Global Economic Headlines (13/4/18)

• WTO says global trade growth strong but at risk if conflict escalates
• OPEC sees oil markets tighten further even as US shale booms
• China’s exports unexpectedly fall in March but Q1 trade surplus with US soars
• Singapore central bank’s first tightening in 6 years comes with trade warning
• ECB frets over euro strength, trade war risks
• German March CPI confirmed at 1.6%, HICP at 1.5%

Top Two Stories

WTO says global trade growth strong but at risk if conflict escalates
World trade in goods is maintaining a robust recovery, but it still might falter if trade tensions escalate further, the World Trade Organisation (WTO) said in its annual forecast on Thursday. Trade in goods will grow 4.4% this year after a decade averaging 3.0% a year, following the financial crisis. Last year it grew 4.7% – much higher than the 3.6% forecast in September – and a further 4.0% rise is expected in 2019, the WTO said. “However, this important progress could be quickly undermined if governments resort to restrictive trade policies, especially in a tit-for-tat process that could lead to an unmanageable escalation,” WTO Director-General Roberto Azevedo said in a statement. “A cycle of retaliation is the last thing the world economy needs.”
The WTO’s 2018 forecast puts world trade growth at the top end of previous expectations, since the organisation said last September that it expected 2018 growth of 1.4% to 4.4%, most likely around 3.2%.

OPEC sees oil markets tighten further even as US shale booms
The global oil stocks surplus is close to evaporating, OPEC said on Thursday, citing healthy energy demand and its own supply cuts while revising up its production forecast from rivals who have benefited from higher oil prices. US shale oil output has been booming over the past year since OPEC reduced its own production in tandem with Russia to prop up global oil prices. But as oil production collapsed in OPEC member Venezuela and is still facing hiccups in countries such as Libya and Angola, the oil exporters’ group is still producing below its targets meaning the world needs to use stocks to meet rising demand.
The Organisation of the Petroleum Exporting Countries said in its monthly report that oil stocks in the developed world reversed a rise in January to fall by 17.4 million barrels in February to 2.854 billion barrels, around 43 million barrels above the latest five-year average.

Bond Market

US Treasuries
Treasury yields climbed on Thursday as risk appetite improved, and geopolitical tensions eased after President Donald Trump said a possible attack on Syria may not be imminent, contrary to what he signalled on Wednesday. Over the last couple of sessions, the US bond market has traded off political and international headlines, temporarily superseding economic data. Even though the overall trend for yields remains higher, the recent movements have been narrow and contained. Trump’s latest comment pushed the 10-year note yield to a one-week high, after a lacklustre auction of the security on Wednesday.

Eurozone Bonds
On the supply front yesterday, Italy sold €9.17bn in bonds maturing in 2021, 2025, 2038 and 2048. Italian debt has outperformed its peers recently, with the premium investors demand to hold Italian 10-year bonds over top-rated German debt currently at 130 basis points, close to its tightest level since 2016. Meanwhile, the European Central Bank lowered the ceiling on emergency liquidity assistance (ELA) Greek banks draw from the domestic central bank by €1.9bn to €14.7bn, the Bank of Greece said yesterday. The move reflected improved liquidity conditions, taking into account private-sector deposit flows and banks’ access to financial markets, it said. Greek banks have relied on emergency liquidity assistance since February 2015 after being cut off from the ECB’s funding window. Emergency funding is costlier than borrowing directly from the ECB. In June 2016, the ECB reinstated Greek banks’ access to its cheap funding operations, allowing lenders to reduce their dependence on the emergency liquidity lifeline.

Gilts
Britain’s economy has been treading water since the start of the year and inflation pressures are easing, limiting the case for the Bank of England to raise interest rates next month, according to the British Chambers of Commerce (BCC). The BCC’s latest quarterly economic survey – the largest of its kind – showed a familiar picture of lacklustre domestic demand, only partly mitigated by the boost to foreign demand from the fall in the value of the pound since June 2016’s “Brexit” vote. Britain’s economy recorded the weakest year-on-year growth of any major economy in late 2017, as consumers struggled with higher inflation caused by the weak pound, and more recent official data point to a further slowdown in early 2018. However, the Bank said in February that the economy was close to reaching its capacity to grow without generating excessive inflation, leading investors to predict that a rate-rise is coming next month. Two of the Bank’s nine policymakers voted for a rate-rise at their last meeting in March, citing evidence of rising domestic inflation pressures in business surveys. The BCC said this was not the experience of its members. Fewer firms expect to raise prices than in late 2017, and rising pay demands from workers were a problem for under a quarter of businesses, the survey showed.

Other Bonds
The Hong Kong dollar has fallen to a 35-year low this week, hitting 7.85, the weakest end of the monetary authority’s targeted trading band amid persistent downside pressure as the interest-rate gap between US and Hong Kong dollars widen further. The former British colony pegs its currency to the greenback, and so its money market rates mirror those of its US counterparts. The gap between the two has widened as the Federal Reserve has continued to raise interest rates over the past two years, moving away from the emergency stimulus measures following the 2008 financial crisis. Most market participants do not see this bout of weakness as a threat to the currency peg even though ample liquidity, thanks to inflows from Chinese investors and overseas into Hong Kong’s domestic markets, is anchoring short-term interest rates and exerting depreciation pressure on the currency. The Hong Kong Monetary Authority, the city’s de facto central bank, has pegged the local currency at 7.8 to the greenback since 1983. Since May 2005, it has been allowed to move between 7.75 and 7.85. The authority last night moved to prop up the currency by selling $104m at 7.85.

Key Economic Indicators of the Day
Time (BST) Country Release Period Merrion Market Last
9.30 Italy General Government Debt February €2,600bn €2,500bn €2,279.9bn
10.00 Eurozone External Trade Balance February €20.9bn €20.2bn €19.9bn
15.00 US JOLTS Job Openings February 6,100k 6,065k 6,312k
15.00 US University of Michigan
Consumer Sentiment April
Provisional 100.0 100.5 101.4

Key Economic Speeches/Events of the Day
Time (BST) Country Event
7.00 Sweden Riksbank Deputy Governor Martin Floden speaks in Stockholm
11.30 Norway Norges Bank’s Oystein Olsen and Egil Matsen speak in Tromso, Norway
12.00 Eurozone ECB President Mario Draghi speaks in Frankfurt
12.30 US Boston Fed President Eric Rosengren speaks in Boston
14.00 US St. Louis Fed President James Bullard speaks in St. Louis
18.00 US Dallas Fed President Robert Kaplan speaks in Odessa, Texas

Today’s Debt Auctions/Buybacks/Announcements
Time (BST) Country Auction
11.00 UK DMO sells £500m of 28-day T-bills; £1bn of 91-day T-bills and
£1.5bn of 182-day T-bills
11.30 Iceland Iceland sells 7.25%, 2022 bond
12.30 Iceland Iceland sells 5%, 2028 bond

Alan McQuaid (13/4/18)
Economist