EU chief Brexit negotiator Michel Barnier warned that more time than 11 months is needed to complete a comprehensive agreement with UK. He said in a speech that “we simply cannot expect to agree on every single aspect of this new partnership in under one year.”
“We are ready to do our best and to do the maximum in the 11 months to secure a basic agreement with the UK, but we will need more time to agree on each and every point of this political declaration,” he added.
Chinese Ministry of Commerce spokesman Gao Feng confirmed that Vice Premier Liu He will travel to Washington next week to sign the first phase of trade agreement with US. Liu will be in US from January 13 to 15 as head of the delegation. Also, he will travel with the titles of Politburo member, vice premier and top trade negotiator.
There are no details regarding the 86-page trade deal yet. US Trade Representative Robert Lighthizer expected the document to be released after signing. One of the mostly concerned part is China’s USD 200B purchases of US goods and services. But Gao declined to comment on the amount of the purchase.
In seasonally adjusted term, Australia goods and services exports rose AUD 706M to AUD 40.89B in November. Goods and services imports dropped AUD 1020m to AUD 35.09B. Trade surplus widened by AUD 1.73B to AUD 5.80B.
Balance on Goods and Services
In its January 2020 Global Economic Prospects report, World Bank forecasts global growth to pick up by 0.1% to 2.5% as “investment and trade gradually recover from last year’s significant weakness”. Even so, that was a -0.2% downgrade from June’s projection of 2.7%. Growth in US is expected slow from 2.3% to 1.8% (revised down by -0.2%). Eurozone growth is projected to slow from 1.1% to 1.0% (revised down by -0.1%). Japan’s growth is estimated to slow from 1.1% to 0.7% (revised up from 0.3%). China’s growth is projected to slow from 6.1% to 5.9% (revised down by -0.1%).
World Bank also warned: “Downside risks to the global outlook predominate, and their materialization could slow growth substantially. These risks include a re-escalation of trade tensions and trade policy uncertainty, a sharper-than expected downturn in major economies, and financial turmoil in emerging market and developing economies. Even if the recovery in emerging and developing economy growth takes place as expected, per capita growth would remain well below long-term averages and well below levels necessary to achieve poverty alleviation goals.”
S&P 500 and NASDAQ jumped to new record highs overnight as risk of imminent US-Iran war receded after President Donald Trump indicated he’s not expectation further retaliations for now. He said in Washington that “no Americans were harmed in last night’s attack by the Iranian regime… All of our soldiers are safe and only minimal damage was sustained at our military bases”. “Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world,” Trump added.
S&P 500 is holding well above 3212.03 support with recent consolidations. Hence, near term bullishness is maintained. Current up trend could target 161.8% projection of 2728.81 to 3027.98 from 2855.94 at 3339.99 next. However, upside momentum is clearly diminishing as seen in daily MACD. Upside should be limited around 3339.99 to bring consolidations at least. Meanwhile, break of 3212.03 will suggest that a short term top is formed and bring pull back to 55 day EMA (now at 3140.64).
US commercial crude oil inventories rose 1.2m barrels in the week ending January 3, versus expectation of -3.4m barrels decline. At 431.1 million barrels, U.S. crude oil inventories are at the five year average for this time of year.
WTI crude oil spiked higher to 65.38 after Iran’s strikes against US led forces in Iraq. But WTI quickly pared gains after the strikes caused no American casualties, thus risking less further escalations. WTI turns further softer after oil inventory release. Focus in now back on 60.46 support.
Purely technically, we’d continue to expect strong resistance from 63.04/66.49 to limit upside to complete the rise from 50.86. Break of 60.46 should confirm short term topping and bring deeper fall to 55 day EMA (now at 58.81) first.
ECB President Christine Lagarde said in an interview that “both within the euro area and globally, the biggest threat is a downturn in trade resulting from a range of uncertainties, primarily affecting manufacturing and hampering investment. his range of uncertainties, in addition to geopolitical risks and issues relating to climate change, includes ongoing trade tensions and Brexit.”
Also, the biggest challenge surrounding Brexit is “yet to come”. That is the issue of reaching a EU-UK trade deal within the 11-month transition period. She added, “the economic and financial impact of Brexit will depend on the details of that agreement – if indeed one can be reached – during that short period of time.”
On European policy, Lagarde said there are “three elements” to the policy mix: monetary policy, fiscal policy and structural reforms. Greater cooperation between competent authorities, without infringing on the independence of their roles, would make it possible to optimise the multiplier effects of their decisions.
US ADP report showed 202k growth in private sector jobs in December, above expectation of 150k. Service providing sector added 173k jobs while goods-producing sector added 29k. By company size, large companies added 45k, mid-sized companies added 88k, small companies added 69k.
“As 2019 came to a close, we saw expanded payrolls in December,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The service providers posted the largest gain since April, driven mainly by professional and business services. Job creation was strong across companies of all sizes, led predominantly by midsized companies.”
European Commission President Ursula von der Leyen said at the London School of Economics that the relationship between EU and UK will be different after Brexit. She also warned that there is not enough time to complete negotiations by the end of this year. She said, “the European Union is ready to negotiate a truly ambitious and comprehensive new partnership with the United Kingdom”. However, “without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership.”
She explained, “we are ready to design a new partnership with zero tariffs, zero quotas, zero dumping. A partnership that goes well beyond trade and is unprecedented in scope. Everything from climate action to data protection, fisheries to energy, transport to space, financial services to security. And we are ready to work day and night to get as much of this done within the timeframe we have.” But “none of this means it will be easy, but we start this negotiation from a position of certainty, goodwill, shared interests and purpose. And we should be optimistic.”
UK Prime Minister Boris Johnson made himself clear that he would not seek transition period extension. His spokesperson said yesterday that ” having waited for over three years to get Brexit done, both British and EU citizens rightly expect negotiations on an ambitious free trade agreement (FTA) to conclude on time… “There will be no extension to the Implementation Period, which will end in December 2020 as set out in the Political Declaration,” the spokesperson added.
Eurozone Economic Sentiment Indicator (ESI) rose 0.3 to 101.5 in December, slightly above expectation of 101.4. The stabilization in the ESI resulted from markedly higher confidence in services (+2.2 to 11.4), construction (+2.2 to 5.0) and, to a lesser extent, retail trade (+1.0 to -0.8), while confidence worsened among consumers (-0.9 to -8.1) and remained virtually unchanged in industry (-0.2 to -9.3).
Amongst the largest euro-area economies, the ESI increased significantly in Italy (+1.7) and Spain (+1.3) and edged up in Germany (+0.4), while it remained broadly unchanged in France (-0.2). By contrast, the ESI declined somewhat in the Netherlands (-0.4).
Business Climate Indicator dropped -0.04 to -0.25. With the exception of production expectations, which improved markedly, all the components of the BCI worsened.
Iranian Foreign Minister Javad Zarif said that the strike against US force were “proportionate” and in “self-defense”. He added Iran does not seek escalation of war, but will defend against aggression. Hesameddin Ashena, advisor to President Hassan Rouhani, also warned that any retaliation by the US could lead to regional war.
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USD/JPY spikes lower after Iran’s retaliation to US. But it quickly recovered after restrained response from US President Donald Trump. He just said in a tweet that “All is well! Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.”
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USD/JPY dived to 107.65 but quickly drew support form 38.2% retracement of 104.45 to 109.72 at 107.70 and recovered. Bias is turned neutral for now. As long as 107.65/70 holds, it is actually more likely to have another leg up to retest 109.72 resistance.
Gold spikes to as high as 1611.37 after Iran launched a missile attack on US led forces in Iraq. The US military confirmed that a dozen ballistic missiles were fired from Iran against at least two Iraqi facilities. Iran’s state TV also said the Revolutionary Guards Corps confirmed they fired the missiles to retaliate for last week’s killing of Qassem Soleimani . Iran also warned US allies including Israel not to allow more attacks from their territories.
Gold’s uptrend is on track to 61.8% projection of 1266.26 to 1557.04 from 1445.59 at 1625.29. At this point, we’d still expect upside to be limited there on overbought condition. Also, rise from 1445.59 is seen as the fifth leg of the five-wave sequence from 1160.17. Medium term correction should be seen after topping. Break of 1555.30 support should indicate topping. However, sustained break of 1625.29 will pave the way to 100% projection at 1736.37.
ISM Non-Manufacturing Composite rose to 55.0 in December, up from 53.9 and beat expectation of 54.5. Looking at some details, Business Activity/Production rose 5.6 to 57.2. New Orders dropped -2.2 to 54.9. Employment dropped -0.3 to 55.2.
ISM said: “The respondents are positive about the potential resolution on tariffs. Capacity constraints have eased a bit; however, respondents continue to have difficulty with labor resources.”
Also: “The past relationship between the NMI® and the overall economy indicates that the NMI® for December (55 percent) corresponds to a 2.2-percent increase in real gross domestic product (GDP) on an annualized basis.”
Canada trade deficit narrowed CAD -1.6B to CAD -1.1B in November, slightly larger than expectation of CAD -0.8B. Exports dropped -1.4% mom to CAD 48.7B. Imports also dropped -2.4% mom to CAD 49.8B.
US trade deficit narrowed -8.2% mom to USD -43.1B in November, smaller than expectation of USD -44.5B. Exports rose 0.7% mom to USD 208.6B. Imports dropped -1.0% mom to USD 251.7B.
With China, trade deficit decreased USD -2.2B to USD 25.6B. Exports increased USD 1.4B to USD 8.9B and imports decreased USD -0.8B to USD 34.5B.
French Finance Minister Bruno Le Maire said he set a deadline of 15 days with US to resolve issues regarding digital tax. He said, “I had a long talk with U.S. Treasury Secretary Steven Mnuchin. We have decided to step up efforts to try and find a compromise, within the OECD, on digital tax”. He added,”We gave each other precisely 15 days, until our next meeting, which is planned on the sidelines of Davos at the end of January”.
Le Maire explained that it’s not just an issue between the US and France, as other EU nations were planning their own digital taxes. Also, any international agreement on digital taxation would immediately supersede the French tax. He noted, “this is a more general issue between the United States and Europe.”
Eurozone retail sales rose 1.0% mom in November, much better than expectation of 0.6% mom. The volume of retail trade increased by 1.4% for non-food products and by 0.7% for food, drinks and tobacco, while automotive fuels decreased by 1.0%.
EU28 retail sales rose 0.6% mom. Among Member States for which data are available, the highest increases in the total retail trade volume were registered in Poland (+3.3%), Belgium (+2.7%) and Latvia (+2.6%). The largest decreases were observed in the United Kingdom (-1.7%), Ireland (-0.9%) and Finland (-0.5%).
Eurozone CPI accelerated to 1.3% yoy in December, up from 1.0% yoy, matched expectations. CPI core was unchanged at 1.3% yoy, also matched expectations. Looking at some details, food, alcohol & tobacco is expected to have the highest annual rate in December (2.0%, compared with 1.9% in November), followed by services (1.8%, compared with 1.9% in November), non-energy industrial goods (0.4%, stable compared with November) and energy (0.2%, compared with -3.2% in November).
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Eurozone unemployment rate unchanged at 7.5%, lowest since 2008
Eurozone unemployment rate was unchanged at 7.5% in November, matched expectations. That’s the lowest rate since July 2008. The number of persons unemployment dropped by -10k for the month, to 12.315m.
EU28 unemployment was unchanged a 6.3%, a record low since January 2000. Among the Member States, the lowest unemployment rates in November 2019 were recorded in Czechia (2.2%), Germany (3.1%) and Poland (3.2%). The highest unemployment rates were observed in Greece (16.8% in September 2019) and Spain (14.1%).
Also released in European session, Germany industrial production rose 1.1% mom in November, beat expectation of 0.7% mom. Trade surplus narrowed to EUR 18.3B, below expectation of EUR 20.9B. Swiss retail sales rose 0.0% yoy in November, below expectation of 0.5% yoy.