EU said to mull Brexit flextension rather than more short extensions

    While UK PM May is seeking Brexit extension till June 30, it’s reported that EU Tusk is considering “flextension” instead.

    An unnamed EU official was quoted saying “the only reasonable way out would be a long but flexible extension. I would call it a ‘flextension’.” That is, “we could give the UK a year-long extension, automatically terminated once the Withdrawal Agreement has been accepted and ratified by the House of Commons”.

    One clear advantage is that even if the Commons cannot approve the WA, “UK would still have enough time to rethink its Brexit strategy. A short extension if possible, and a long one if necessary. It seems to be a good scenario for both sides, as it gives the UK all the necessary flexibility, while avoiding the need to meet every few weeks to further discuss Brexit extensions”.

    UK PM May writes to EU Tusk to seek Brexit extension till Jun 30

      UK Prime Minister Theresa May wrote a formal letter to European Council President Donald Tusk, requesting Article 50 extension till June 20.

      May said that she’s already started talks with opposition leader to agree on a proposal for the Commons that allow an order Brexit. Invitation for discussion was also extended more broadly to other MPs to achieve a consensus. If no single unified approach is achieved, May’s Government pledges to look to establish a small number of clear options on future relationship to be put the the House.

      May said the steps “demonstrate that the Government is determined to bring this process to a resolution quickly”. And, “the government will want to agree a timetable for ratification that allows the United Kingdom to withdraw from the European Union before 23 May 2019 and therefore cancel the European Parliament elections, but will continue to make responsible preparations to hold the elections should this not prove possible”.

      Here is May’s letter:

      Non-farm payrolls preview: Solid but uninspiring numbers expected

        US Non-Farm Payrolls report will be the major focus for today. Markets are expected 175k job growth is March, a solid rebound from February’s terrible number of 20k. Unemployment rate is expected to be unchanged at 3.8%. Average hourly earnings growth is expected to slow to 0.2% mom.

        Looking at other employment related data, the employment component of ISM manufacturing rose notably from 52.3 to 57.5. That of ISM non-manufacturing also increased from 55.2 to 55.9. However, ADP employment was rather disappointing, at 129k versus expectation of 184k. Four-week moving average of initial jobless claims dropped to 213.5k. However, Conference Board consumer confidence dropped from 131.4 to 124.1.

        All in all, other data suggest that February’s disaster won’t extend into March, even though there might still be downside surprise. Meanwhile, there is prospect of upside surprise in upward revision in February’s number. Overall, the set of data is likely to be solid by uninspiring.

        Reactions could now be rather tricky. Stock investors might like to see a set of numbers that’s not strong enough to push Fed for a rate hike this year. And such relief could also lift treasury yields and then Dollar. Another set of weak number will highlight the underlying vulnerability in the economy. Even though that might add to the case of a Fed cut, the worries could overwhelm and send stocks, yields and Dollar lower.

        Here are some suggested readings on NFP:

        Confirmatory Brexit referendum to be included as option in May’s deal with Corbyn

          UK Prime Minister Theresa May and opposition Labour leader Jeremy Corbyn held another day of productive (as described by Conservatives) and technical ( as described by Labour) talks on Brexit. No conclusion was made yet and discussions will continue on Friday. May will need to bring back her plans to a EU summit on April 10, just two days before the April 12 cliff edge, if UK is to avoid no-deal Brexit.

          Corbyn told Labour MPs that “agenda items were customs arrangements, single market alignment including rights and protections, agencies and programmes, internal security, legal underpinning to any agreements and confirmatory vote.” It’s reported that in accordance with Labour’s demands an option on confirmatory referendum on any Brexit deal would be tabled in any vote next week. That would be included in May’s letter to Corbyn on Friday, outlining the agreement. But such a move would definitely trigger blackslashes from pro-Brexit Conservatives.

          In the House of Lords, Pro-Brexit members were accused of filibustering to block the bill that blocks no-deal Brexit. The Yvette Cooper bill, which would require the PM to request an article 50 extension and avoid a no-deal Brexit, will remain with the Lords until Monday. It was originally intended to be fast-tracked through the Lords by the end of Thursday.

          Trump: China trade deal in four weeks, or maybe less, maybe more

            While there seems to be progress made in US-China trade negotiations, they’ve yet reached a concluding stage. No Trump-Xi summit was announced at the meeting in the Oval Office with Chinese Vice Premier Liu He. Trump said: “We’re getting very close to making a deal. That doesn’t mean a deal is made, because it’s not, but we’re certainly getting a lot closer.”

            At the time same, he repeated his vague languages regarding the timing of a deal. “And I would think with, oh, within the next four weeks or maybe less, maybe more, whatever it takes, something very monumental could be announced.

            Trump added that “some of the toughest things have been agreed to”, and “we’ve agreed to far more than we have left to agree to”. “We have to make sure there’s enforcement. I think we’ll get that done. We’ve discussed it at length,” he added..

            It’s equally vague on the Chinese side. President Xi Jinping told Trump, through Liu, that “I hope the two sides’ trade teams can continue working in the spirit of mutual respect, equality, and mutual benefit to resolve each other’s concerns, and finish negotiations on the text of the China-U.S. trade agreement soon.” Yet, there was no indication on how “soon” is being soon.

            Into US session: Dollar rebounds on strong jobless claims, Euro enduring string of negative news

              Entering into US session, Dollar and Yen are both regaining some grounds as financial markets turned mixed. There are positive reports on US-China trade negotiation, which should be in its final stage. Trump scheduled to meet Chinese Vice Premier Liu He at 2030 GMT and a summit with Xi could be finally announced. Yet, that provides little lift to market sentiments in general. The greenback is somewhat supported additionally by strong initial jobless claims, that fell to lowest since 1969. But the real critical one is tomorrow’s no-farm payrolls.

              Meanwhile, news out of Europe are generally negative. Germany factory orders contracted sharply by -4.2% mom in March. Germany’s leading economic institutes lowered economic growth forecasts for the country in 2019 sharply to 0.8%, down from 1.9%. Italy is said to revise down growth forecasts to as low as 0.1% in 2019, thus raising budget deficit target to 2.3-2.4%. ECB accounts revealed that some policymakers considered pushing timing of first hike to after Q1 2020. There is no special progress in Brexit in UK even though April 12 cliff edge is approaching. Nevertheless, Euro isn’t too weak at all. The worst performing ones for now are New Zealand Dollar and Sterling.

              In Europe, currently:

              • FTSE is down -0.41%.
              • DAX is up 0.24%.
              • CAC is down -0.18%.
              • Germany 10-year yield is down -0.012 at -0.01, back in negative territory.

              Earlier in Asia:

              • Nikkei rose 0.05%.
              • Hong Kong HSI dropped -0.17%.
              • China Shanghai SSE rose 0.94%.
              • Singapore Strait Times rose 0.15%.
              • Japan 10-year JGB yield rose 0.0108 to -0.04.

              Trump attacks Fed again, but anyone cares to listen?

                Trump attacks Fed again by describing Fed’s actions as “unnecessary and destructive” in his tweet. But he also said despite that the economy is looking very strong, with China and USMCA deals “moving along nicely”.

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                Yesterday, Minneapolis Federal Reserve Bank President Neel Kashkari said in a town hall in Fargo, North Dakota that “Presidents are free to say what they want”. However, he added, “I can tell you with great confidence that my colleagues and I don’t pay any attention.”

                EU Katainen: It’s logical to think we’re rushing toward a hard Brexit

                  European Commission Vice President Jyrki Katainen warned that “hard Brexit is increasingly possible because we don’t know what the alternative is”.

                  He also complained that “You only know what Britain doesn’t want, but you don’t know what Britain wants and, taking into account the limited number of days we have available, it is logical to think we are rushing toward a hard Brexit. But hopefully I am wrong.”

                  US initial jobless claims dropped to 202k, lowest since 1969

                    US initial jobless claims dropped -10k to 202k in the week ending March 30, below expectation of 215k. It’s also the lowest level since December 6, 1969. Four-week moving average of initial claims dropped -4k to 213.5k.

                    Continuing claims dropped -38k to 1.717M in the week ending March 23. Four-week moving average of continuing claims dropped -8k to 1.743M.

                    Full release here.

                    Some ECB members considered keeping rates unchanged till Q1 2020, but data-driven gradualist approach adopted

                      The monetary policy meeting accounts of March ECB meeting revealed debates regarding the extent of the extension in the calendar based leg of the forward guidance. Back then, ECB said interest rates will be kept at current level at least through the “end of 2019”, changed from “summer of 2019”.

                      A numbers of members voiced an initial preference for extending the forward guidance through the “end of the first quarter of 2020”. That would be “more in line with the markets’ pricing of a first interest rate increase”. But others argued that “until the end of 2019” was “more consistent with the baseline scenario underlying the projections that foresaw a rebound of the economy in the second half of 2019”. Also, “in view of the high prevailing uncertainty, a data-driven gradualist approach was seen as most appropriate”

                      On the economy, the baseline scenario was a more protracted “soft patch” followed by a return to more solid growth. However, “uncertainty remained elevated” and it was “unclear how persistent the current soft patch would turn out to be.” Also “downside risks to the growth outlook continued to prevail despite” despite downward revision in growth forecasts in March.

                      And, it was highlighted that “growth projections had been revised down in a number of consecutive projection exercises and that growth might not be mean-reverting, as typically assumed in projections.” Uncertainty might also turn out to be “more persistent than expected”. Risks surround Eurozone growth outlook were “on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.”

                      Though, it’s also emphasized that “while the growth momentum was weaker, it remained positive”. And, neither ” the euro area, nor the global economy, was currently in recession and the probability of a recession remained relatively low.”

                      Full accounts here.

                      Italy said to lower slash 2019 growth forecast, raise deficit target to 2.3-2.4% of GDP

                        It’s widely reported today that Italy is going to cut 2019 growth forecast within this month. The government previously projected 1% growth this year and agreed to 2.04% budget deficit to GDP with EU.

                        Reuters said Italy will lower GDP growth forecast to just 0.3-0.4%. Bloomberg went further and said it could be revised down to just 0.1%. The budget deficit target, could then be raised up to 2.3-2.4% of GDP.

                        The final numbers will be approved by the Cabinet next week. But based on current situation, another clash with EU seems inevitable.

                        Gemeinschaftsdiagnose slashes 2019 Germany growth forecasts to 0.8%, long-term upswing has come to an end

                          Germany’s leading economic institutes lowered economic growth forecasts for the country in 2019 sharply. GDP is projected to rise just 0.8%, down from Autumn 2018 forecasts of 1.9%. Nevertheless, for 2020, GDP is projected to grow 1.8%, unrevised.

                          In the press release, Oliver Holtemöller, head of the Department of Macroeconomics and Vice President of the Halle Institute for Economic Research (IWH) said that “the long-term upswing of the German economy has come to an end.” Though, he noted that “we still consider the chance of a pronounced recession to be slight.”

                          The statement also noted that “political risks have further clouded the global economic environment.” Also, “if a no-deal Brexit occurs, economic growth this year and the next is likely to be significantly lower than indicated in this forecast.”

                          The state was released by joint project group “Gemeinschaftsdiagnose”: German Institute for Economic Research (DIW Berlin), Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, ifo Institute – Leibniz Institute for Economic Research at the University of Munich in cooperation with the KOF Swiss Economic Institute at ETH Zurich, Kiel Institute for the World Economy (IfW), RWI – Leibniz Institute for Economic Research in cooperation with the Institute for Advanced Studies Vienna.

                          Full release here.

                          Into European session: Trade optimism fails to lift sentiments, Sterling stuck in range

                            The financial markets are generally mixed today. News regarding US-China trade negotiation are generally positive with even speculations that a Trump-Xi summit could be announced as soon as today. But they provide no additional lift to market sentiments. Meanwhile, the meeting between UK Prime Minister Theresa May yielded no conclusive results. Meanwhile, it should be noted that economic data have been rather bad so far. For example, just released, German factory orders dropped sharply by -4.2% mom in February. Sentiments could turn sour again if more data disappointment come in.

                            In the currency markets, Sterling is broadly higher today so far. But again, the Pound is just staying in familiar range against Dollar, Euro and Yen, and there is no sign of a breakout yet. New Zealand Dollar and Yen are the next strongest. Canadian Dollar is currently the weakest one for today, followed by Dollar.

                            In Asia:

                            • Nikkei closed up 0.05.
                            • Hong Kong HSI is down -0.53%.
                            • China Shanghai SSE is up 0.65%.
                            • Singapore Strait Times is up 0.14%.
                            • Japan 10-year JGB yield is up 0.0073 at -0.043, staying negative.

                            Overnight:

                            • DOW rose 0.15%.
                            • S&P 500 rose 0.21%.
                            • NASDAQ rose 0.60%.
                            • 10-year yield rose 0.036 to 2.517, back above 2.5 handle.

                            Emergency bill to avoid no-deal Brexit fast-tracked through Commons by 313 to 312

                              An emergency bill to prevent no-deal Brexit was fast-tracked through the House of Commons on Wednesday, by just one vote – 313 ayes to 312 noes. The cross-party bill was spearheaded by Labour’s Yvette Cooper and the Conservative Oliver Letwin. under it, a legal mechanism is created where the Commons can instruct the Prime Minister to see Article 50 extension in absence of an approval resolution of Brexit withdrawal agreement. It also restrict the Prime Minister’s discretion about whether and when to seek and Article 50 extension. The bill will now be sent to the House of Lords on Thursday and passage is generally expected.

                              EU’s objection to more short extension is rather clear though. European Commission President Jean-Claude Juncker already told the European Parliament that “the 12th of April is the ultimate deadline for approval of the Withdrawal Agreement by the House of Commons.” And, “if it has not done so by then, no further short extension will be possible.” First Vice President Frans Timmermans also told Germany’s Die Welt newspaper that “we cannot forever continue this way in the Brexit negotiations and always extend by two weeks.” He said, “the British parliament must now make a decision and finally say what London wants.”

                              Meanwhile, PM Theresa May and Labour leader Jeremy held constructive yet inconclusive meeting. Corbyn described Wednesday’s discussions as “useful but inconclusive.” Labour spokesperson said “we have had constructive exploratory discussions about how to break the Brexit deadlock”, and “we have agreed a programme of work between our teams to explore the scope for agreement.”

                              US-China close to a trade deal, might announce Trump-Xi summit today

                                News regarding US-China trade negotiations are generally positive. Trump scheduled to meet Chines Vice Premier Liu He at 2030 GMT today (Thursday). WSJ reported that there might even be an announcement of a Trump-Xi summit during the meeting. Bloomberg reported that the draft agreement would give China six years, until 2025, to meet the commitments.

                                According to unnamed source, under agreement, China pledged to buy more US commodities including soybeans and energy products. Also 100% US owned companies would be allowed to operate in the country. Failure to fulfil these binding commitments would trigger retaliation from the US. There are also some non-binding pledges from China too, which would be implemented by 2029.

                                However, there is little news regarding how to hand the punitive and retaliation tariffs imposed since last year. Trump previously warned they are necessary “for a substantial period of time” for China’s history on missing promises.

                                Separately White House Economic Adviser Larry Kudlow said “We’re covering issues that have never really been covered before, including enforcement”. And, “al making good progress, all making good headway, but we’re not there yet… we hope this week to get closer.” Kudlow also said Liu will remain in Washington for three days and possibly longer.

                                US 10-year yield reclaims 2.5, strong resistance ahead

                                  Both US and German bond yield enjoy solid rally today despite poor economic data. Sentiments are generally lifted by optimism on US-China trade negotiations despite lack of concrete news on the progresses. Nevertheless, German 10-year yield turns positive for the first time since late March, and that’s significant. Meanwhile, US 10-year yield also breaks 2.5% handle.

                                  10-year yield (TNX) hits as high as 2.524 so far today. The extended rebound is not too much of a surprise considering that it was supported just above 61.8% projection of 3.248 to 2.554 from 2.759 at 2.330. For now, we’d maintain that sustained break of 2.554 support turned resistance is needed to be the first sign of trend reversal. Otherwise, the currently rebound is nothing more than a corrective recovery.

                                  To put it into longer term perspective, TNX is actually still limited well below long term channel support. Current development suggests that fall from 3.248 is at least corrective whole up trend from 1.336. And, further decline is in favor to 2.034 cluster support before bottoming. So, it’s too early to be optimistic.

                                   

                                  EU Juncker: April 12 is the ultimate deadline for UK to approve Brexit agreement

                                    European Commission President Jean-Claude Juncker warned that UK will not be granted another short Article 50 extension unless the Brexit Withdrawal Agreement is ratified by the parliament. He told the European Parliament that “the 12th of April is the ultimate deadline for approval of the Withdrawal Agreement by the House of Commons.” And, “if it has not done so by then, no further short extension will be possible.”

                                    He added: “A ‘no-deal’ at midnight on the 12th of April is now a very likely scenario. It is not the outcome I want. But it is an outcome for which I have made sure the EU is ready… UK will be affected more than EU because there is no such thing as a ‘managed’ or ‘negotiated no-deal’ and there is no such thing as a ‘no-deal transition’.”

                                    US ISM non-manufacturing dropped to 56.1, growth cooled off but businesses still optimistic

                                      US ISM non-manufacturing composite dropped to 56.1 in March, down notably from 59.7 and missed expectation of 58.0. Looking at some details, Business Activity Index dropped -7.3 to 57.4. New Orders dropped -6.2 to 59.0. Employment, however, rose 0.7 to 55.9.

                                      ISM noted: “The non-manufacturing sector’s growth cooled off in March after strong growth in February. Respondents remain mostly optimistic about overall business conditions and the economy. They still have underlying concerns about employment resources and capacity constraints.”

                                      Full release here.

                                      Into US session: Risk appetite continues, German 10-year yield turns positive

                                        Strong risk appetite is the main theme today on optimism that US-China trade negotiation is 90% done. Poor US job data and UK services data are actually ignored. Entering into US session, Australian Dollar is the strongest one, lifted additionally by upside surprise in retail sales data. New Zealand Dollar follows as the second.

                                        Euro is also firm, partly supported by German 10-year yield, which turns positive for the first time since March 25. Sterling is mixed as markets eye UK Prime Minister Theresa May’s Brexit meeting with opposition Labour leader Jeremy Corbyn

                                        On the other hand, Yen is the weakest one on risk mode mode naturally. Dollar follows as it’s weighed down by worst ADP report in 18 months too.

                                        In Europe:

                                        • FTSE is up 0.06%.
                                        • DAX is up 1.19%.
                                        • CAC is up 0.58%.
                                        • German 10-year yield is up 0.061 at 0.014

                                        Earlier in Asia:

                                        • Nikkei rose 0.97% top 21713.21, reclaimed 21000.
                                        • Hong Kong HSI rose 1.22% to 29986.39, just missed 30000
                                        • China Shanghai SSE rose 1.24% to 3216.30, above 3200 handle.
                                        • Singapore Strait Times rose 0.96%.
                                        • Japan 10-year JGB yield rose 0.0177 to -0.49.

                                        US ADP job grew 129k, slowest in 18 months, job market is weakening

                                          US ADP report showed 129k job growth in the private sector in March, well below expectation of 184k. That’s also the smallest job increase in 18 months. Prior month’s figure was revised up slightly from 183k to 197k.

                                          “March posted the slowest employment increase in 18 months,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although some service sectors showed continued strength, we saw weakness in the goods producing sector.”

                                          Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is weakening, with employment gains slowing significantly across most industries and company sizes. Businesses are hiring cautiously as the economy is struggling with fading fiscal stimulus, the trade uncertainty, and the lagged impact of Fed tightening. If employment growth weakens much further, unemployment will begin to rise.”

                                          Full release here.