“But perhaps the market is giving this phenomenon too much weight in terms of the actual risk it poses for the US economy. And it’s not only the market that remains on knife-edge about this issue.”
Mr Porcelli pointed to a survey by the Wall Street Journal in which nearly half of economic prognosticators see “trade policy or China” as the biggest risk to the US outlook.
“The real effect is likely to be quite modest,” Mr Porcelli said. “We re-ran a VAR impulse/response simulation and it shows that a 1 standard deviation shock to US import prices from China (which is about 0.23% m/m) has about a 0.01% impact on US Core PCE inflation.
“In other words, an across-the-board 23% increase in Chinese import prices to the US lifts core PCE inflation by about 1% — theoretically.
“The standard error is large enough that we cannot rule out the impact is actually zero. While tariffs are indeed a “tax” on US consumers, it is not clear that they have a one-for-one relationship with import prices as evidenced by the y/y declines in China import prices to the US over recent months. We think the China trade risk to the US comes more from an overreaction in US equity markets (that then flows through to tighter financial conditions, softer confidence, and that dreaded negative wealth effect) than any significant static impact on GDP. “
In London, PM Theresa May continued to increase pressure on members of parliament to support her Brexit deal. Just 15 days before Britain is due to leave the European Union, May is using the threat of a long delay to push Brexit supporters in her Conservative Party finally to back her deal.
MPs crushed a resolution calling for a second referendum, by 334 votes to 85 – a majority of 249.
Separately, MPs voted to extend Brexit beyond March 29.
MPs approved by 412 votes to 202 a statement setting out the option to request a short delay if a Brexit deal can be agreed by March 20 — or a longer delay if no deal can be agreed in time.
A new vote on Mrs May deal is likely next week, when those MPs will have to decide whether to back a deal they feel does not offer a clean break from the EU, or accept that Brexit could be watered down or even thwarted by a lengthy delay.
Local data: NZ BusinessNZ manufacturing PMI February
Overseas data: China new home prices February; Bank of Japan policy meeting; Euro zone CPI February; US NY Empire manufacturing March, Industrial production February, UoM consumer sentiment March, Total net TIC flows January
Capital Economics on the BoJ: “… we expect the Bank of Japan to keep both its yield-curve and interest rate targets unchanged. The Bank may respond to weak activity data by increasing its ETF purchases, but this would be a largely symbolic measure. Many board members remain concerned that prolonged easing could harm financial stability.”
SPI futures up 13 points or 0.2% to 6200 about 7.10am AEDT
AUD -0.4% to 70.65 US cents
On Wall St at near 4pm: Dow flat S&P 500 -0.1% Nasdaq -0.2%
In New York, BHP -1.2% Rio -0.1% Atlassian +1.8%
In Europe: Stoxx 50 +0.6% FTSE +0.4% CAC +0.8% DAX +0.1%
Spot gold -1% to $US1295.85 an ounce at 1.38pm New York time
Brent crude -0.4% to $US67.29 a barrel
US oil +0.5% to $US58.56 a barrel
Iron ore +2.9% to $US87.26 a tonne
Dalian iron ore +0.7% to 622 yuan
LME aluminium -0.2% to $US1903 a tonne
LME copper -1.1% to $US6404 a tonne
2-year yield: US 2.46% Australia 1.58%
5-year yield: US 2.43% Australia 1.59%
10-year yield: US 2.63% Australia 1.97% Germany 0.08%
US-Australia 10-year yield gap as of 7.10am AEDT: 66 basis points
From Today’s Financial Review
ACTU to wield $1.4trn in workers’ super: ACTU president Michele O’Neil said the business elite was “afraid” working people might realise they had the power, via industry super funds, to control decision making by companies.
Chanticleer: Nothing fishy in Nufarm’s omega-3: Crop protection company Nufarm could be sitting on a $1 billion omega-3 gold mine.
Swiss probe into UBS’ controversial $1.2b PNG loan: One of UBS Australia’s most lucrative financing deals is being investigated for possible breaches of Swiss law, after a controversial $1.2 billion loan to Papua New Guinea left the Pacific nation with heavy losses.
The S&P 500 slipped on Thursday, snapping a three-day streak of gains, as uncertainty over when a trade deal between the United States and China would be reached left investors on edge.
President Donald Trump and Treasury Secretary Steven Mnuchin’s discussions with China to end a months-long trade war are progressing quickly, though Trump said he could not say whether a final deal would be reached.
He and Chinese President Xi Jinping had been expected to hold a summit in Florida this month, but no date has been set. A person familiar with the matter told Reuters there “were rumblings” about a possible meeting late next month.
Bloomberg reported on Thursday that a meeting between the two was more likely to take place in April at the earliest.
Chipmakers, which rely on China for a large portion of their revenue also lost ground with the Philadelphia SE chip index off 0.6 per cent.
“The good news is mildly negative news on China trade doesn’t tip the apple cart over anymore,” said Art Hogan, chief market strategist at National Securities in New York.
“But breaking out of the next level of resistance has been a wall to get through. It shows we’re probably range-bound 2750 to 2800 until we get answers to China trade, Brexit etc.”
A Commerce Department report showed sales of new US single-family homes fell more than expected in January, suggesting the housing market weakness persisted early in the first quarter.
British PM resurrects her Brexit deal: Despite two huge parliamentary defeats Theresa May is set to resubmit her deal to MPs for a third time next week.
European shares rose to a five-month high on Thursday, boosted by strength in the banking sector after Britain’s parliament voted to reject a disorderly Brexit.
Sentiment improved from cautious to upbeat after the open, ahead of another vote on Thursday evening that could delay Britain’s planned departure from the European Union.
The pan-European STOXX 600 ended up 0.7 per cent, while British blue chips rose 0.5 per cent.
“We now see a 60 per cent chance (up from 55 per cent) that a close variant of the prime minister’s current Brexit deal is eventually ratified,” Goldman Sachs analysts wrote. The probability of a no-deal Brexit was now 5 per cent, they said.
Leonardo scored its best day in more than 7 years, up 13 per cent, recouping some of its steep losses since January 2018, after the Italian defence group said net profit surged and it saw sales rising in 2019.
Germany’s GEA rose 11 per cent after its CEO said it will announce changes to its structure in June, while France’s Lagardere gained 8 per cent after giving more details about its divestment plans.
Among the fallers, Lufthansa posted the worst performance after reporting an 11 per cent decline in fourth-quarter operating profits. Its shares fell 6.3 per cent.
A meeting between President Donald Trump and President Xi Jinping to sign an agreement to end their trade war won’t occur this month and is more likely to happen in April at the earliest, three people familiar with the matter told Bloomberg.
Gary Cohn, the former head of Trump’s National Economic Council, said the US is “desperate right now” for a trade pact with China.
“The president needs a win,” Cohn said in an interview with the Freakonomics podcast, according to a transcript released Wednesday.
Cohn’s comments stand in contrast to statements from Trump that he’s in no rush for an agreement and is prepared to walk away from negotiations. Trump said Wednesday that a deal has to be “right” and that it must include provisions stopping the theft of US intellectual property.
“I’m not in a rush whatsoever,” Trump told reporters at the White House.
Hong Kong stocks edged higher on Thursday after China reported stronger-than-expected investment in its slowing economy, but a weaker industrial output growth limited the gains. The Hang Seng index ended 0.2 per cent higher at 28,851.39 points. The Hang Seng China Enterprises index rose 0.4 per cent.
China’s industrial output rose 5.3 per cent in the first two months of the year, the National Bureau of Statistics said, less than expected and the slowest pace since early 2002. However, investment picked up speed as the government fast-tracked more road and rail projects, and more monetary policy support is expected this year.
China’s main Shanghai Composite index closed down 1.2 per cent at 2990.69 points, while the blue-chip CSI300 index ended down 0.7 per cent.
Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.1 per cent, while Japan’s Nikkei index closed pretty much flat.
NAB on sterling: “GBP received a minor fillip on news of approval of the government’s motion, but ‘cable’ was up by no more than 20 pips and has now given back those gains and then some, hinting at a speculative market already long GBP and failing to find follow-through on the news.
“Our view is that there is still plenty of upside potential for GBP from here, but still just enough uncertainty around for there to be no rush to fully price in either a soft Brexit (and quite conceivably softer than implied by May’s own withdrawal agreement) or indeed no Brexit. This is in part since the tail risks of an eventual no-deal Brexit and/or a snap General Election, still cannot be completely eliminated.”
TD sees potential for rate cut in Canada: “We argued last week that the BoC would not be able to hike in 2019. Building on that analysis, we are changing our view for 2020; even with a decent rebound in growth, we now expect the overnight rate to remain at 1.75% through all of 2020 as well.
“We believe Governor Poloz when he says the Bank is data dependent, and experience supports that assertion. Looking at the recent evolution of the data, near-term risks skew decisively towards easing. If the BoC moves in 2019, it is more likely to be a cut.”
OPEC builds case for keeping supply cuts: In a monthly report, OPEC said 2019 demand for its crude would average 30.46 million barrels per day, less than forecast last month and below current output.
Benchmark iron ore futures in China climbed to their highest in more than a week on Thursday as steel mills continued to buy raw materials, but the uncertain outlook for the country’s steel demand capped further gains.
Steel prices fell, with construction steel rebar retreating after two days of gains.
The May 2019 iron ore contract, the most active on the Dalian Commodity Exchange, ended the session up 2.7 per cent at 626.5 yuan ($US93.33) a tonne, the highest close since March 4 and just below the day’s high of 628 yuan.
Australian shares rallied late to end a four-day losing streak on Thursday as the market digested the latest Brexit vote results and Chinese economic data.
The S&P/ASX 200 Index rose 18.4 points, or 0.3 per cent, to 6179.6 while the broader All Ordinaries closed 20.8 points, or 0.3 per cent, higher at 6266.8.
with Reuters, Bloomberg, AAP
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