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.
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 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.
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 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”.
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 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.
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 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.
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:
Earlier in Asia:
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.
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.”
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.”
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.
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.
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.
Trump insisted that the trade negotiations with China is “going along well”. But he told reports at the White House that “”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.”
At the same time, Trump also acknowledged that Xi may be wary of going to a summit in the US without an agreement in hand. He said “I think President Xi saw that I’m somebody that believes in walking when the deal is not done, and you know there’s always a chance it could happen and he probably wouldn’t want that,”
Though, he’s still expecting a meeting with Chinese President Xi Jinping but “we’ll just see what the date is”. He is also open to complete the trade agreement before or after the summit. He added that “we could do it either way. We could have the deal completed and come and sign, or we could get the deal almost completed and negotiate some of the final points. I would prefer that.”
For now, Beijing made no reference to a Trump-Xi summit at the Mar-a-Lago Such summit is unlikely to happen this month. Tariffs imposed from both sides since last year are continuing to drag on the global economy with no end in sight. And there is nothing done that stops China from IP theft, forced technology transfer and market distortion through state-owned enterprises.
Sterling spiked higher after UK Commons passed yesterday a non-binding motion to reject no-deal Brexit under any circumstances. But the Pound quickly retreated again as focus will turn to vote today on whether to ask the EU for Article 50 extension. Also, question is on whether there would be a short extension of a long extension.
The final motion was voted for by 321 to 278, a majority of 43. The motion reads: “This House rejects the United Kingdom leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship”.
The original motion was changed after the Spelman/Dromey amendment was narrowly passed by 312 to 308, just a mere majority of 4. The original motion reads: “This House declines to approve leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship on 29 March 2019; and notes that leaving without a deal remains the default in UK and EU law unless this House and the EU ratify an agreement.”
Prime Minister Theresa May, however insisted that the votes do not change the fundamental problem. And the only way to rule out no-deal is to vote for a deal. She also warned that if MPs do not vote for a Brexit deal soon, she will have to seek a long article 50 extension, which would mean the UK having to take party in the European elections.
A European Commission spokesperson quickly responded:: “There are only two ways to leave the EU: with or without a deal. The EU is prepared for both. To take no deal off the table, it is not enough to vote against no deal – you have to agree to a deal. We have agreed a deal with the prime minister and the EU is ready to sign it.”
GBP breached recent resistance briefly but settles back in established range quickly.
WTI crude oil breaks 57.98 resistance earlier today to resume the rally from 42.05. Further rise is seen after EIA reports that US crude supplies dropped by -3.9m barrels in the week ending March 8, versus expectation of 2.7m barrels rise.
Technically the strong support from rising 55 day EMA is a bullish sign. But upside momentum is unconvincing as seen in daily and 4 hour MACD. Thus, we’d expect strong resistance from 50% retracement of 77.06 to 42.05 at 59.55 to limit upside.
This level is also close to 55 week EMA at 59.23.
US PPI rose 0.1% mom, 1.9% yoy in February, versus expectation of 0.2% mom, 1.9% yoy. Core PPI rose 0.1% mom, 2.5% yoy, versus expectation of 0.2% mom 2.6% yoy.
Durable goods orders rose 0.4% in January, above expectation of -0.5%. Ex-transport orders dropped -0.1%, below expectation of 0.1%.
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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.