Eurozone retail sales rose 0.4% mom in February, well above expectation of 0.1% mom. Though, it’s still notably lower than January’s growth of 0.9% mom. In EU 28, retail sales also rose 0.4%.
UK PMI services dropped to 48.9, risk of sliding into a deepening downturn in coming months
UK PMI services dropped to 48.9 in March, down from 51.3 and missed expectation of 51.3. That’s the first contraction reading since July 2016. Markit noted slight reduction in service sector activity. New orders fall for the third month running in March. And, prices charged increase at the slowest pace since June 2017. All sector PMI dropped to 50.0, down from 51.4.
Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:
“A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months. Both the services and construction sectors are now in decline and manufacturing is only expanding because of emergency stockpiling ahead of Brexit.
“The underlying picture of demand is even worse than the headline numbers suggest. Service sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009 so far this year, with companies reporting that Brexit uncertainty has dampened demand and led to cancelled or deferred spending, exacerbating a headwind from slower global economic growth.
“A stalling of the economy in the first quarter will therefore likely turn into a downturn in the second quarter unless demand revives suddenly which, given the recent escalation of Brexit uncertainty, seems highly improbable. Such a scenario leaves the current consensus forecast for the UK economy to grow 1.3% in 2019 looking far too optimistic. IHS Markit currently expects to see just 0.8% growth in 2019, and even this modest performance is perhaps somewhat hopeful given the recent lack of any Brexit developments.”
Eurozone PMI composite finalized at 53.3, suggests 0.2% growth in Q1
Eurozone PMI services was finalized at 53.3 in March, revised up from 52.7, up from February final at 52.8. PMI composite was finalized at 51.6, down from February’s 51.9. Among the member states, France PMI composite was finalized at 48.9, a 2-month low. Germany PMI composite was finalized at 51.4, a 69-month low. Italy PMI composite improved to 5.15, a 6-month high.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The final eurozone PMI for March confirms the sluggish end to the first quarter, with business growth ebbing to one of the most lethargic rates seen since 2014.
“Only at the turn of the year, when business was hit by headwinds such as widespread ‘yellow vest’ protests in France and an auto sector struggling with new emissions regulations, has growth been slower over the past four years. The rebound from these temporary headwinds has clearly been disappointing and is already losing momentum, led by a deepening downturn in manufacturing. The goods producing sector reports that global growth worries have intensified, meaning customers continue to pull back on spending.
“The service sector has managed to sustain a relatively resilient rate of growth but has also lost momentum in recent months. This should come as no surprise as history tells us that robust service sector growth usually depends on a healthy manufacturing economy.
“At current levels, the PMI remains consistent with GDP rising by 0.2% in the first quarter, but unless manufacturing pulls out of its downturn the overall pace of economic growth will likely weaken in the second quarter as the malaise spreads to the service sector. In this respect, with forward-looking indicators from the manufacturing sector suggesting goods production will fall further in the coming months, downside risk to the outlook have intensified.”
Into European session: Australian Dollar strong as roller coaster ride continues
Australian Dollar’s roller coaster ride continues today. Entering into European session Aussie is the strongest one for today, lifted by much stronger than expected retail sales data. At least, relative resilient in consumption could give RBA more time to wait and see before deciding to cut interest rates. Improvement in Chinese services data also helps. For now, New Zealand Dollar follows as the second strongest, then Canadian.
Yen is the weakest one today, followed by Dollar and then Swiss Franc. Stock markets in Asia are rallying for another day, Warnings from WTO, IMF and Asian Development Bank regarding slowdown are generally ignored. Meanwhile, Chinese stock markets seem to be rather optimism on US-China trade talks, which will resume in Washington today, despite lack of concrete details regarding the progresses. China Shanghai SSE is pressing 3200 handle for now.
In Asia:
- Nikkei closed up 0.97%.
- Hong Kong HSI is up 0.91%.
- China Shanghai SSE is up 0.57%.
- Singapore Strait Times is up 0.86%.
- Japan 10-year JGB yield is up 0.0244 at -0.043, still negative.
Overnight:
- DOW dropped -0.30%.
- S&P 500 rose 0.00%.
- NASDAQ rose 0.25%.
- 10-year yield dropped -0.016 to 2.481.
Further slowdown in developing Asia on slowing global demand and persistent trade tensions
The Asian Development Bank forecasts further slowdown in developing Asia and cited against the backdrop of slowing global demand and persistent trade tensions. In the Asian Development Outlook, ADB projects growth in developing Asia to slow from 5.9% in 2018 to 5.7% in 2019 and 5.6% in 2020. Excluding newly industrialized economies, growth is projected to slow from 6.4% in 2018 to 6.2% in 2019 and 6.1% in 2020.
The report warned that risks remained “tilted to the downside”. It said “A drawn-out or deteriorating trade conflict between the People’s Republic of China and the United States could undermine investment and growth in developing Asia. With various uncertainties stemming from US fiscal policy and a possible disorderly Brexit, growth in the advanced economies could turn out slower than expected, undermining the outlook for the People’s Republic of China and other economies in the region. Though abrupt increases in US interest rates appear to have ceased for the time being, policy makers must remain vigilant in these uncertain times.”
US-China trade talks to resume, a perceived critical week
US-China trade negotiation will resume on Wednesday with Chinese Vice-Premier Liu He arriving in Washington. Liu will meet both US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
It’s reported that an agreement is within reach, covering most of the core issues including intellectual property theft and forced technology transfer. But there is so far no news regarding subsidies for state owned enterprises, which create unfair playing fields.
In addition, the real crucial topic of enforcement is unresolved. The US is believed to be demanding to keep current punitive tariffs until China implements what are agreed. But this is at the same time firmly objected by China.
Nevertheless, US Chamber of Commerce head of International Affairs Myron Brilliant sounded optimistic. He said yesterday that “we’re getting to the point where it’s clear that both governments want a deal. The presidents want a deal, and they need to get through the end-game issues. This is a critical week.”
Brilliant added, “ninety per cent of the deal is done, but the last 10 per cent is the hardest part, it’s the trickiest part and it will require trade-offs on both sides.”
China Caixin PMI services rose to 54.4, but more evidence need to confirm stabilization
China Caixin PMI services rose to 54.4 in March, up from 51.1, beat expectation of 52.0. That’s the highest reading in 14 months. PMI composite rose to 52.9, up from 50.7, strongest since June 2018. Markit also noted that Manufacturers and service providers both signal stronger increases in activity and new work. Renewed rise in manufacturing payrolls leads to first expansion of composite employment for over a year. Overall business confidence edges up to seven-month high.
Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:
“In general, China’s economic fundamentals recovered in March, with domestic and external demand as well as manufacturing employment improving. However, business sentiment has remained cautious, and inflation was subdued. The three-month moving average of the Caixin China General Manufacturing PMI remained in contraction territory, while the Caixin China Composite Output Index showed tentative signs of recovery following a relatively subdued start to 2019. More evidence is needed to determine whether the Chinese economy has stabilized.”
Australia AiG service index rose to 44.8, but all sectors contract
Australia AiG Performance of Service Index rose 0.3pts to 44.8 in March, indicating a “slower rate of contraction. But it’s still the third straight month of contractionary conditions following a positive run through most of 2017 and 2018. Despite the slight improvement, it’s should noted that it’s the first month since August 2010 that all sectors contract.
Also released, Australia trade surplus widened to AUD 4.80B in February, up from AUD 4.35B and beat expectation of AUD 3.71B. Total exports rose AUD 77M to AUD 39.83B. Total imports dropped AUD -374M to AUD 35.03B.
Australia retail sales rose 0.8%, improvement across most industries
Australia retail sales rose 0.8% mom s.a. in February, much higher than expectation of 0.3% mom. ABS Director of Quarterly Economy Wide Surveys, Ben Faulkner said: “There were improved results across most industries with rises in food retailing (0.8%), department stores (3.5%), household goods retailing (1.1%) and clothing, footwear and personal accessory retailing (1.6%). Other retailing (0.0% and cafes, restaurant and takeaway services (0.0% were relatively unchanged. The rise this month follows subdued results in December 2018 (-0.4%) and January 2019 (0.1%).”
Among the state and territories, there were rises in Queensland (1.4%), New South Wales (0.6%), Victoria (0.8%), Western Australia (0.6%), South Australia (0.7%), the Australian Capital Territory (1.7%) and the Northern Territory (1.4%). There was a fall in Tasmania (-0.7%).
RBA has repeatedly noted that household consumption is a key uncertainty for overall GDP. Tightness in labor market has not much been translated into wage growth and rise is household disposable income. Wealth effect of falling house price could also be a drag. But February data does give some positive news to RBA and some room for it to wait-and-see first.
IMF Lagarde: Global economy increasingly unsettled, 70% to experience a slowdown this year
IMF Managing Director Christine Lagarde warned that the global economy is “increasingly unsettled” after two years of good time. She noted that the the economy has “lost further momentum” since the January forecast and hinted at downgrade in the updated forecast next week. Back in January, IMF projected global growth for 2019 and 2020 at around 3.25%.
Lagarde also said 70% of the global economy will experience a “slowdown” this year. That’s a drastic change from two year ago, when 75% experienced an “upswing”. Though, she still emphasized that “we do not see a recession in the near term”. But there will be pickup in H2 2019 and into 2020.
She outlined three areas of policy actions needed.: (a) Domestic Policies to Build More Resilient and Inclusive Economies; (b) Cross-Border Efforts to Provide a More Level Playing Field; (c) Partnership to Address Global Challenges. In particular, she said tariffs between US and China went up by 25% and “that alone would reduce annual GDP by up to 0.6 percent in the US and by up to 1.5 percent in China.” She urged that “these are potentially self-inflicted wounds that should be avoided.”
US durable orders dropped -1.6%, ex-transport orders rose 0.1%, missed expectations
US headline durable goods orders dropped -1.6% to USD 250.6B in February, below expectation of -1.2%. Ex-transport order rose 0.1%, also below expectation of 0.3%.
Into US session: Sterling weakest on Brexit deadlock, Dollar and Yen firm
Entering into US session, Sterling is once again the weakest one for today as Brexit uncertainty continues. But still, the Pound is holding above near term support levels against Dollar, Euro and Yen. And thus, it’s just experience volatility in tight range. After rejecting all four alternatives in the Commons, there remains no majority on the way forward regarding Brexit. And it’s reported that Conservative MP Oliver Letwin might be a abandoning attempts to use indicative votes to find a consensus.
Meanwhile, Prime Minister Theresa May is maintaining the firm opposition to second referendum and a long Article 50 extension. The Financial Times even reported that May would rather go for a no-deal Brexit than revocation. It’s also reported that May is still considering to bring back her deal for a fourth vote. But Speaker John Bercow is said to reject it. After all, it seems no one knows what’s next.
Staying in the currency markets, New Zealand Dollar is currently the second weakest, followed by Australian Dollar. Aussie dropped notably earlier today after RBA loosen up its monetary policy stance and hinted the next move is data-dependent. But there is no follow through selling yet. Meanwhile, Dollar and Yen are the strongest ones for today
In Europe, currently:
- FTSE is up 1.08%.
- DAX is up 0.64%.
- CAC is up 0.50%.
- German 10-year yield is down -0.011 at -0.036.
Earlier in Asia:
- Nikkei closed down -0.03%.
- Hong Kong HSI rose 0.21%.
- China Shanghai SSE rose 0.20%.
- Singapore Strait Times rose 0.90%.
- Japan 10-year JGB yield is up 0.0101 at -0.068.
WTO forecasts global trade growth to slow to 2.6% this year
WTO warned that global trade will continue to face “strong headwinds” this year and next due to “rising trade tensions and increased economic uncertainty. For 2019, growth in trade volume is forecast to slow to 2.6%, down fro 3.0% in 2018. Though, trade growth should pic up again to 3.0% in 2020. It also warned that trade tensions still pose the greatest risk to the forecast, but a relaxation could provide some upside potential.
In the press release, WTO Director General Roberto Azevêdo said: said “it is increasingly urgent that we resolve tensions and focus on charting a positive path forward for global trade which responds to the real challenges in today’s economy – such as the technological revolution and the imperative of creating jobs and boosting development.”
WTO’s chief economist Robert Koopman also warned that “any automobile tariff would likely have bigger knock on effects through the global economy than what we see from the U.S.-China conflict.”
UK PMI construction rose to 49.7, outlook underwhelming by historical standards
UK PMI construction rose to 49.7 in March, up from 49.5 and matched expectations. Markit noted marginal reduction in overall construction output. Commercial work remains weakest performing area. But, residential building rises at fastest pace for three months.
Joe Hayes, Economist at IHS Markit, which compiles the survey:
“Fears that the recent weakness of the UK construction sector may not be just a blip, but a sustained soft patch, were further fuelled by latest data. Amid subdued inflows of new work, a first back-to-back decline in output since August 2016 was recorded. Brexit-related uncertainty continued to generate indecisiveness, ultimately hitting order book volumes. Furthermore, strong competition for contracts was also reported by some panel members. The outlook was subsequently underwhelming by historical standards, with the unsettled political and economic environment keeping business confidence below its long-run average.
“Nevertheless, UK construction businesses ramped up their purchases of materials and other inputs, reflecting efforts to build safety stocks ahead of any potential Brexit-related disruptions. As such, supply chain constraints persisted and average input lead times lengthened once again.”
Swiss CPI rose to 0.7% in March, but well off cyclical peak
Swiss CPI rose 0.5% mom 0.7% yoy in March, above expectation of 0.4% mom, 0.5% yoy. The annually rate also accelerated from 0.6% yoy in February. But it’s well off cyclical peak of 1.2% yoy made in mid-2018.
The FSD noted that the increase in CPI could be explained by several factors, including “rising prices for international package holidays and for air transport”. Meanwhile, “prices for fruiting vegetables and berries decreased.
EU Barnier: No-deal Brexit becomes more likely but we can still avoid it
EU chief Brexit negotiator Michel Barnier said at an event in Brussels that “over the last days a no-deal scenario has become more likely.” Though, he remained optimistic that “we can still hope to avoid it.” He urged the UK to “indicate the way forward or indicate a plan… more today than ever”. He reiterated the agreement Brexit deal was “the only way” to leave EU in an orderly way.
Meanwhile, Barnier also said EU27 is ready for a disorderly, abrupt Brexit. But he emphasized: “Being prepared for no-deal doesn’t mean that everything will be smooth. There will be disruptions, there will be problems. Being prepared means all unforeseen disruptions could be managed by the EU”.
EU Juncker tells China: It can’t stay like this. It can’t work like this.
European Commission President Jean-Claude Juncker complained the practices of the bloc’s “systematic rivals” in front of lawmakers in Germany yesterday. He said “Chinese companies have free access to our markets in Europe, but we don’t to the markets in China”, and “it can’t stay like this”.
Also, “one country isn’t able to condemn Chinese human rights policy because Chinese investors are involved in one of their ports,” Juncker added “it can’t work like this”.
Though, he’s not against China’s Belt and Road initiative “as long as the conditions are right”. He said, “if you don’t only meet Chinese workers on these construction sites but also European workers, then this is all feasible.”
BoC Poloz: Recent data suggests below-potential growth just temporary
BoC Governor Stephen Poloz sounded confident in his speech yesterday. He noted that Canada is adjusting the challenges in the domestic and global economies. And after taking into account the structural adjustments to oil prices, he said “we can see many area of encouraging economic growth”.
He added that the global economy is performing less well than expected and “Canada is feeling the effects”. Housing markets is also taking longer to “digest the combined effect of stricter mortgage guidelines and higher interest rates”.
However, Poloz said “recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”
BCC: UK businesses hitting the brakes hard on ongoing Brexit impasse
According to the British Chambers of Commerce’s quarterly economic survey, found that key indicators of UK economic health weakened considerably in Q1. In particular balance of services companies reporting rise in exports sales dropped to lowest in a decade. Balance of firms reporting improved cashflow turned negative for the first time since 2012. Also, investment intentions in manufacturing and services were at lowest in eight years.
BCC Director General Adam Marshall said “our findings should serve as a clear warning that the ongoing impasse at Westminster is contributing to a sharp slowdown in the real economy across the UK. Business is hitting the brakes – hard.” Also, “the prospect of a messy and disorderly exit from the EU is weighing heavily on the UK economy, and must still be avoided”
Marshall also complained that “for too long Brexit tunnel-vision has distracted government from fixing the fundamentals to support growth here in the UK.”
UK May to meet Corbyn on Brexit, but is anyone optimistic?
UK Prime Minister Theresa May is set to meet opposition Labour leader Jeremy Corbyn later today to find the much needed common ground to get a Brexit deal through the parliament. But so far, it seems no one is optimistic about the meeting.
Ahead of that, May said there are areas she could agree on with Corbyn, including leaving EU with a deal, jobs and ending free movements. Minister for Wales and government whip Nigel Adams resigned on May’s decision and she is increasing the risk of the “calamity of a Corbyn government.” Brexit Minister Steven Barlcay said May is not handling a “blank check” to Corbyn and there is no precondition for the discussions with Labour.
Corbyn emphasized that anything agreed with May need to be put into law so that it is guaranteed for the parliament. pro-EU Labour lawmaker, Ben Bradshaw, warned that “it is clearly a trap designed to try to get May’s terrible deal through, which some people have fallen for, but Labour mustn’t.”
Scottish First Minister Nicola Sturgeon poured cold water and said the meeting would produce “an option that it won’t take too long for people to realize satisfies nobody, makes the country poorer and potentially could be unpicked by a new prime minister such as Boris Johnson.”
On the EU side, European Council President Donald Tusk said it was not certain how European leaders would view another request of delay from May. EU’s Economic Affairs and Tax Commissioner Pierre Moscovici said “If there is a no-deal scenario, new customs controls would have to be introduced… That does not mean we would systematically check every single… lorry… We would be controlling goods on the basis of risk analysis.”