BoE Governor Mark Carney gave some “chilling” warnings in Prime Minister Theresa May’s cabinet meeting on no-deal Brexit preparation yesterday. There he compared a disorderly effort to 2008 financial prices. And more importantly, BoE wouldn’t be able to avert the crisis by cutting interest rates. Inflation and unemployment are expected to surge according to Carney’s expectation. And, in the worst case scenario, house price could fall be 25-35% over three years. On the other hand, Carney noted that if a deal is struck based on May’s Chequers plan, the economy could overshoot current forecasts as it’s an outcome that’s better than BoE assumed.
However, it should be noted that Carney has been constantly accused by Brexiteers as being part of the “Remain” camp, together with Chancellor of Exchequer Philip Hammond. And, both have been inaccurate in prediction Brexit economic consequences. Leader of the Brexit camp European Research Group Jacob Rees-Mogg called Carney “the high priest of Project Fear” last month.
September 30 is seen by some as the deadline for completing US-Canada NAFTA negotiation. The legal text has to be produced by October 1 so as for the current Mexican government to sign before leaving office on November 30. But Canadian Prime Minister Justin Trudeau brushed off the deadline.
He said yesterday that “we have seen various deadlines put forward as markers to work for.” And, “we’ll do the work and try and get there as quick as we can, but we’re going to make sure that we’re doing what is necessary to get the right deal for Canadians.”
Also, Trump appeared to have mused about renaming NAFTA to USMC, and said the “C” could be dropped if Canada didn’t sign on. Trudeau said there were “things that we’re working on very seriously, rolling up our sleeves on. I don’t think we’ve spent much time talking about what the name or potential name or renaming could be.”
Yen and Dollar are trading as the weakest two today. On the other hand, Sterling and Euro are the strongest ones, with Australian Dollar trailing behind. There are a couple of underlying themes today which triggered much volatility.
Firstly, the story of restarting US-China trade negotiation continued to develop. White House economic advisor confirmed yesterday after the bell that there was an invitation to China for trade talks. China also confirmed they received that invitation and both sides are already in discussion on details of the meeting. China SSE ended up 1.15% at 2686.58 today even though it failed to reclaim 2700 handle. Australian was originally the biggest gainer as also helped by strong employment data. However, later in the US session Trump tweeted that China is the one who’s under pressure to make a deal. And “we will soon be taking in Billions in Tariffs & making products at home.” Apparently, he’s trying to re-escalate the tension. That’s a main factor knocking Aussie down against Euro and Sterling.
Secondly, Turkish central bank CBRT delivered a massive rate hike, by lifting the policy rate from 17.75% to 24%. That triggered a strong rebound in the Lira, with USD/JPY now trading down around -4%. It also eased worries of re-emergence of Lira crisis and contagion to Europe. That’s a strong factor supporting Euro and to a certain extent Sterling.
Thirdly, US core CPI came in weaker than expected, slowed to 2.2% yoy in August, down from 2.4% yoy. While that shouldn’t stop the Fed from raising interest rate to neutral, it could start casting doubts on whether Fed should continue beyond neutral. The data helped supported US equities and pushed USD/JPY through 111.82 resistance.
BoE and ECB rate decisions are indeed shrugged off by the markets. Here are some readings on ECB and BoE:
In other markets, DOW is currently up 0.48%, S&P 500 up 0.54%, NASDAQ up 0.96%. FTSE closed down -0.43%, DAX up 0.19% and CAC down -0.08%. Gold hit as high as 1212.64 earlier today but is now down back at 1204 after failing to take out 1214.3 resistance.
Follow up on the quick comment here. Our AUD/JPY short was stopped out at break even (80.25) as the cross rebounded to as high as 80.79. A couple of factor went against the trade. The main one is definitely the chance to restart US-China trade negotiation. AUD/JPY initially hesitated a bit after breaking 4 hour 55 EMA. And even stronger than expected Australian employment data couldn’t build sustained momentum.
But then buyers finally committed after China confirmed that they received US invitation for trade talk. Then, risk appetite were further boosted by Turkish central bank CBRT’s rate massive rate hike, as well as weaker than expected US core inflation reading.
Technically, while 78.67 should be a short term bottom, there is no confirmation in trend reversal as long as 81.78 resistance holds. That is, down trend from 90.29 is in favor to resume later to 61.8% projection of 90.29 to 80.48 from 83.92 at 77.85. We’ll wait and see if there is another opportunity to trade this one.
Gold surged to as high as 1212.64 earlier today. It rode on Dollar’s weakness on optimism that US and China is back on the negotiation table. However, Gold failed to take out 1214.30 resistance and was then knocked down as Trump tried to re-escalate trade tension with his tweet.
So, for now, it’s technically staying in consolidation pattern from 1214.30. More sideway trading could be seen. For now, as long as 1187.58 support holds, further rally is expected. Break of 1214.30 will eventually resume the rebound from 1160.36 medium term bottom towards 38.2% retracement of 1365.24 to 1160.36 at 1238.62. We’d expect strong resistance from there to limit upside.
On the downside, break of 1187.58 will suggests that the rebound is completed and bring retest of 1160.36 low.
Trump complains WSJ and said the US is under no pressure to make a deal with China. Instead he claims that China is the one who’s under pressure. And he added “we will soon be taking in biliions in tariffs & making products at home.”
So now, Trump tries to re-escalate trade tension? But anyway, we don’t quite understand. If Americans are going to “make products at home”, that means, they import way less from China. Then, how can he take billions in tariffs? He want tariffs to cover the deficit he creates? Or he wants jobs to move back to the US? You can’t have both.
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Dollar suffers renewed sell after core consumer came in lower than expected. Headline CPI rose 0.2% mom, 2.7% yoy versus expectation of 0.1% mom, 2.7% yoy. That slowed from prior month’s 0.2% mom, 2.9% yoy. Core CPI rose 0.1% mom, 2.2%, missed expectation of 0.2% mom, 2.4% yoy. Also it missed expectation of 0.2% mom, 2.4% yoy.
Job data was solid though. Initial jobless claims dropped -1k to 204k in the week ended September 8. That’s the new lowest since December 6 1969. Four-week moving average of initial claims dropped -2k to 208k, lowest since December 6, 1969. Continuing claims dropped -15k to 1.696m, lowest since December 1, 1973. Four week moving average of continuing claims dropped -8.25k to 1.71125m., lowest since November 24, 1973.
Mario Draghi, President of the ECB,
Luis de Guindos, Vice-President of the ECB,
Frankfurt am Main, 13 September 2018
INTRODUCTORY STATEMENT
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, we will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of this month. After September 2018, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and we anticipate that, subject to incoming data confirming our medium-term inflation outlook, we will then end net purchases. We intend to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The incoming information, including our new September 2018 staff projections, broadly confirms our previous assessment of an ongoing broad-based expansion of the euro area economy and gradually rising inflation. The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding-down of our net asset purchases. At the same time, uncertainties relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.4%, quarter on quarter, in the second quarter of 2018, following growth at the same rate in the previous quarter. Despite some moderation following the strong growth performance in 2017, the latest economic indicators and survey results overall confirm ongoing broad-based growth of the euro area economy. Our monetary policy measures continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by rising wages. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the expansion in global activity is expected to continue, supporting euro area exports.
This assessment is broadly reflected in the September 2018 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.0% in 2018, 1.8% in 2019 and 1.7% in 2020. Compared with the June 2018 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down slightly for 2018 and 2019, mainly due to a somewhat weaker contribution from foreign demand.
The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. At the same time, risks relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 2.0% in August 2018, down from 2.1% in July. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets, which is pushing up wage growth. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion and rising wage growth.
This assessment is also broadly reflected in the September 2018 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.7% in 2018, 2019 and 2020, which is unchanged from the June 2018 Eurosystem staff macroeconomic projections.
Turning to the monetary analysis, broad money (M3) growth declined to 4.0% in July 2018, from 4.5% in June. Apart from some volatility in monthly flows, M3 growth is increasingly supported by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth.
The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 4.1% in July 2018, while the annual growth rate of loans to households stood at 3.0%, both unchanged from June.
The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions. Likewise, the transparent and consistent implementation of the EU’s fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.
Entering into US session, Australian Dollar is trading as the strongest one today, followed by Swiss Franc. On the other hand Yen is the weakest one, followed by New Zealand Dollar. Optimism on easing US-China trade tension is a generally theme today, lifting Asian and European stocks, except UK. Buying jumped in after China confirmed that they received the invitation from the US for meeting, and both side are working on the details.
Three central bank announced rate decision today. It’s Turkish central bank CBRT that stole the show. The Turkish Lira was firstly hammered down by President Tayyip Erdogan’s comments that interest rate is “tool of exploitation”. But that the CBRT delivered its promise and raised policy rate (one week repo auction rate) from 17.75% to 24%. USD/TRY hit as high as 6.5514 but the tumbled to 6.0619. It’s now down around -2.8%.
BoE kept Bank Rate unchanged at 0.75% as widely expected, by unanimous vote. ECB kept main refinancing rate unchanged at 0.00% as widely expected. Also, starting October, monthly asset purchase will be halved to EUR 15B, and end after December. ECB also said it intends to reinvest the principal payments “for an extended period of time”. Both decision triggered little reactions in the markets.
At the time of writing, FTSE is down -0.15%, DAX Up 0.59%, CAC up 0.51%. Earlier today, China SSE rose 1.15% to 2686.58 but failed to reclaim 2700. Hong Kong HSI rose 2.54%. Singapore Strait Times rose 0.23%. Nikkei added 0.96%.
ECB kept main refinancing rate unchanged at 0.00% as widely expected. Also, starting Otober, monthly asset purhcase will be halved to EUR 15B, and end after December. ECB also said it intends to reinvest the principal payments “for an extended period of time”.
Full statement below.
Monetary policy decisions
At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, the Governing Council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of this month. After September 2018, the Governing Council will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and anticipates that, subject to incoming data confirming the medium-term inflation outlook, net purchases will then end. The Governing Council intends to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
What a volatile day for the Turkish Lira. It originally plunged on President Tayyip Erdogan’s comments against interest rate. But then CBRT announce to raise policy rate (one week repo auction rate) from 17.75% to 24%. USDTRY drops more than -3% after the release and is now set to take on 6.000 handle. Last month’s low at 5.7000 suddenly looks within reach.
Here is the full statement:
Decision of the Monetary Policy Committee
Participating Committee Members: Murat Çetinkaya (Governor), Ömer Duman, Uğur Namık Küçük, Emrah Şener, Murat Uysal, Abdullah Yavaş.
The Monetary Policy Committee (the Committee) has decided to increase the policy rate (one week repo auction rate) from 17.75 percent to 24 percent.
Recently released data indicate a more significant rebalancing trend in the economic activity. External demand maintains its strength, while slowdown in domestic demand accelerates.
Recent developments regarding the inflation outlook point to significant risks to price stability. Price increases have shown a generalized pattern across subsectors, reflecting the movements in exchange rates. Deterioration in the pricing behavior continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions. Accordingly, the Committee has decided to implement a strong monetary tightening to support price stability.
The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement. Inflation expectations, pricing behavior, lagged impact of recent monetary policy decisions, contribution of fiscal policy to rebalancing process, and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days.
BoE kept bank rate unchanged at 0.75% as widely expected. Asset purchase target was also unchanged at GBP 435B. Both were made by unanimous decision. Sterling shows little reaction to the announcement
BoE noted that economic projections as presented in the August Inflation Report “appear to be broadly on track”. Downside risk to global economy increased “to some degree”. Growth has softened and financial conditions tightened in emerging markets, “in some cases markedly”. Further protectionist measures by the US and China could a larger negative impact than expected.
Also economic outlook could be influenced by Brexit process and responses from households, business and markets. BOE noted that there were indications of “greater uncertainty” regarding Brexit.
BoE also maintained tightening bias as said “an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.” But it also reiterated that the projections were conditioned on the expectation of a smooth Brexit.
Full Statement below:
Bank Rate maintained at 0.75%
Our Monetary Policy Committee has voted unanimously to maintain Bank Rate at 0.75%. The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 12 September 2018, the MPC voted unanimously to maintain Bank Rate at 0.75%.
The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.
In the MPC’s most recent economic projections, set out in the August Inflation Report, GDP was expected to grow by around 1¾% per year on average over the forecast period, conditioned on the gently rising path of Bank Rate implied by market yields at that time. Although modest by historical standards, the projected pace of GDP growth was slightly faster than the diminished rate of supply growth, which averaged around 1½% per year. With a very limited degree of slack remaining, a small margin of excess demand was therefore projected to emerge by late 2019 and build thereafter, feeding through into higher growth in domestic costs than has been seen over recent years. The contribution of external cost pressures, which has accounted for above-target inflation since the beginning of 2017, was projected to ease over the forecast period. Taking these influences together, and conditioned on the gently rising path of Bank Rate, CPI inflation remained slightly above 2% through most of the forecast period, reaching the target in the third year.
Recent news in UK macroeconomic data has been limited and the MPC’s August projections appear to be broadly on track. UK GDP grew by 0.4% in 2018 Q2 and by 0.6% in the three months to July. The UK labour market has continued to tighten, with the unemployment rate falling to 4.0% and the number of vacancies rising further. Regular pay growth has risen further to around 3% on a year earlier. CPI inflation was 2.5% in July.
The global economy still appears to be growing at above-trend rates, although recent developments are likely to have increased downside risks around global growth to some degree. In emerging market economies, indicators of growth have continued to soften and financial conditions have tightened further, in some cases markedly. Recent announcements of further protectionist measures by the United States and China, if implemented, could have a somewhat more negative impact on global growth than was anticipated at the time of the August Report.
The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal. Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the withdrawal process.
The Committee judges that, were the economy to continue to develop broadly in line with the August Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. As before, these projections were conditioned on the expectation of a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. At this meeting, the Committee judged that the current stance of monetary policy remained appropriate. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.
Turkish Lira is hammered by President Tayyip Erdogan’s comments today, just ahead of CBRT rate decision. Erdogan decried high interest rates as a “tool of exploitation”. And defying common logic, he said “if you say inflation is the cause and interest rates are the result, you don’t know this business.” On the other hand, he insisted that “interest is the cause, inflation is the result.”
In addition, he described the depreciation of Lira as an economy as it’s experience “fake volatility” as result of manipulations. Erdogan also pledged to implement measures to solve Lira volatility issues.
According to a Reuters poll, CBRT is expected to hike the benchmark interest rate by between 225 to 725 basis points. Seems like the markets are setting up themselves for disappointments.
USD/TRY hit as high as 6.5514 after the comments and it’s now up around 2%.
Chinese Foreign Ministry spokesman Geng Shuang said at a regular press briefing that it received the invitation from the US for restarting trade talks. And the countries are now in discussion about the details. Geng said that “China has always held that an escalation of the trade conflict is not in anyone’s interests. In fact, from last month’s preliminary talks in Washington, the two sides’ trade talk teams have maintained various forms of contact, and held discussions on the concerns of each side.”
Ministry of Commerce spokesman Gao Feng also said the two side are discussing details for future talks. And, he added that trade escalation is not in interest of either country. But he also emphasized that trade deficit with US is due to its low saving and control on export to China. He hoped that US will not find excuses for trade protectionism and urged it to comply with WTO rules.
European Union Chamber of Commerce in China, also carried out a survey regarding US-China tariff war. Results showed that 53.9% responding said US tariffs on China affected their company. 42.9% said China tariff on US products affected their company. There is, roughly 11% difference. The Chamber said that “the high rate of negative views on either side of the trade war is emblematic of the degree of interconnectivity in the global economy.” But at the same time 72.5% said they’re taking no action to cope with the trade war, but just monitoring the situation.
Mats Harborn, president of the European Union Chamber of Commerce in China said “the effects of the US-China trade war on European firms in China are significant and overwhelmingly negative.” The Chamber shared the concerns regarding China’s trade and in vestment practices. However, Harborn warned that “continuing along the path of tariff escalation is extremely dangerous”. He added “it threatens to dismantle the entire global, rules-based system at a time when we should be working together to modernise it.”
A joint survey by AmCham China and AmCham Shanghai showed that over nearly two-thirds of survey respondents experienced negative impact from US-China tariff war. Moreover, for additional US tariffs, 74.3% expected negative impact and 47.2% expected “strong negative impact. For additional China tariffs, 67.6% expected negative impact and 38.2% expected “strong negative impacts”. Increased cost of manufacturing (47.1) and decreased demand for products (41.8%) were the to most significant downside of the tariffs.
William Zarit, Chairman of AmCham China said “the White House has threatened to fire the next barrage of tariffs at $200 billion more Chinese goods, expecting with this onslaught, or subsequent ones, China will wave a white flag. But that scenario risks underestimating China’s capability to continue meeting fire with fire.”
Eric Zheng, Chairman of AmCham Shanghai warned that “tariffs are already negatively impacting U.S. companies and the imposition of a proposed $200 billion tranche will bring a lot more pain”. And “if almost a half of American companies anticipate a strong negative impact from the next round of U.S. tariffs, then the U.S. administration will be hurting the companies it should be helping.”
The survey was conducted between August 29 and September 5, 2018. Over 430 companies responded.
Canadian Foreign Minister Chrystia Freeland said that she won’t hold NAFTA talks with USTR Robert Lighthizer until some more work is completed. She told reporters that “we decided that in order to have another productive conversation, it would be best to give our officials some time to hold technical discussions.”
It’s believed that dairy, cultural protection and dispute resolution mechanism remained the deadlocks. But Freeland said the talks have “absolutely not” hit a stalemate. And even though she won’t be present, Canada’s chief NAFTA negotiator, as well as the country’s ambassador to the United States, will fly back to Washington on Wednesday night.
Australia job market grew 44k in August, well pass expectation of 18.4k. Full time employment grew strongly by 33.7k. Part time jobs added 10.2k. Unemployment was unchanged at 5.3%, matched expectation. Labor force participation rate rose to 65.7%, up from 65.6%.
Overall, the set of data affirmed RBA’s view that spare capacity is gradually being taken out, which is a prelude to meaningful wage growth. However, wages have actually need to show the increase before RBA is convinced that eventually there is enough upward pressure on inflation. Talk of rate hike is premature based on just today’s data.
In Japan, private machinery orders, excluding volatile ones, rose 11.0% yoy in July, well above expectation of 5.8% yoy. Total machinery orders rose 18.8% yoy. The strong growth suggests that companies were keen to invest despite the threat of trade protectionism. And rising capex will likely add to economic growth. So far, trade war worries haven’t materialized in economic data yet.
Also released, domestic CGPI rose 3.0% yoy in August, below expetation of 3.1% yoy.
White House top economic advisor Larry Kudlow said yesterday that communications with Beijing had “picked up a notch”. He also confirmed that Treasury Secretary Steven Mnuchin had sent an invitation letter to senior Chinese officials to restart trade talks. Also, “there’s some discussions and information that we’ve received that the top of the Chinese government wishes to pursue talks.”
Kudlow also added that “most of us think it’s better to talk than not to talk, and I think the Chinese government is willing to talk.” And, if they come to the table in a serious way to generate some positive results, yes, of course. That’s what we’ve been asking for months and months.”
BoE Carney: House price could fall 25-35% on no-deal Brexit
BoE Governor Mark Carney gave some “chilling” warnings in Prime Minister Theresa May’s cabinet meeting on no-deal Brexit preparation yesterday. There he compared a disorderly effort to 2008 financial prices. And more importantly, BoE wouldn’t be able to avert the crisis by cutting interest rates. Inflation and unemployment are expected to surge according to Carney’s expectation. And, in the worst case scenario, house price could fall be 25-35% over three years. On the other hand, Carney noted that if a deal is struck based on May’s Chequers plan, the economy could overshoot current forecasts as it’s an outcome that’s better than BoE assumed.
However, it should be noted that Carney has been constantly accused by Brexiteers as being part of the “Remain” camp, together with Chancellor of Exchequer Philip Hammond. And, both have been inaccurate in prediction Brexit economic consequences. Leader of the Brexit camp European Research Group Jacob Rees-Mogg called Carney “the high priest of Project Fear” last month.