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Good Morning: The Long & the Short of it and The Bigger Picture - 27 March 2019 - ADM ISI





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Ostwald, Marc
09:00 (15 minutes ago)



to Marc






*************************************************************************
** Please note that due to holidays, the next update will be April 2nd **
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- Busy day for central bank speakers, above all ECB; digesting China
Industrial Profits and China Beige Book, along with RBNZ rate signal
shift; awaiting more surveys in Europe and US/Canada Trade; Germany and
US to auction govt bonds; Brexit indicative votes

- China: Industrial Profits slide exaggerated, but trend still very poor;
Beige Book offers some positives on pick-up getting traction, but...

- UK Brexit indicative votes: 'full of sound and fury....?'

- US Trade Balance: some modest narrowing expected on better agri and
energy exports

- Morning call audio:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-27-march/

..........................................................................

********************
** EVENTS PREVIEW **
********************

Central bank speakers, above all ECB, are likely to dominate today's proceedings, though there are also the as expected no change RBNZ decision and a speech by PBOC's Yi Gang at the Boao Forum to digest, with arch Fed hawk Esther George also on the schedule. Then there is the next round of the Brexit debate and votes in the UK's parliament, with the statistical schedule seeing a raft of surveys in the Eurozone and the UK, while US and Canada report (delayed) Trade data for January. Govt bond supply has Germany selling 10yr and the US offering 5-yr T-notes and 2-yr FRN. In terms of the overnight news flow, New Zealand's RBNZ effectively 'came off the fence' on the rate outlook, offering a clear signal that the next move in rates is likely to be down, citing weakness in the global economic outlook and domestic spending, though also noting some signs that domestic businesses were showing some willingness to pass through cost increases. The news from China (outside of the Boao forum) was mixed with a sharp 14.0% y/y fall in Industrial Profits being clearly exaggerated by Lunar New Year base effects, but even without this, the trend is negative, which above all bodes poorly in terms of companies being able to service, let alone pay down the high volume of debt that has been accumulated. Rather more encouraging was the Q1 China Beige Book report which noted a very clear pick-up in economic activity during the quarter, but noting that this was very much due to a 'credit soaked' quarter, and also suggesting that this would need to be sustained if the upturn is to be sustained, and also highlighting that while credit was much more freely available, it remained expensive.


** U.S.A. - Jan Trade Balance **
- The Trade Balance is seen narrowing to a $-57.5 Bln deficit from December's bumper $-59.5 Bln, with a modest boost to some agricultural exports to China, along with continued growth in energy exports likely to account for that expectation. The more complex question is the extent to which imports (and indeed exports) may have been impacted by the government shutdown. It will also offer an initial sighting shot on what sort of contribution or deduction Net Exports may make to Q1 GDP.

** U.K. - Brexit 'indicative votes **
- A noted previously, today's series of indicative votes on alternatives to the May Withdrawal Agreement will likely put most options on the table, and by dint of that fact will also not produce a majority for any of them. It would de facto require a leadership style election process to achieve a majority, i.e. eliminating the least popular options before going to a second and probably third round to establish a compromise option. But with so little time available, and the fact that it would be an indicative vote only, and thus offering no guarantee that it would be adopted as government policy, though it could possibly serve as the basis for some changes to the 'Political Declaration'. Per se the fact of the matter is that this will ultimately probably achieve very little, it does NOT remove the risk of accidental hard Brexit, which requires parliament to vote for something, or a third vote on May's Withdrawal agreement (for which there still does not appear to be a majority despite the shifts from some ERG members), and indeed it could still open the way to a snap general election.
 
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