EU and China issued joint statement supporting WTO, against protectionism and committing to Iran deal

    EU and China issued a joint statement reaffirming their “commitment to deepening their partnership for peace, growth, reform and civilisation, based on the principles of mutual respect, trust, equality and mutual benefit, by comprehensively implementing the EU-China 2020 Strategic Agenda for Cooperation”. The statement is released after meeting of European Council President Donald Tusk, European Commission President Jean-Claude Juncker and Chinese Premier Li Keqiang in Beijing.

    In the statement, it’s noted that both sides are “strongly committed to fostering an open world economy, improving trade and investment liberalisation and facilitation, resisting protectionism and unilateralism”. And, they “firmly supported the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system with the WTO as its core”. At the same time, they pledged to work on reform of the WTO and “establish a joint working group on WTO reform, chaired at Vice-Ministerial level, to this end.”.

    The EU “took note of China’s recent commitments to improving market access and the investment environment, strengthening intellectual property rights and expanding imports, and looks forward to their full implementation as well as further measures”. Both sides pledged to ensure “a level playing field and mutually beneficial cooperation in bilateral trade and investment”. “Ongoing Investment Agreement negotiations” are seen as a “top priority”. And, they agreed to “accelerate the negotiation of the Agreement on the Cooperation on, and Protection of, Geographical Indications” and hoped to conclude it by next meeting on July 25-27.

    Both sides also recalled that the Joint Comprehensive Plan of Action (JCPOA) Iran nuclear deal is a “key element of the global non-proliferation architecture and a significant diplomatic achievement endorsed unanimously by the UN Security Council in its Resolution 2231.” And the “reaffirm their commitment to the continued, full and effective implementation of the JCPOA.”

    Full statement.

    Hard-line Brexiteers to show strength of their support to PM May in the Commons

      UK Prime Minister Theresa May is going to face tough challenges on her Brexit Plan and even her political survival this week. The Brexit Taxation (Cross-Border Trade) Bill will return to the Commons today. Hard-line Brexiteers are planning to show their strength in support with new amendments, which May is expected to defend. For now it’s unlikely for May to be defeated on the amendments. But the debates and vote could reveal the extend of objections to the compromised Brexit plan made at the Chequers. Then the Brexit Trade Bill will come to the commons for third reading on Tuesday. Wednesday is seen as an informal deadline to hold a no-confidence vote in May or there won’t be enough time before parliament breaks up for the summer.

      Ex-Brexit Minister David Davis blasted May’s plan in an article in the Sunday Times, saying it was an “astonishingly dishonest claim” to said there is no worked-out alternative. And he warned that “be in no doubt: under the government’s proposal our fingers would still be caught in this mangle and the EU would use it ruthlessly to punish us for leaving and handicap our future competitiveness.”

      Trump and Putin to meet with low expectations

        Trump and Russian President Vladimir Putin are going to have their first ever summit today in the Finnish capital Helsinki. Ahead of the meeting Trump said he was going in with “low expectations”. National security adviser John Bolton said the meeting would be “unstructured” and the US was not looking for “deliverable”. Russian Foreign Minister Sergei Lavrov echoed and said he had low expectations too.

        Trump said last week, before the NATO summit, that Putin “may be the easiest” among NATO and UK. And asked if Putin is a friend of foe, Trump said “I really can’t say right now. As far as I’m concerned, a competitor.” Later on Sunday, Trump said in a CBS interview that “I think we have a lot of foes. I think the European Union is a foe, what they do to us in trade. Now you wouldn’t think of the European Union but they’re a foe.” He added that “Russia is a foe in certain respects. China is a foe economically, certainly they are a foe. But that doesn’t mean they are bad. It doesn’t mean anything. It means that they are competitive.”

        So it doesn’t matter what the meaning of “foe” is as Trump sees Russia, China and EU as “they”.

        On the other side, EU seems to be having some emotional responses to what Trump said. European Commission Vice President Frans Timmermans said on Twitter that “calling your best friends foes only makes your real foes happy.” And, “Europeans and Americans are bound by history and their shared values. Europeans will never give up on America because America never gave up on us. That’s what friends are for.” European Council President Donald Tusk said on Twitter that “America and the EU are best friends. Whoever says we are foes is spreading fake news.”

        Bundesbank Weidmann told Cabinet: As political risks increase, the government should be prepared to tackle the next crisis

          According to a report by Handelsblatt, Bundesbank head Jens Weidmann warned the German Federal Cabinet last week that that even though growth is still “intact”, political risks would “increase”. More importantly, Weidmann pointed to the slow down in momentum and the downward revision in 2018 growth forecasts from 2.5% to 2.0%. The drop in momentum, according to Weidmann, is a prove that “good economic development could not go on forever”. The risks include US protectionist trade policy, Brexit and new geopolitical conflicts.

          Weidmann urged the government to prepare for worse times. It takes some time to normalize monetary policy. And for now, ECB “could not react in the next downturn”. And because of that, fiscal policy must take on the task should there be a new crisis. But due to their high debt levels, many Eurozone countries would also have limited ability to “cushion” a down turn.

          EU Tusk and Juncker in China for talk on trade, investment and climate change

            European Council President Donald Tusk and European Commission President Jean-Claude Juncker will meet with Chines Premier Li Keqiang in Beijing today for discussions on some practical topics. Ahead of the meeting European Commission spokesman Margaritis Schinas said the meeting will focus on “trade and investment, on the commitment to combating climate change and investing in clean energy and on foreign and security issues, including the situation on the Korean peninsula”. And, the two sides will also talk on the joint commitment to the Iran nuclear deal.

            Chinese Ambassador to the EU Zhang Ming wrote in an article in the official People’s Daily, urging to deepen cooperation to address global challenges. In particular, he said both sides should “send out a positive message to safeguard multilateralism, liberalize and facilitate trade and investment.” Zhang added that “Both of them recognize the necessity to firmly resist unilateralism and trade protectionism, guard the rule-based multilateral trading system with the WTO at its core, push economic globalization in the direction of becoming more open, inclusive, balanced and beneficial to all, reform multilateral trading system with the times, and perfect global economic governance system.

            Italy agrees to take some Libya migrants as some EU countries offer help

              Italy’s far right Interior Minister Matteo Salvini said on Sunday that the country is allowing some of the asylum seekers from Libya to disembark in Sicily. Prime Minister Giuseppe Conte set letters to head of state of other EU nations asking to share responsibility on the Libya migrants. In response, Germany, France, Spain, Portugal and Malta have agreed to take 50 people each.

              “Spain will take in 50 of the people rescued yesterday in the Mediterranean. This shows our commitment to offer solutions to migration flows and solidarity with the humanitarian drama,” Spanish Prime Minister Pedro Sanchez confirmed and tweeted.

              Sterling recovers as UK-US trade deal is back on track

                Trump said in a joint press conference with UK Prime Minister Theresa May that “we agreed today that as the U.K. leaves the EU we will pursue an ambitious U.S.-U.K. trade deal.” And he added that “the United States looks forward to finalizing a great bilateral trade deal” with the UK.”

                Regarding Brexit negotiation, Trump said it’s “not an easy negotiation to be sure” and the deal UK reached “is OK with me”. He added “just make sure we can trade together.”

                Trump called the Sun story “generally fine” but some of his comments were left out. He noted “I said very good things about her” in the interview”. May is a “total professional”. Trump also said “when I saw her this morning I said, ‘I want to apologize, because I said such good things about you.”

                Sterling recovers strongly ahead of weekly close.

                Joint press conference of UK PM May and Trump

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                  BoE Cunliffe: A little stodginess needed in medium term, but it’s not a stopped approach

                    BoE Deputy Governor Jon Cunliffe said in a speech today that the current overshoot in inflation, headline CPI at 2.4%, is “entirely due to imported inflationary pressure.”. That has come “primarily from the post referendum depreciation in sterling plus some more recent pressure from the increase in oil prices.” But the inflationary pressure form Sterling is “already passed its peak”.

                    The key question now is “how much inflation is domestic economic pressures likely to generate over the next couple of years”. Cunliffe noted that “domestic inflation pressures, while strengthening a little are not yet established at levels consistent with inflation at target”. Pay growth has established itself in the range of 2.5-3.0%. But “the latest readings do not signal strongly that pay growth will make the next step to establish itself firmly in 3% territory in line with the May forecast”.

                    And there remains a case for a little ‘stodginess’ yet in the medium term. Though, he also emphasized that “such an approach is not, however, a stopped approach.”

                    Full speech here.

                    Into US session: Dollar stays strong, Nikkei rally to continue next week

                      Entering into US Dollar remains the strongest one for today. In particular, there was fresh selling in European majors earlier today that helped lift the greenback. Yen is trading as the second strongest so but that’s only because it’s paring some of this week’s risk appetite triggered losses. As for today, New Zealand Dollar and Sterling are the weakest ones.

                      For the week, Dollar is staying as the strongest one. Rebound in stocks, in particular in Asia, gave Australian Dollar some solid support. Yen is the weakest one for the week, followed by Swiss Franc and Kiwi.

                      The rebound in Asian stocks could partly be attributed to China’s softening stance on the issue of trade dispute with the US. So far, the Chinese government just said it will take quantitative and qualitative counter measures against the upcoming USD section 301 tariffs on USD 200B in Chinese goods. However, the lack of detail gives market a feeling that China is backing down from the hard stance. And, instead of pushing going to tit-for-tat tariffs again, it’s trying other ways.

                      Nikkei’s strong rally on Friday is clearly a sign of relieve. The development now suggests that corrective pull back from 23050.39 has completed with three waves down to 2146.294. Further rise should be seen back to retest 23050.39 resistance next week. Break there will resume whole rebound from 20347.49 to 100% projection of 20347.49 to 23050.39 from 21462.94 at 24165.84, which is close to 24129.34 high.

                      China overall trade surplus shrank -24.5% in first half, surplus with US rose 13.9%

                        In USD term, China trade surplus widened to USD 41.6B in June, up from May’s USD 24.9B and beat expectation of USD 27.2B. Exports jumped 11.3% yoy to USD 216.7B while import rose 14.1% to USD 175.1B.

                        In CNY term, trade surplus widened to CNY 261.9B, up from May’s CNY 156.5B and beat expectation of CNY 187.0B. Exports rose 3.1% yoy to CNY 1377.7B while imports rose 6.0% yoy to CNY 1115.8B

                        From January to June:

                        Total trade rose 16% to USD 2205.8B. Exports rose 12.8% to USD 1172.7B. Imports rose 19.9% to USD 1033.1B. Trade surplus dropped -24.5% to USD 139.6B.

                        Total trade with EU rose 13.0% to USD 322.6B. Export to EU rose 11.7% to USD 191.8B. Imports from EU rose 15.0% to USD 130.8B. Trade surplus with EU grew 3.8% to USD 61.0B

                        Total trade with US rose 13.1% to USD 301B. Export to US rose 13.6% to USD 217.8B. Imports from US rose 11.8% to USD 84.0B. Trade surplus with US rose 13.9% to USD 133.8B.

                        Total trade with Australia rose 11..5% to USD 74.1B. Export to Australia rose 17.3% to USD 21.7B. Import from Australia rose 9.3% to USD 52.4B. Trade deficit with Australia rose 3.7% to USD -30.7B.

                        New Zealand BusinessNZ PMI dropped to 52.8 and production dipped again

                          New Zealand BusinessNZ Performance of Manufacturing Index dropped to 52.8 in June, down from 54.4. BusinessNZ’s executive director for manufacturing Catherine Beard said that the slow-down in expansion was mainly due to ongoing drops in a key sub-index.

                          “Production (51.8) experienced another decrease in expansion levels for June, which meant it was down to its lowest point since January 2017. On a positive note, the other key sub-index of New Orders (57.1) remained in healthy territory, which at least should feed through to production levels in the coming months.

                          In addition, the proportion of positive comments in June (51.7%) decreased from May (55.1%), and very similar to February (51.4%). Those who provided negative comments typically noted a general downturn and uncertainty in the market”.

                          BNZ Senior Economist, Craig Ebert said that “broadly speaking, the PMI has settled down into a trend-like pace this year, averaging 53.8 (excluding April’s spike). This is after outperformance through most of 2017, when it averaged 56.2”.

                          Full BusinessNZ Performance of Manufacturing Index release.

                          Trump said May’s Brexit plan would probably end a major trade relationship with US

                            Trump blasted UK Prime Minister Theresa May’s “business-friendly” Brexit plan, which was formally published yesterday, in The Sun newspaper interview. That came just hours ahead of their dinner at the Blenheim Palace. He criticized that “if they do a deal like that, we would be dealing with the European Union instead of dealing with the UK, so it will probably kill the deal.”

                            And he warned that the “soft” approach of May would “definitely affect trade with the United States, unfortunately in a negative way”. And, “if they do that I would say that that would probably end a major trade relationship with the United States.”

                            Trump also disclosed that he tried to interfere with the relationship between UK and EU. “I would have done it much differently,” Trump told The Sun. “I actually told Theresa May how to do it but she didn’t agree, she didn’t listen to me. . . . I think what is going on is very unfortunate.”

                            Fed Powell: Wage should reflect inflation plus productivity

                              Jerome Powell had his first ever broadcast interview as Fed chair with the Marketplace. On wages, he acknowledged that annual wage growth has moved up from “low twos” five years ago, to close to three” now. And there’s been “very gradual move up”. He noted that wages should “reflect inflation plus productivity”. A “big part” of the slow wage growth is “certainly that inflation has been low and productivity has been low”. Yet, he didn’t have the answer to the question on why employers are not paying higher wages while the labor markets appear to be very tight.

                              Though, he also noted that “the economy’s in a really good shape” with unemployment at 4%, the lowest in 20 years. And, people are “coming back into the labor force or not leaving it” in the past five years. Fed’s target of PCE, which is “a little bit lower than the CPI” has been below 2% for some time. But it finally hit the 2% core PCE level last month.

                              Regarding trade policy, Powell noted Trump’s administration “said” it’s trying to lower tariffs. And, “if it works out that way, then that’ll be a good thing for our economy.” However, “if it works our other ways” and there will be high tariffs on a lot of products for a sustained period of tie, “that could be a negative for our economy”. But it’s “hard to sit here today and say which way that’s going”.

                              But Powell also emphasized that when Fed doesn’t make the policy, “we don’t praise it, we don’t criticize it”. And, “part of the independence that we have is to stick to our lane, stick to our knitting, so really wouldn’t want to comment on fiscal policy really, or trade policy.”

                              Transcript of the full interview.

                              Philadelphia Fed Harker: No compelling reason for a fourth hike but he’s open

                                Philadelphia Fed President Patrick Harker said there is “no compelling reason right now” for having a total of four rate hikes this year, “unless we see inflation start to accelerate rapidly. But he is “open” to that. He added that “if we see inflation starting to go past 2.5%, we have to act.” But “absent that” he believed there are “lots of good reasons to hold off”.

                                In particular, he pointed out that further rate hike could push 2-year treasury yields above that of 10-year debt. And, he warned that “if there is a risk of inverting the yield curve then we should try to avoid that.”

                                EU to agree on unified, strong position against US unilateralism

                                  According to a draft text seen by Reuters, EU finance ministers are going to agree on Friday a unified, strong position against US unilateralism.

                                  The text noted that the EU “promotes international cooperation to modernize the WTO,” and “rejects WTO-inconsistent unilateral measures by others.”

                                  It added, “in this respect, we regret the recent U.S. decisions to impose import tariffs, which leave the EU no choice but to react in an adequate, proportionate and reasonable manner in full respect of WTO rules.”

                                  Italian PM Conte said no extra NATO spending

                                    Italian Prime Minister Giuseppe Conte said today that “Italy inherited spending commitments to NATO, commitments that we did not change, so no increase in spending.” He added that “as far as we’re concerned, today we did not decide to offer extra contributions with respect to what was decided some time ago.”

                                    That came not long after Trump, in high profile way, declared in an unscheduled press conference that “everyone has agreed to substantially up their commitment” and he was “extremely happy”.

                                    Seems like by “everyone” Trump means everyone but Italy? Or either Conte or Trump lied?

                                    Separately, French President Emmanuel Macron said he read Trump’s 140-character messages” but the debate in NATO “took a different tone. They were frank but there was no finger-pointing or lack of respect.”

                                    When will Macron realize that only someone with integrity will deliver the messages with the same tone everywhere?

                                    UK published Brexit white paper titled “The future relationship between the United Kingdom and the European Union”

                                      UK finally published the long awaited Brexit White Paper titled “The future relationship between the United Kingdom and the European Union“.

                                      Brexit Minister Dominic Raab said in the forward of the document that “leaving the European Union involves challenge and opportunity. We need to rise to the challenge and grasp the opportunities.” And, “this is the right approach – for both the UK and for the EU. The White Paper sets out in detail how it would work.”

                                      EU chief Brexit negotiator Michel Barnier tweeted that “We will now analyze the #Brexit White Paper (with) Member States & EP, in light of #EUCO guidelines,” he tweeted, referring to the European Parliament and his own negotiating team from the European Council . He added that “EU offer = ambitious FTA + effective cooperation on wide range of issues, including a strong security partnership.” And he looked forward to negotiations with the UK next week.

                                      Dollar mixed after US CPI met expectations, initial jobless claims fell

                                        Released in US session, US CPI rose 0.1% mom, 2.9% yoy in June versus expectation of 0.2% mom, 2.9% yoy. Core CPI rose 0.2% mom, 2.3% yoy, matched expectations. Data showed inflation continued to accelerate with headline CPI accelerated from 2.8% yoy in May, core CPI accelerated from 2.2% yoy.

                                        Initial jobless claims dropped -18k to 214k in the week ended July 7. Four week moving average of initial claims dropped 1.75k to 223k. That’s notably low than expectation of 230k. Continuing claims dropped -3k to 1.739m in the week ended June 30. Four-week moving average of continuing claims rose 9.5k to 1.7285m.

                                        From Canada, new housing price index rose 0.0% mom in May versus expectation of -0.1% mom.

                                        Dollar is trading mixed for today after the release, up against Euro, Yen and Swiss, but down against others.

                                        ECB accounts: Forward guidance strikes a balance between precision and flexibility

                                          Regarding the “summer of 2019″, ECB provided some clarity in the June meeting accounts released today. The accounts recapped that ” policy rates would be kept at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remained aligned with a sustained adjustment path”.

                                          The accounts noted that the wordings were seen to “strike a good balance between providing sufficiently precise guidance and maintaining adequate flexibility”. And, “the proposed state-contingent component of the forward guidance on policy rates was widely seen as underlining the gradual and data-dependent approach to policy normalisation.”

                                          Also, ” explicitly linking a first policy rate rise to inflation evolving along a sustained adjustment path was seen as consistent with the ECB’s forward-looking and medium-term-oriented monetary policy strategy and would underscore the credibility of the Governing Council’s commitment to its price stability objective.”

                                          The key take away is, ECB wants to reserve some “flexibility” which is understandable.

                                          Full accounts here.