BoE Haskel: Brexit is a process that might create more cliff-edges

    Jonathan Haskel, External Member of BoE MPC, said in a speech that UK investment has been very weak in the last couple of years. Brexit uncertainty is weighing on business sentiment.

    Also, he noted that “Brexit is a process not an event”. And he warned that “that process has the possibility of creating more cliff-edges; the length of the transitional/implementation period, for example”.

    “Since the very nature of investment is that it needs payback over a period of time there is a risk that prolonged uncertainty around the Brexit process might continue to weigh down on investment.”

    Full speech here.

    UK confirms Brexit meaningful vote on Tuesday

      UK Prime Minister Theresa May’s spokesman confirmed that there will be a meaningful vote on the Brexit deal tomorrow. But at this point, it’s unsure whether the vote would be on the “agreed” deal with EU, or a “hypothetical” deal that could push EU to concede to.

      The spokesman also noted that “It’s important to note the PM spoke to (European Commission President) Jean-Claude Juncker by phone yesterday evening and talks are continuing. The PM and negotiating teams are focused on making progress so we can secure parliament’s support for the deal.”

      EU chief negotiator Michel Barnier refused to comment on Brexit negotiations today. Ahead of a meeting of EU ambassadors, Barnier just said “We talked all weekend and now the discussions, the negotiations, are between the government in London and the parliament in London.”

      US retail sales rose 0.2%, ex-auto sales surged 0.9%, Dollar shrugs

        US January retail sales came in stronger than expected by Dollar shrugs. Headline retail sales rose 0.2% mom in January versus expectation of -0.1% mom. Ex-auto sales jumped sharply by 0.9% mom versus expectation of 0.3% mom. However, prior month’s headline sales was revised down from -1.2% mom to -1.6% mom. Ex-auto sales was also revised down from -1.8% mom to -2.1% mom.

        Full release here.

        Into US session: Global stocks recover, focus turns to US retail sales

          Entering into US session, Swiss Franc and Yen are among the weakest today as global stocks recover. Sterling is also soft  as traders turned cautious ahead of crucial Brexit votes this week. UK Prime Minister Theresa May’s just confirmed that the Brexit deal meaningful vote will happen tomorrow. And, talks with EU on a solution to the Irish backstop were continuing. Meanwhile, Euro recovers broadly today but upside is relatively limited.

          Released in European session, German industrial production dropped -0.8% mom in January versus expectation of 0.50% mom. Trade surplus narrowed to EUR 18.5B in January. From Asia, Japan machine tools orders dropped -29.3% yoy in February, M2 rose 2.4%. Focus will now turn to January retail sales fro the US. December’s numbers were disastrous and we’ll see if sales rebound this year.

          In Europe, currently:

          • FTSE is up 0.58%.
          • DAX is up 0.40%.
          • CAC is up 0.35%.
          • German 10-year yield is down -0.0026 at 0.068.

          Earlier in Asia:

          • Nikkei rose 0.47%.
          • Hong Kong HSI rose 0.97%.
          • China Shanghai SSE rose 1.92% to 3026.99, back above 3000.
          • Singapore Strait Times dropped -0.14%.
          • Japan 10-year JGB yield dropped -0.0033 to -0.035.

          UK PM May said to mull hypothetical vote to break Brexit deadlock

            UK Prime Minister Theresa May’s office said UK Prime Minister Theresa May and European Commission Jean-Claude Juncker held phone conversation at Sunday night. But talks remained “deadlocked” and thus, there is no plan for May to travel to Brussels again today. Cabinet minister Andrea Leadsom, urged fellow Tories to support May’s deal. And, that would mean “that we can move on” while leaving open the possibility to “potentially amend how we do this.”

            Some Conservative MPs are reported to ask May to pull the Brexit meaningful vote on Tuesday, because it’s rather meaningless to hold a vote that will certainly be defeated. But there were also talks that May is planning to push for a vote on a “hypothetical” deal on Tuesday. It could be with a certain Irish backstop arrangement with Attorney General Geoffrey Cox’ input. Then EU could be forced to concede should there be a Commons majority.

            ECB Cœuré: No recession, no turnaround in policy, no need to resume asset purchases

              In an interview on March 7, published today, ECB Executive Board Member Benoît Cœuré said the economy slowdown “didn’t come as a surprise” even though it has been “stronger than expected and started sooner”. ECB’s decision last week “don’t represent a turnaround in our policy” but just “carefully calibrated to this diagnosis”. And ECB was just :adjusting to the new reality rather than reversing our course”.

              Coeure added “we don’t see signs of a recession at present” and “we don’t see the need” to resume asset purchases. Economic growth is “robust” although it’s “less strong than before”. And it will “take longer for inflation to reach our objective, but it will get there”.

              Coeure also said Italy is “in a difficult juncture” and it’s the “only euro area country that is experience a technical recession”. There was no improvement in the labor market and in the long term, Italy’s problem is well known and it’s “productivity growth”. But “I don’t believe that any of this has to do with the euro, otherwise it would be a general problem across the euro area.”

              Full interview here.

              UK Hunt warns of no Brexit, EU urges a clear decision

                UK now enters into a crucial week with important Brexit votes. Prime Minister Theresa May failed to secure the needed changes to Irish backstop. EU chief negotiator Michel Barnier threw out a package of “concessions” that was rejected bluntly by the UK government. Foreign Minister Jeremy Hunt insisted that the meaningful vote on the Brexit deal will still go ahead on Tuesday, March 12. But the Sunday Times predicted that May will lose by 230 votes again, the same margin of defeat as in January for effective the same deal in the Commons.

                Hunt now turned to Brexiteer Tories and threatened that vote down the deal would open the door to no Brexit. He said, “If you want to stop Brexit you only need to do three things: kill this deal, get an extension, and then have a second referendum. Within three weeks those people could have two of those three things … and quite possibly the third one could be on the way.”

                On the other hand, the EU is trying to push the UK to make up it’s mind clearly, rather that getting an extension with no purpose. France’s EU affairs minister Nathalie Loiseau said “More time, to do what? We’ve had two years … If there’s nothing new, more time will not do anything other than usher in more uncertainty, and uncertainty just creates anxiety… It’s not time that we need, but a decision.”

                Manfred Weber, the chairman of the European People’s Party in the European Parliament also said “May should end her zigzag course.” Also, “British politicians, and I mean Labour leader Jeremy Corbyn in particular, must finally put their own careers and party considerations behind them and look at the country’s interests again.”

                In short, there will be another parliamentary vote on the Brexit deal on March 12, next Tuesday. As it’s defeated, a vote on no-deal Brexit will then be held on March 13 to see if there is explicit consent on this path. If not, there will be another vote on Article 50 extension on March 14.

                China pushes back on currency pledge while WH Kudlow bullish on trade deal

                  Comments from Chinese officials over the weekend suggested they’re trying to push back on US demand regarding currency manipulation. China PBoC Governor Yi Gang said over the weekend that both sides reached consensus of many important issues, including competitive devaluation of currencies. But he also emphasized that yuan exchange-rate formation mechanism is in line with G20 standard.

                  Yi went further to noted that US and China discussed respecting the “autonomy” of each other’s monetary policy. Vice Commerce Minister Wang Shouwen also said on Saturday that any “enforcement mechanism for a prospective trade deal must be “two way, fair and equal.” Apparently, Chinese officials were avoiding any mention of one-sided pledge on currency.

                  On the other hand, White House economic advisor Larry Kudlow said there was a breakthrough with China agreeing to promote “stable currency and avoid competitive devaluation. He’s “positive and bullish” on a US-China trade deal. And he expects the agreement to be finalized by April. He also hailed that Trump administration is making “headway” in the negotiations and is “making great progress”. Currently, Kudlow added that negotiators are “working out some of the difficult final points” And, “it’s got to be good, it’s got to be fair and reciprocal, and it has got to be enforceable — that’s an important point.”

                  Fed Powell: Roughly neutral interest rate appropriate with muted inflation

                    In CBS’s 60 Minutes show, Fed Chair Jerome Powell reiterated that current interest rates are “appropriate” while inflation is “muted”. He also described the current rate setting as “roughly neutral”. Fed is patient regarding policy adjustment and that means “we don’t feel any hurry to change our interest rate policy”.

                    On the economy, he said “the outlook for the U.S. economy is favorable.” And, “the principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit.”

                    Powell added that “what’s happened in the last 90 or so days is that we’ve seen increasing evidence of the global economy slowing down” and “we’re going to wait and see how those conditions evolve before we make any changes to our interest-rate policy.”

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                    US NFP grew only 20k, but unemployment rate dropped to 3.8%, wage growth accelerated

                      US Non-Farm Payrolls grew only 20k in February, well below expectation of 185k. Unemployment rate dropped to 3.8%, down from 4.0% and missed expectation of 3.9%. Average hourly earnings rose 0.4% mom, beat expectation of 0.3% mom. Labor force participation rate was unchanged at 63.2%.

                      Also from US, housing starts rose to 1.23M annualized rate in January, above expectation of 1.18M. Building permits rose to 1.35M, beat expectation of 1.29M.

                      Canada employment data is strong, showing 55.9k growth in February, versus expectation of -2.5k fall. Unemployment rate was unchanged at 5.8%.

                      ECB still in preparation for details of TLTRO-III

                        ECB announced yesterday to start a new quarterly targeted longer-term refinancing operations (TLTRO-III). in September. That’s three month later than some expected. Some lenders might start to face a funding gap in June already. ECB Governing Council member Ewald Nowotny said “to make this a successful program, it has to be well-prepared.” Meanwhile, Nowotny also hailed that “what the ECB did was the correct reaction” to risks in the external situation.

                        Another ECB Governing Council member Vitas Vasiliauskas said the central bank has time up until September to decide details of the TLTRO-III. He added that the program won’t be extended to mortgages.

                        Irish Varadkar said Brexit is a problem of UK’s own creation, open to revert to North Ireland only backstop

                          Ireland Prime Minister Leo Varadkar said today that “it requires a change of approach by the UK government to understand that Brexit is a problem of their own creation.” And, “what was agreed was already a compromise” by the EU. UK government failed to secure ratification of the deal and “it should be a question of what they are now willing to offer us.”

                          Varadar also emphasized that “we have made a lot of compromises already and what is not evident is what the UK government is offering to the European Union and Ireland should they wish us to make any further compromises”. He added, “we were and remain happy to apply the backstop only to Northern Ireland if they want to go back to that. It doesn’t have to trap, or keep, all of Great Britain in the customs territory at all.”

                          European Commission spokesman Alexander Winterstein said “Technical discussions are ongoing. The EU side has offered ideas how to give further reassurances regarding the backstop, you are aware of all this, so there is no need for me to repeat it”.

                          UK Foreign Minister Jeremy Hunt said “History will judge both sides very badly if we get this wrong” And, “we want to remain the best of friends with the EU, that means getting this agreement through in a way that doesn’t inject poison into our relations for many years to come”.

                          Separately, it’s also reported that the trip of UK Attorney General Geoffrey Cox and Brexit Minister Stephen Barclay to Brussels has been called off. And there is no plan for Prime Minister Theresa May to meet EU officials over the weekend.

                          Into European Session: Yen jumps as risk aversion extends on poor China exports

                            Risk aversion extended from US to Asian session today. It started off overnight after the all-round dovish turn of ECB which triggered steep decline in stocks as well as treasury yields. Asian markets picked up and are sent further lower by terrible trade data from China. In short, China’s exports contracted steeply by -20.7% yoy in February, largest decline since 2016. Trade surplus shrank to just USD 4.1B. The data highlights the “tough struggle” that Chinese Premier Li Keqiang mentioned earlier. Difficult export environment is a primary reason for lowering growth target to 6.0-6.5%, which lower bound is slowest in three decades.

                            Adding to negative sentiments, Citic Securities surprisingly advised clients to sell shares of People’s Insurance Company of China saying it’s “significantly overvalued”. Some speculate that such a sell rating must be have greenlight from regulators. That is, the Chinese government could be seeing recent surge in stocks as overheating and prefer to cool it down into a slow bull market. China Shanghai SSE is currently down -3.09% but stays above 3000 handle nevertheless.

                            In the currency markets, Yen is overwhelmingly the biggest winner for today and the week, followed by Swiss Franc. Global treasury yields staged a u-turn this week with German 10-year yield back at 0.067, after hitting as high as 0.21 earlier in the week. US 10 year-yield also lost 2.7 handle again. Japan 10-year JGB yield only turned positive for a brief little while. As for today, Australian Dollar is the worst performing one, followed by Dollar and Canadian. Focus will turn to job data from both US and Canada later in the day.

                            In Asia:

                            • Nikkei dropped -2.01%.
                            • Hong Kong HSI is down -1.62%.
                            • China Shanghai SSE is down -3.07%.
                            • Singapore Strait Times is down -0.81%.
                            • Japan 10-year JGB yield is down -0.0254 at 0.035.

                            Overnight:

                            • DOW dropped -0.78%.
                            • S&P 500 dropped -0.81%.
                            • NASDAQ dropped 01.13%.
                            • 10-year yield dropped -0.056 to 2.636.
                            • 30-year yield dropped -0.046 to 3.025, still above 3.0 handle

                            China trade surplus shrank to $4.1B in Feb, US imports tumbled -35% yoy ytd

                              China’s February trade balance data is rather terrible. Trade surplus shrank sharply to USD 4.1B, well below expectation of USD 27.2B. That’s primarily due to steep contraction in exports by -20.7% yoy, largest decline since February 2016. The data could be distorted by the timing of the New Year. But January and February combined, exports still dropped -4.6% yoy while imports dropped -3.1% yoy.

                              Looking at some January and February combined details, trade with the US continued to deteriorate drastically . Total trade with US dropped -19.9% yoy, exports dropped -14.1% yoy but imports dropped -35.1% yoy. Trade with EU wasn’t too bad, still recorded 3.7% yoy growth in total trade, 2.4% yoy rise in exports and 5.7% rise in imports. One interesting point to note is that imports from Brazil jumped 33.5% yoy while imports from Canada rose 34.9% yoy.

                              Here are some details.

                              In USD terms, in Feb:

                              • Total trade dropped -13.8% yoy to USD 266.3B
                              • Expects dropped -20.7% yoy to USD 135.2B
                              • Imports dropped -5.2% yoy to USD 131.1B
                              • Trade surplus was at USD 4.1B

                              In USD terms, YTD:

                              • Total trade dropped -3.9% yoy to USD 662.7B.
                              • Exports dropped -4.6% yoy to USD 353.2B
                              • Imports dropped -3.1% yoy to USD 309.5B
                              • Trade surplus was at USD 43.7B

                              With US, YTD:

                              • Total trade dropped -19.9% yoy to USD 76.5B
                              • Exports dropped -14.1% yoy to USD 59.3B.
                              • Imports dropped -35.1% yoy to USD 17.2B.
                              • Trade surplus was at USD 42.1B

                              With EU, YTD:

                              • Total trade rose 3.7% yoy to USD 107.5B
                              • Exports rose 2.4% yoy to USD 64.7B
                              • Imports rose 5.8% yoy to USD 42.8B.
                              • Trade surplus was at USD 21.9B.

                              With AU,YTD:

                              • Total trade rose 4.6% yoy to USD 24.8B.
                              • Exports rose 3.3% yoy to USD 7.0B.
                              • Imports rose 5.1% yoy to USD 17.8B.
                              • Trade deficit was at USD 10.8B.

                              Link to Chinese customs data

                              UK PM May to EU: It’s your interest that we leave with a deal

                                According to the pre-released extracts, UK Prime Minister Theresa May is expected to tell EU in a speech today that “it is in the European interest for the UK to leave with a deal”. And, “just as MPs will face a big choice next week, the EU has to make a choice, too.”

                                May is still seeking legally binding assurances from EU that the Irish backstop, if triggered, will be temporary. May will say “we are working with them but the decisions that the European Union makes over the next few days will have a big impact on the outcome of the vote.”

                                Without any fundamental change regarding Irish backstop, there is practically no chance for May to get her Brexit deal through the Parliament on March 12, next Tuesday. A vote on no-deal Brexit will then be held on March 13 to see if there is explicit consent on this path. If not, there will be another vote on Article 50 extension on March 14.

                                EU Malmstrom urges US to do an industrial trade agreement to rebuild trust first

                                  EU Trade Commissioner Cecilia Malmstrom said she had productive meetings with US Trade Representative Robert Lighthizer in Washington this week. She noted that both sides have agreed on a problem as “China is dumping the market, China is subsidizing their industry, this creates global distortions”.

                                  However, there was obvious disagreement in the solution. Malmstrom complained that “the solution to these problems is not imposing tariffs on the European Union. Why is that so hard to understand?” And, she added “if you want an ally and partner, this is not the way to go about it.”

                                  She emphasized that “we should work on common threats and common challenges and not impose tariffs on each other.” If US imposes auto tariffs to EU cars, Malmstrom pledged to, “with a very heavy heart”, retaliate against EUR 20b US imports.

                                  On EU-US trade agreement, Malmstrom noted there is “no support” for a full comprehensive trade agreement in the EU right now. She reiterated EU’s stance that “if we start with industrial goods, which is much less complicated, and which will be beneficial from both sides, we maybe can rebuild that trust and then maybe we’ll see later” about agriculture”.

                                  Japan Q4 GDP finalized at 0.5%, modest recovery with external risks

                                    Japan Q4 GDP growth was finalized at 0.5% qoq, revised up from 0.3% qoq and beat expectation of 0.4%. GDP deflator was finalized at -0.3% yoy, unrevised. In January, overall household spending rose 2.0% yoy, beat expectation of -0.6% fall. Current account surplus widened to JPY 1.8T.

                                    Japan Economy Minister Toshimitsu said Q4’s data showed modest recovery but weak external demand warranted attention. He sounded confident that steady recovery has been confirmed. However, the government is watching overseas risks including slowdown in China.

                                    Vice Finance Minister for International Affairs Masatsugu Asakawa also sounded cautious regarding China. He noted that it’s “inevitable for Chinese economy to slow, with its potential growth lowering as a trend:. Though, he also noted that “it is unlikely to falter greatly as there’s room for authorities’ stimulus measures.”

                                    US update: Market panic on ECB’s dovish turn. Euro, stocks and yields dive

                                      The global financial markets seem to have taken ECB’s dovish turn rather negatively. Instead of cheering prolonged low interest rate environment and cheap loans, investors take the warning that the worst is yet to come. At the time of writing, DOWN is down nearly -200 pts while Europe indices all closed in red. Bond yields suffered steep decline as German 10-year yield hit as low as 0.063 so far, lowest since at least the start of 2017. And, it hit as high as 0.210 just on March 1.

                                      In the currency markets, Euro is no doubt the biggest loser. EUR/USD’s break of 1.1215 support now indicates resumption of medium term down trend from 1.2555. The common currency also drags down Sterling and Swiss Franc. Meanwhile, Yen is the strongest one, with help from risk aversion as well as falling global yields. Canadian is surprisingly the second strongest for today. But the Loonie is just paring some of yesterday’s steep loss.

                                      In the US:

                                      • DOW is down -0.81%.
                                      • S&P 500 is down -0.55%.
                                      • NASDAQ is down -0.53%.
                                      • 10-year yield is down -0.038 at 2.654. It kissed 2.7 handle goodbye earlier this week.
                                      • 30-year yield is down -0.031 at 3.040, still holding on to 3.0 handle.

                                      In Europe:

                                      • FTSE closed down -0.53%.
                                      • DAX closed down -0.60%.
                                      • CAC closed own -0.39%.
                                      • German 10-year yield is down -0.0615 at 0.067.

                                      ECB: Sizeable moderation in growth, substantial downgrade in growth forecasts, risks still tilted to the downside.

                                        In ECB’s post meeting press conference, President Mario Draghi said there are signs that “some of the idiosyncratic domestic factors dampening growth are starting to fade”. However, the weakening in data points to a “sizeable moderation in the pace of the economic expansion that will extend into the current year”. Underlying inflations “continues to be muted”. And weaker economic momentum is “slowing the adjustment of inflation” towards target.

                                        Draghi added that Incoming have continued to be weak, in particular in manufacturing, “reflecting the slowdown in external demand compounded by some country and sector-specific factors”. And the impact is “turning out to be somewhat longer-lasting”Thus near-term growth outlook will be weaker than previously anticipated

                                        In the new staff projections, GDP growth was “revised down substantially in 2019 and slightly in 2020”. GDP is projected to grow by 1.1% in 2019, 1.6% in 2020 and 1.5% in 2021. They compare to December’s projection of 1.7% in 2019, 1.7% in 2020 and 1.5% in 2021. Risks surrounding outlook are “still tilted to the downside”, due to “geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.”

                                        HICP inflation is projected to be at 1.2% in 2019, 1.5% in 2020 and 1.6% in 2021. They compare to December’s projection of 1.6% in 2019, 1.7% in 2020 and 1.8% in 2021.

                                        Full press conference statement.

                                        US initial jobless dropped -3k to 223k

                                          US initial jobless claims dropped -3k to 223k in the week ending March 12, slightly below expectation of 225k. The four-week moving average of initial claims dropped -3k to 226.25k. Continuing claims dropped 50k to 1.755M in the week ending February 23. Four-week moving average of continuing claims rose 4.75k to 1.767M.

                                          Also release, US non-farm productivity was finalized at 1.9% in Q4, unit labor cost at 2.0%. Canada building permits dropped -5.5% mom in January.