.

                              Italy: Di Maio happy with China Belt & Road MOUs, Salvini pledges to oppose if national security compromised

                                Italian Deputy Prime Minister Luigi Di Maio, head of ruling Five-Star Movement, said that President Sergio Mattarella support signing up as part of China’s “Belt and Road” initiative. He noted that “I am pleased to see the president’s office has shown its support to the MOUs.” He added that the MOUS will help Italy’s port infrastructure and boost export to China.

                                On the other hand, another Deputy Prime Minister Matteo Salvini, head of coalition partner League, warned he will firmly oppose to the MOUs, if that compromises national security. He also said earlier this week that “we’re absolutely not ready to do so if it’s a question of foreign companies colonizing Italy.”

                                Prime Minister Giuseppe Conte indicated that he might sign the Belt and Road MOUs when Chinese President Xi Jinping visits Rome and Palermo later this month.

                                Trump-Xi summit reported to be postponed to April

                                  Bloomberg reports that the planned summit between Trump and Chinese President Xi Jinping to seal the trade deal would be postponed to April. One of the reason is that China prefers a formal state visit rather than a low-profile appearance just to sign the deal.

                                  But more importantly, as US Trade Representative Robert Lighthizer said earlier this week that there are still unresolved major issues”. We’ve repeatedly pointed out that there has been no concrete details on the core issues, including IP theft, forced technology transfer and market distortion by state-owned enterprises.

                                  Trump has also tried to tone down on the agreement yesterday as he said “I’m in no rush. I want the deal to be right. … I am not in a rush whatsoever. It’s got to be the right deal. It’s got to be a good deal for us and if it’s not, we’re not going to make that deal.” And, he is also open to complete the trade agreement before or after the summit.

                                  Former head of National Economic Council Gary Cohn said in a Freakonomics interview that Trump “needs a win” and he is “desperate right now” for a trade deal with China. Cohn added, “the only big open issue right now that he could claim as a big win that he’d hope would have a big impact on the stock market would be a Chinese resolution.”

                                  Ifo lowers 2019 Germany growth forecast from 1.1% to 0.6%, but upgrades 2020 forecasts

                                    German ifo Institute lowers 2019 growth forecast for Germany from 1.1% to 0.6%. Though, 2020 growth forecast is revised up from 1.6% to 1.8%.

                                    Timo Wollmershaeuser, Head of ifo Business Cycle Analysis and Forecasts said: “The current production difficulties in German manufacturing are likely to be overcome only gradually. The industry will largely fail to act as an economic engine in 2019. Global demand for German products is weak, as the international economy continues to lose momentum.

                                    But he emphasized that “domestic driving forces are still intact”. Number of people employed should continue to rise even though pace is slowing. Unemployment rate is expected to fall from 5.2% to 4.7-4.9%. Also, Wollmershaeuser added: “This year, strong wage increases, a low inflation rate, reductions in taxes and social security contributions as well as an expansion of public transfers should result in a large increase in real incomes of households. This will bolster private consumption and the construction industry.”

                                    Full release here.

                                    German Economy Ministry expects moderate growth in Q1, weak manufacturing and prospering services

                                      German Economy Ministry said in its March economic report that the economy has a subdued start to 2019. And the country “has become more troubled due to higher risks and uncertainties in the external environment.” This applies in particular to manufacturing with significant fall in production in January. The “weak phase” is likely to continue due to “sluggish foreign demand”.

                                      Though, the ministry expects growth to continue in other sectors, in particular most service sectors. This was underlined by “recent significant increase in employment” those sectors. With the conflicting tension between weak manufacturing and prospering services, GDP will likely increase “at best moderate” in Q1.

                                      The government lowered 2019 growth forecast to 1.0% back in January and will update the projections again in April.

                                      Full report here in German.

                                      UK Hammond said EU may insist on long Brexit delay, German Altmaier said no artificial boundaries

                                        The vote on delaying Brexit in the Commons is the major focus today. A big question is… for how long. Chancellor of the Exchequer Philip Hammond said, “this is not in our control and the European Union is signaling that only if we have a deal is it likely to be willing to grant a short technical extension to get the legislation through.” He added “if we don’t have a deal, and if we’re still discussing among ourselves what is the right way to go forward, then it’s quite possible that the EU may insist on a significantly longer period”.

                                        Opposition Labour Party’s finance spokesman John McDonnell said “we will be putting an amendment down to ensure parliament considers an extension, it doesn’t necessarily have to be a long extension”. He added “we will go for a limited extension today.”

                                        German Economy Minister Peter Altmaier urged the EU to discuss “constructively” with UK on the question of delaying Brexit. He emphasized “we urgently need clarity, we need clarity fast, but we will not make this by always criticizing our British friends and partners from a high moral standpoint, but only if we reach a reasonable solution”. And, he said “I would not set any artificial boundaries here”, regarding the time of the delay.

                                        Weak Chinese data point to longer slowdown

                                          A batch of January-February economic data is released from China today which showed that the slowdown is going to extend for longer. In particular, poor employment data could trigger more forceful measures from the Chinese government to maintain social stability.

                                          Industrial production growth slowed to 5.3% ytd yoy in February, down from 6.2% and missed expectation of 5.5%. That also the slowest pace since early 2002.

                                          Retail sales growth dropped to just 8.2% ytd yoy, down from 9.0% but beat expectation of 8.1%. That’s nonetheless, the weakest growth since at least 2012. Unemployment rate also jumped sharply to 5.3%, up from 4.9% in December, highest in two years.

                                          Nevertheless, investment offers some positive hope. Fixed assets investment grew 6.1% yoy, up from 5.9% and beat expectation of 6.0%. Real estate investment rose 11.6% yoy, hitting the strongest growth figure since November 2014.