- Weekly global market focus
- US/Chinese trade talks continue this week with Liu in Washington
- Important U.S. economic data today on retail sales and ISM manufacturing index
- UK Parliament today will hold another round of indicative Brexit votes
Weekly global market focus — The U.S. markets this week will focus on (1) Wednesday’s US/Chinese trade talks in Washington and whether the two sides are close to wrapping up a deal, (2) any shift in market expectations for Fed policy which now predicts one rate cut in 2019 and a second rate cut in 2020, (3) the extent of the U.S. economic slowdown with market expectations for Friday’s March payroll report to rebound higher to +175,000 from Feb’s very weak pace of +20,000, and (4) whether crude oil prices can extend last Friday’s rally to a 4-1/2 month high on strong OPEC+ compliance with its 1H2018 production cut agreement.
The European markets this week will focus on Brexit and a raft of European economic data. The market is expecting today’s Eurozone inflation data to remain weak with the Eurozone March CPI unchanged at +1.5% y/y and the core CPI edging lower to +0.9% y/y from +1.0%. The markets will also key on Friday’s German Feb industrial production report (expected +0.5% m/m and -1.4% y/y after Jan’s -0.8% m/m and -3.3% y/y) to see if the German manufacturing sector is starting to recover from its recent weakness. The markets will watch Thursday’s ECB March meeting minutes for any explanation for why the ECB delayed its TLTRO loans beyond what the market had expected and for any additional ECB thoughts on the extent of the current Eurozone economic slowdown.
The Asian markets this week will focus on Wednesday’s US/Chinese trade talks after the Shanghai Composite index last Friday rallied sharply by +3.2% on reports that an agreement might be close. The Chinese markets come into Monday on a positive note after Sunday’s favorable Chinese PMI reports. China’s national March manufacturing PMI rose +1.3 points to 50.5, stronger than market expectations of +0.4 points and vaulting back above the boom-bust level of 50.0 for the first time in four months. The March new exports sub-index rose by +1.9 points to 47.1 from Feb’s 9-year low of 45.2, illustrating some improvement in China’s export outlook. The March non-manufacturing PMI rose by +0.5 to 54.8, which stronger than market expectations of +0.1 point.
In other Asian and Pacific news this week, the Sunday night (ET) Japan Q1 Tankan large-manufacturer confidence index was expected to show a -5 point decline to 14 and the large non-manufacturing index was expected to fall -2 points to 22. The Australian central bank at its meeting on Tuesday is expected to leave its cash rate target unchanged at 1.5%.
US/Chinese trade talks continue this week with Liu in Washington — Chinese Vice Premier Liu will be in Washington on Wednesday for another round of US/Chinese trade talks. USTR Lighthizer and Treasury Secretary Mnuchin were in China last Thursday and Friday for talks. China’s official news agency Xinhua said that there was “new progress” at last Friday’s talks that centered on the wording of the agreement. The markets have become more optimistic that a US/Chinese trade agreement might be close after reports that the two sides are now focused on ironing out the substantive translation differences between the wording of the English and Chinese versions of the 120-page draft agreement.
Important U.S. economic data today on retail sales and ISM manufacturing index — The markets will carefully watch today’s U.S. economic data to see if Q1 GDP estimates need to be revised any lower than the current consensus of +1.5%. The market is particularly looking for any improvement in consumer spending, which has recently been weak and has dragged GDP estimates lower. The consensus is for today’s Feb retail sales report to show an increase of +0.3% and +0.4% ex-autos following Jan’s report of +0.2% and +0.9% ex-autos. On the manufacturing confidence front, today’s Mar ISM manufacturing index is expected to show a small recovery of +0.3 points to 54.5 after Feb’s sharp -2.4 point decline to 54.2.
UK Parliament today will hold another round of indicative Brexit votes — The UK Parliament today is expected to hold another round of indicative Brexit Plan B votes, such as whether to remain in the EU customs union or to hold a public referendum to affirm a final Brexit deal. Those two options fared the best in last week’s voting although both still fell short of majority approval. Parliament is trying to see whether there is any way forward on Brexit or whether Parliament is hopelessly deadlocked, requiring new elections. Prime Minister May herself hinted at the new elections last Friday when she said, “I fear we are reaching the limits of this process in this House.”
Parliament last Friday voted against Ms. May’s Brexit withdrawal agreement for the third time, although the margin of defeat was at least whittled down to 58 votes from 149 in the second vote and 230 in the first vote. Ms. May has until next Friday’s April 12 deadline to get her deal passed and she might yet bring it to a fourth vote.
If the UK Parliament cannot pass Ms. May’s Brexit separation agreement by next Friday (April 12), then there are only two outcomes — either a no-deal Brexit or a UK request for a long Brexit deadline extension. While no one wants a chaotic no-deal Brexit next Friday, there is still the possibility of that outcome because the EU will require the UK to hold EU elections on May 23, something that Ms. May has tried to avoid. In addition, some EU countries do not want to give the UK a long extension because of fears that the UK might stir up trouble if it remains in the EU Parliament. Indeed, the European Commission last Friday said that a no-deal Brexit is now “a likely scenario” and said that the EU is ready for that outcome.
Yet in the end, cooler heads are likely to prevail, and the UK will get its long Brexit extension. The EU will hold an emergency summit next Wednesday (April 10) to deal with Brexit.
