Trump confirmed his intention to escalate tariff war with EU. In a tweet, he echoed the USTR statement that WTO found EU subsidies to Airbus has “adversely impacted” the US.
He also blamed that “EU has taken advantage of the U.S. on trade for many years.” And the US will “now put tariffs on $11 billions of EU products”.
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Entering into US session, Swiss Franc is trading as the weakest one for today despite mixed risk sentiments as seen in the stock markets. Rebound in gold and persistent rally in oil could be the factors that reduce safe haven demand for the Franc. Dollar is following as the second weakest, reacting negatively to news that Trump is going to escalate global trade war again by considering to impose new tariffs on EU products.
On the other hand, Australian Dollar is the strongest one, followed by Yen and Canadian. Rally in iron oil price is a factor lifting the Aussie. Meanwhile, there remains optimism that the worst in China slowdown is over, even though more data is needed to secure this view.
Sterling is mixed in range as UK Prime Minister Theresa May is in Berlin visiting German Chancellor Angela Merkel. There are speculations that EU prefers to give a relatively longer Brexit delay till end of 2019 or even March 2020. It’s perceived that UK will need more time to sort out what it really wants. In any case, for a short extension till June 30, May will be required to convince EU leaders that she has a plan to get the withdrawal agreement through the Parliament. And so it remains unlikely.
In Europe, currently:
Earlier in Asia:
WTI crude oil hits as high as 64.64 and outlook remains bullish as long as 61.82 support holds.
Gold’s rebound from 1280.85 is in progress fro 1324.49 resistance.
Airbus spokesman Rainer Ohler criticized the US has “no legal basis” take action against EU on its subsidies. “Necessary measures” has been take to comply with “relatively minor elements” following the May 2018 WTO report. Additionally, Ohler said the USD 11B amount the US claimed was :”largely exaggerated” and should be “defined by the WTO”, not the US.
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Separately, French Finance Minister Bruno Le Maire said “When I see the situation global growth is in, I don’t think we can afford to have a trade conflict even if only on the specific issues of the aircraft industry in the United States and Europe.”
There is no formal response regarding US intention to impose Section 301 tariffs as retaliation for Airbus subsides yet. But Reuters reported, based on unnamed source, EU believed US measures was “greatly exaggerated” and the amount of retaliation could only be determined by a WTO arbitrator.
Meanwhile, EU is preparing for possible retaliation over subsidies for Boeing. The source noted “in the parallel Boeing dispute, the determination of EU retaliation rights is also coming closer and the EU will request the WTO-appointed arbitrator to determine the EU’s retaliation rights.”
Ministers from Germany, the Netherlands, Ireland and France all made clear in their comments that UK will need to present a clear plan before being granted another Brexit extension.
Ireland’s Foreign Minister Simon Coveney said “everybody this week are open to an extension but they certainly want to see a plan attached to that extension.”
Dutch Foreign Minister Stef Blok said “I really hope the UK will find a solution to avoid this no-deal Brexit. We are hoping for a specific plan from the UK side on how to avoid this no-deal Brexit.”
German Minister Michael Roth “we are of course thinking about an appropriate extension of the deadline and also about a longer extension. They must, however, come with very strict conditions,”
French EU minister Amélie de Montchalin said “we want to understand what the UK needs this extension for… Then come the questions of the conditions: what role the UK wants to play during this extension time, in what kind of decisions it wants to take part.”
The UK House of Lords finally passed the cross-party bill devised by Labour’s Yvette Cooper and the Conservative Oliver Letwin to block no-deal Brexit, on Monday night. Despite filibustering by some MPs, it’s an historic swift passage which took three sitting days to complete.
Cooper said the bill “helps avoid the worst outcome on Friday”, the April 12 cliff edge. But the prime minister still needs to build consensus around a workable way forward.” Under the new Act, Prime Minister Theresa May is requested to table her Brexit delay plan in form of an amendable motion. The plan to extend Article 50 till June 30 will now be debated in the House on Tuesday.
Meanwhile, May will head to Berlin and Paris today, meeting German Chancellor Angela Merkel and French President Emmanuel Macron, to secure her short Brexit delay plan. There will also be an emergency EU summit in Brussels on Wednesday
Separately, there is no conclusion of cross-party talks between May and Labour leader Jeremy Corbyn. Labour spokesman just said ministerial and shadow ministerial negotiating teams will meet tomorrow to attempt to secure a Brexit compromise.
EU chief negotiator Michel Barnier warned that the bloc would refuse to open trade talks with the UK after a no-deal Brexit unless the backstop issue was addressed. But he’s happy to offer the UK a customs union.
Rating agency Moody’s dramatically downgrades Australia house prices forecasts. Weak household consumption, compounded by low wages growth were among the factors. Even though house prices are expected to bottom in Q3, further credit tightening and changes to negative gearing could extend and deepen the decline.
For the whole nation through 2019, house prices are forecast to drop -7.7%, down from January projection of -3.0%. For Sydney, house prices could drop -9.3%, down from January projection of -3.3%. For Melbourne, how price could drop -11.4%, down from January forecast of -5.0%.
Separately, Australian number of of owner occupier housing finance approvals ex-refi rose 0.8% mom in February, above expectation of 0.5% mom.
The US is set to escalate global trade war by considering to impose tariffs on a range of European Union products, ranging from large commercial aircraft and parts to dairy products and wine, from helicopters to some motorcycles.
In a statement published yesterday, US Trade Representative said WTO repeated found that EU subsidies to Airbus have “caused adverse effects” to the US, with harm in USD 11B in trade each year. USTR has begun Section 301 process to identify EU products to tariff, until EU removes Airbus subsidies. A preliminary list of products are identified for public comment.
USTR Robert Lighthizer said: “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.”
WTI crude oil’s rally accelerates again today and reaches as high as 64.24 so far. 61.8% retracement of 77.06 to 42.05 at 63.68 is taken out.
Also, 55 week EMA is considered firmly taken out after last week’s rise. The rally from 42.05 is at least considered as part of a sideway pattern from 77.06. Or, it could even be resuming the up trend from 27.69.
Thus, sustained trading trading above 63.68 will pave the way to retest 77.06 high next. And in any case, near term outlook will remain bullish as long as 61.82 support holds, in case of retreat.
Riding on broad based weakness in Dollar, gold stages a strong rebound today. The solid break of 4 hour 55 EMA suggests that fall from 1324.49 has completed at 1280.85, after hitting 1280.85 support. Further recovery could now be seen back to 1324.49 resistance.
At this point, 1276.76 cluster support (38.1% retracement of 1160.17 to 1346.17 at 1275.45) remains intact. Thus, there is no confirmation of medium term bearish reversal. Firm break of 1324.49 resistance will suggest that the consolidation pattern from 1346.71 has completed. And larger rise from 1160.17 could be resuming through 1346.71 high.
Nevertheless, just in case, sustained break of 1275.45/1276.76 should also confirm completion of whole rise from 1160.17. Deeper decline should then be seen to 61.8% retracement at 1234.42 and below.
Entering into US session, Euro is so far the strongest one for today, followed by Yen and the Sterling. On the other hand, Dollar, Australian and New Zealand are the weakest. But overall, the forex markets are generally in consolidative mode, without a committed direction. Stock markets in Asia and Europe are also mixed.
Improvements in Eurozone Sentix Investor Confidence seems to be taken well by traders. But the dark spot is that growth engine Germany lags far behind. There is no news on any kind of breakthrough regarding Brexit. It’s generally expected that EU won’t reject another extension, but would likely grant a long one. Economic calendar is relatively light today and tomorrow. Wednesday will be the key with ECB and FOMC minutes featured.
In Europe, currently:
Earlier in Asia:
UK Prime Minister Theresa May is scheduled to meet German Chancellor Angela Merkel and French President Emmanuel Macron tomorrow, just a day ahead of the EU summit. She’ll also hold calls with other EU leaders today. May is generally expected to try to make her case for a Brexit extension till June 30.
But ahead of that, May needs to handle opposition Labour leader Jeremy Corbyn first. The two could meet against to find a compromised Brexit solution to get through the parliament. But May’s spokesman reiterated her insistence for UK to have independent trading policy after Brexit. And that is clearly in conflict with Labour’s requests for staying in the customs union.
Labour’s Keir Starmer also said “Both us and the government have approached this in the spirit of trying to find a way forward. We haven’t found that yet.”He added “the ball is in the government’s court” and “we need to see what they come back with and, when they do, we will take a collective position on that.”
Eurozone Sentix Investor Confidence rose to -0.3 in April, up from -2.2 and beat expectation of -2.0. That’s already the highest figure since November 2018. Expectations Index rose for the third month in a row to -4.3, highest since May 2018. However, Current situation index dropped for the eighth month to 3.8, lowest since February 2015.
Sentix noted that “signs in China are increasingly pointing to an upswing”. And, should there be an additional settlement in US-China trade negotiations, European economy could also see a turn around. Also, since both US and China are still in the upswing, “positive feedback to Europe is not expected to be absent in the coming months”
However, Germany’s Overall Index dropped to 2.1, lowest since August 2012. Current Situation index dropped to 10.5, sixth decline in a row and lowest since April 2010. Expectations index rose for the third month 10 -6.0, highest since March 2018. Germany is now “one of the regions with the weakest economic momentum”. “Collapse” of situation values is “worrying”. Sentix added that “it would be positive if Germany did not rely on China and the USA alone, but sought to make its own contributions to economic stabilization.
In its Regional Economic Report, BoJ J still painted a much weaker economy. On the whole, assessment on three of the nine regions – Tohoku, Hokuriku and Kyushu-Okinawa – were downgraded. BoJ also pointed to “effects of the slowdown in overseas economies on exports and production” for the changes. Only Hokkaido was upgraded thanks to dissipation of downward pressure from 2018 earthquake.
Though, BoJ noted that “domestic demand had continued to show firm developments, with a virtuous cycle from income to spending operating in both the corporate and household sectors.” Business investment was not affected by the oversea slowdown and “has continued on an increasing trend, with corporate profits staying at a favorable level on the whole.”. Private consumption has been “increasing moderately”.
In a CBS interview aired on Sunday, White House economic adviser Larry Kudlow said trade negotiations with China got “closer and closer”. He hailed that “we made good headway last week when Vice Premier Liu He was here.” And talks will continue this week with “a lot of teleconferencing”. He also added “a lot of very difficult topics for the first time are on the table and being resolved”. He has “guarded optimism, may- maybe more than guarded optimism so we’re- we’re gaining on it.”
Kudlow also said “great progress” was made on intellectual property theft. And “good progress” was made on “the forced transfer of technology, on the ownership.” But there are still “issues outstanding” including “enforcement related issues”.
But he emphasized: “In each and every place, (A) they’ve acknowledged their problems. That was a very big hurdle. And (B) what wasn’t on the table is on the table, and (C) we’re getting closer and closer.”
Chinese Vice Premier Li Keqiang will meet top EU officials in a summit in Brussels on Tuesday. Ahead of that Li wrote in German newspaper Handelsblatt, saying that China was ready to work closely with the EU on climate change, sustainable development, preserving the Iran nuclear deal and fighting terrorism. But China is only willing to exchange views on WTO reforms.
EU, on the other hand, is said to known to be concerned with the unfair trade practices with this systemic rival. In particular, there is no binding commitments from China in key areas, including inclusion of state subsidies on enterprises as part of WTO reforms. And European Council President Donald Tusk was said as objecting to a joint statement for the summit, as China has not delivered on key EU expectations and demands.
The expectations on the summit are generally low.
BoJ Governor Haruhiko Kuroda maintained his view on the economy in a speech at a quarterly meeting of regional branch managers. He said Japan’s economy was expected to continue expanding moderately, even though slowdown overseas is affecting exports.
Also, “core consumer inflation is expected to gradually accelerate toward 2 percent as the output gap remains positive, and medium- to long-term inflation expectations heighten.”
But for now, BoJ will continue to expand monetary base until consumer inflation exceeds 2% target stably. And, short- and long-term interest rates will be kept at current very low levels for an extended period of time.
Timing is ticking for the UK as April 12 Brexit day is approaching quickly. The talks between Prime Minister Theresa May and Labour leader Jeremy Corbyn yielded no results so far. Labour’s top legal policy chief Shami Chakrabarti complained that May has not moved “an inch” on her “red lines”. And, “it’s hard to imagine that we are going to make real progress now without either a general election or a second referendum on any deal she can get over the line in parliament.”
May, on the other hand, said in a video, apparently shot by shaky hands, that “ending free movement, ensuring we leave with a good deal, protecting jobs, protecting security” are things the Conservatives and Labour could agree on. And, she added “it’ll mean compromise on both sides” but “delivering Brexit is the most important things for us”.
With no cross-party agreement in sight yet, May would need EU’s approval on her request for extension until June 30 to avoid a no-deal Brexit. Comments from EU officials suggested that they’re against another short extension with no clear and substantial developments in UK. Even the idea of “flextension” was not accepted by all. Some expected that the most likely outcome of the EU summit this week is for May to come out with a long extension. But that will very likely infuriate hard-line Brexiteers in the Conservative Party.
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US Non-farm payroll employment rose 196k in March, above expectation of 175k. Prior month’s figure was revised slightly up from 20k to 33k. Unemployment rate was unchanged at 3.8%, matched expectations. Labor force participation rate, at 63.0%, was little change on net over the past 12 months. However, average hourly earnings growth slowed to 0.1% mom, below expectation of 0.2% mom.
Canadian employment contracted -7.2k, slightly better than expectation of -10k. Unemployment rate was unchanged at 5.8%.
USD/CAD jumps notably after the release.
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IMF lowers 2019 global growth forecast to 3.3%, but expects pick up in H2
In the World Economic Outlook report, IMF revised down global growth forecasts as weakness in the second half of 2018 is expected to persist into the first half of 2019. IMF expects slowdown in 70% of world economy. Global growth would dropped from 3.6% in 2018 to 3.3% in 2019, revised down by -0.2%. There were negative revisions for several major economies including the euro area, Latin America, the United States, the United Kingdom, Canada, and Australia.
Nevertheless, IMF still expects growth to pickup again in second half of the year. There will be support from “significant monetary policy accommodation by major economies”. Fed, ECB, BoJ and BoE have “all shifted to a more accommodative stance”. Meanwhile, China has ramped up its fiscal and monetary stimulus. Outlook for US-China trade tensions has also “improved as the prospect of a trade agreement take shape”. “Global recession is not in the baseline projections,
However, IMF maintained “there are many downside risks”, including trade tensions that could “could flare up again and play out in other areas (such as the auto industry), with large disruptions to global supply chains.: Growth in Eurozone and China “may surprise on the downside”. Brexit risks remain “heightened”.
Here is a summary of the growth forecasts (comparing with January forecasts):