2018Feb

FC: EUROPEAN OPENING REPORT: FRIDAY – 9TH – MARCH – 2018 March 09, 2018 at 05:35AM

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US bourses closed higher after a late rally on US President Trump’s signing of the steel and aluminium tariffs. At the tariff signing, Trump said we will have a 25% tariff on foreign steel and a 10% tariff on foreign aluminium when the product comes across our borders, adding tariffs are a matter of necessity for national security. Trump stated for individual nations, the US remains open to modifying and removing tariffs, adding while negotiating NAFTA agreement, will hold off on steel and aluminium tariffs for Canada and Mexico. He also said tariffs are not in effect for another 15 days and added at some point, the US will be doing a reciprocal tax program. Staying with the tariff story, US Senator Flake said he will introduce legislation to nullify Trump’s tariffs. Meanwhile, the Mexican Economy Minister said he will not allow proposed tariffs to pressure NAFTA talks, adding they will not walk away from talks working assumption is that existing trade arrangements will stay in place over our current two-year projection horizon. In currency space, the USD rose against all of its G10 counterparts, while the Euro is among the weakest after a choppy reaction to the ECB announcement. Since the announcement, a sources story said that internal staff calculations on the future path of monetary policy assume asset purchases totalling €30 Bln in the fourth-quarter. We also heard from Bank of Canada Deputy Governor Lane who said recent developments with respect to steel and aluminium, alongside increased protectionist rhetoric, carry potentially serious consequences, adding all that said, uncertainty about the North American Free Trade Agreement (NAFTA) and growing global trade tensions will need to be watched. Lane stated our range of possibilities is wide, which means that trying to quantify any scenario in advance would not be useful for monetary policy purposes. He said by moving gradually, we’ve been able to take in new data and conduct analysis on four key issues. First, when an economy is running close to full capacity. Second, inflation dynamics could be changing in the new economy Third, despite strong employment gains and an economy operating close to capacity, wage growth has been slower than would be expected. And, finally, with household debt at high levels. Lastly, the US economic picture still has upside potential; stronger business investment and household spending in the United States would likely benefit our economy. Oil prices ended lower with US crude futures settling at $60.12 (-$1.03).

Following the close stateside, Canadian Foreign Minister Freeland said there is no chance Canada could pose a security threat to the US, adding Canada posed a tremendous effort to lobby the US; today is a move forward, but there is more hard work to be done. She said they are at work modernising NAFTA; the announcement today does not alter that, adding they will carry on with lobbying campaign in the US until the threat of tariffs has completely vanished.

Before the open in Asia, Japanese overall household spending unexpectedly jumped 2% (f/c -1.0%) y/y in January. Down under, New Zealand retail card spending fell 0.3% (f/c +0.1%) m/m in February, the first fall in six months, while total card spending rose 0.1% m/m.

Asian stocks ascended in the final session of the week after US President Trump accepted North Korean leader Kim Jong Un’s meeting invitation. Speaking from the White House after hand delivering a letter from Kim, South Korean National Security Chief Chung said North Korea’s Kim is committed to denuclearisation, adding Kim will refrain from tests in the future. He stated Kim understands that routine US-South Korea military exercises must carry on, adding Kim expressed his eagerness to meet with Trump as soon as possible. Lastly, he said along with Trump, we are optimistic about continuing a diplomatic process to test the possibility of a resolution that is peaceful. Following Chung’s statement, the White House said Trump will accept invitation to meet North Korea’s Kim at a time and place to be determined, adding the US looks forward to the denuclearisation of North Korea, for the time being all sanctions and maximum pressure must remain. The Dollar jumped against the Yen on the headline that Trump will accept the invitation. Japan’s Defence Minister called for talks to be meaningful, North Korea must commit to abandoning nuclear development completely. The BoJ also wrapped up its March monetary policy meeting which saw no change to policy, as expected, and kept its economic assessment unchanged. In its statement, the BoJ maintained its short-term interest rate target at -0.1% and the 10-year JGB yield target at around 0%. The pledge to buy JGBs more or less at the current pace so its holdings increase at annual pace of around ¥80 Trln was also unchanged. The decision on YCC was made by 8-1 vote with board member Kataoka dissenting, once again. He said they need to purchase JGBs so yield of 10-years or longer declines further, adding the BoJ should clarify it will further ease if domestic factors delay price target achievement. He also noted that the current chance of inflation increasing towards to 2% is low. The Yen was largely was largely unresponsive to the decision amid the improved risk sentiment after the aforementioned US-North Korea meeting. Elsewhere, responses continued to come in to the US steel and aluminium tariffs, Japan said the US’ decision on imposing steel and aluminium tariffs is regrettable, adding it will appropriately respond after examining the impact on Japanese companies and WTO rules and that the decision is likely to have a big impact on Japan-US economic cooperative ties and the global economy. Meanwhile, China’s Commerce Ministry said it resolutely opposes latest trade tariffs from the US on steel and aluminium, adding it will assess any damage caused and firmly defend its legitimate interests and rights. They stated the US move will seriously impact normal order international trade, adding the US should respect authority of multilateral trade system and withdraw measures ASAP. Data wise, Chinese CPI beat in February, rising 1.2% (f/c +0.8%) m/m and 2.9% (f/c +2.5%) y/y, ascending at its fastest pace y/y since November 2013, while PPI gained 3.7% (f/c +3.8%) y/y. While, Chinese M2 money stock 8.8% (f/c +8.7%) y/y in February. Japanese real cash earnings plunged 0.9% (f/c -0.7%) y/y in January, the fastest pace decline since July 2017, while labour cash earnings rose 0.7% y/y, as expected. We also heard from PBoC Governor Zhou, who said the Chinese economy will rely less on quantitative stimulus, adding the fall in M2 growth may not necessarily lead to liquidity constraints. Zhou stated using the yuan in investment and trade settlement, commodity pricing internationally will be a long-term process, adding yuan internationalisation cannot be forced. Meanwhile, PBoC Deputy Governor Yi said China will hike rates will depend on real economic conditions, adding China’s real interest rates have been steady. At the Fed, Kansas City Fed Governor George said it is important to continue hiking interest rates, adding she expects continued moderate economic growth and tighter labour markets. She stated she sees inflation hitting 2% this year and sees predominantly upside risks to her outlook. She mentioned fiscal policy is stimulative and monetary policy remains accommodative, adding asset prices may have become distorted by the Fed’s balance sheet.

Looking ahead, at 06:30 GMT, we get the BoJ press conference after its earlier monetary policy meeting conclusion, followed by German industrial production, trade balance, current account balance & labour costs and Norwegian CPI, followed by French industrial production, manufacturing production & budget balance at 07:45 GMT. Next at 08:00 GMT, we get Spanish industrial production, followed by Swedish average house prices & household consumption at 08:30 GMT. Then at 09:00 GMT, we get Italian PPI, followed by UK industrial production, manufacturing production, construction output & trade balance at 09:30 GMT. At 10:00 GMT, we get Greek CPI, followed by Irish new vehicle licenses at 11:00 GMT. Also of note, we get the BoI money and banks report at 10:00 GMT.

 

EUROPEAN OPENING REPORT: FRIDAY – 9TH – MARCH – 2018

US bourses closed higher after a late rally on US President Trump’s signing of the steel and aluminium tariffs. At the tariff signing, Trump said we will have a 25% tariff on foreign steel and a 10% tariff on foreign aluminium when the product comes across our borders, adding tariffs are a matter of necessity for national security. Trump stated for individual nations, the US remains open to modifying and removing tariffs, adding while negotiating NAFTA agreement, will hold off on steel and aluminium tariffs for Canada and Mexico. He also said tariffs are not in effect for another 15 days and added at some point, the US will be doing a reciprocal tax program. Staying with the tariff story, US Senator Flake said he will introduce legislation to nullify Trump’s tariffs. Meanwhile, the Mexican Economy Minister said he will not allow proposed tariffs to pressure NAFTA talks, adding they will not walk away from talks working assumption is that existing trade arrangements will stay in place over our current two-year projection horizon. In currency space, the USD rose against all of its G10 counterparts, while the Euro is among the weakest after a choppy reaction to the ECB announcement. Since the announcement, a sources story said that internal staff calculations on the future path of monetary policy assume asset purchases totalling €30 Bln in the fourth-quarter. We also heard from Bank of Canada Deputy Governor Lane who said recent developments with respect to steel and aluminium, alongside increased protectionist rhetoric, carry potentially serious consequences, adding all that said, uncertainty about the North American Free Trade Agreement (NAFTA) and growing global trade tensions will need to be watched. Lane stated our range of possibilities is wide, which means that trying to quantify any scenario in advance would not be useful for monetary policy purposes. He said by moving gradually, we’ve been able to take in new data and conduct analysis on four key issues. First, when an economy is running close to full capacity. Second, inflation dynamics could be changing in the new economy Third, despite strong employment gains and an economy operating close to capacity, wage growth has been slower than would be expected. And, finally, with household debt at high levels. Lastly, the US economic picture still has upside potential; stronger business investment and household spending in the United States would likely benefit our economy. Oil prices ended lower with US crude futures settling at $60.12 (-$1.03).

Following the close stateside, Canadian Foreign Minister Freeland said there is no chance Canada could pose a security threat to the US, adding Canada posed a tremendous effort to lobby the US; today is a move forward, but there is more hard work to be done. She said they are at work modernising NAFTA; the announcement today does not alter that, adding they will carry on with lobbying campaign in the US until the threat of tariffs has completely vanished.

Before the open in Asia, Japanese overall household spending unexpectedly jumped 2% (f/c -1.0%) y/y in January. Down under, New Zealand retail card spending fell 0.3% (f/c +0.1%) m/m in February, the first fall in six months, while total card spending rose 0.1% m/m.

Asian stocks ascended in the final session of the week after US President Trump accepted North Korean leader Kim Jong Un’s meeting invitation. Speaking from the White House after hand delivering a letter from Kim, South Korean National Security Chief Chung said North Korea’s Kim is committed to denuclearisation, adding Kim will refrain from tests in the future. He stated Kim understands that routine US-South Korea military exercises must carry on, adding Kim expressed his eagerness to meet with Trump as soon as possible. Lastly, he said along with Trump, we are optimistic about continuing a diplomatic process to test the possibility of a resolution that is peaceful. Following Chung’s statement, the White House said Trump will accept invitation to meet North Korea’s Kim at a time and place to be determined, adding the US looks forward to the denuclearisation of North Korea, for the time being all sanctions and maximum pressure must remain. The Dollar jumped against the Yen on the headline that Trump will accept the invitation. Japan’s Defence Minister called for talks to be meaningful, North Korea must commit to abandoning nuclear development completely. The BoJ also wrapped up its March monetary policy meeting which saw no change to policy, as expected, and kept its economic assessment unchanged. In its statement, the BoJ maintained its short-term interest rate target at -0.1% and the 10-year JGB yield target at around 0%. The pledge to buy JGBs more or less at the current pace so its holdings increase at annual pace of around ¥80 Trln was also unchanged. The decision on YCC was made by 8-1 vote with board member Kataoka dissenting, once again. He said they need to purchase JGBs so yield of 10-years or longer declines further, adding the BoJ should clarify it will further ease if domestic factors delay price target achievement. He also noted that the current chance of inflation increasing towards to 2% is low. The Yen was largely was largely unresponsive to the decision amid the improved risk sentiment after the aforementioned US-North Korea meeting. Elsewhere, responses continued to come in to the US steel and aluminium tariffs, Japan said the US’ decision on imposing steel and aluminium tariffs is regrettable, adding it will appropriately respond after examining the impact on Japanese companies and WTO rules and that the decision is likely to have a big impact on Japan-US economic cooperative ties and the global economy. Meanwhile, China’s Commerce Ministry said it resolutely opposes latest trade tariffs from the US on steel and aluminium, adding it will assess any damage caused and firmly defend its legitimate interests and rights. They stated the US move will seriously impact normal order international trade, adding the US should respect authority of multilateral trade system and withdraw measures ASAP. Data wise, Chinese CPI beat in February, rising 1.2% (f/c +0.8%) m/m and 2.9% (f/c +2.5%) y/y, ascending at its fastest pace y/y since November 2013, while PPI gained 3.7% (f/c +3.8%) y/y. While, Chinese M2 money stock 8.8% (f/c +8.7%) y/y in February. Japanese real cash earnings plunged 0.9% (f/c -0.7%) y/y in January, the fastest pace decline since July 2017, while labour cash earnings rose 0.7% y/y, as expected. We also heard from PBoC Governor Zhou, who said the Chinese economy will rely less on quantitative stimulus, adding the fall in M2 growth may not necessarily lead to liquidity constraints. Zhou stated using the yuan in investment and trade settlement, commodity pricing internationally will be a long-term process, adding yuan internationalisation cannot be forced. Meanwhile, PBoC Deputy Governor Yi said China will hike rates will depend on real economic conditions, adding China’s real interest rates have been steady. At the Fed, Kansas City Fed Governor George said it is important to continue hiking interest rates, adding she expects continued moderate economic growth and tighter labour markets. She stated she sees inflation hitting 2% this year and sees predominantly upside risks to her outlook. She mentioned fiscal policy is stimulative and monetary policy remains accommodative, adding asset prices may have become distorted by the Fed’s balance sheet.

Looking ahead, at 06:30 GMT, we get the BoJ press conference after its earlier monetary policy meeting conclusion, followed by German industrial production, trade balance, current account balance & labour costs and Norwegian CPI, followed by French industrial production, manufacturing production & budget balance at 07:45 GMT. Next at 08:00 GMT, we get Spanish industrial production, followed by Swedish average house prices & household consumption at 08:30 GMT. Then at 09:00 GMT, we get Italian PPI, followed by UK industrial production, manufacturing production, construction output & trade balance at 09:30 GMT. At 10:00 GMT, we get Greek CPI, followed by Irish new vehicle licenses at 11:00 GMT. Also of note, we get the BoI money and banks report at 10:00 GMT.

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