Heads up for Tuesday in Germany – court decision could place limits on ECB action

Coming up today, 5 May 2020 ,Germany’s constitutional court (in Karlsruhe) will announce its decision on whether the ECB’s public sector purchase QE program is legal under German law.

It seems likely the decision will accept the program as legal but it could nevertheless impose restrictions on what the ECB does
  • ie. it may impose conditions for the ECB’s sovereign bond purchases that could impact the flexibly of policy.
Could be a EUR negative or at least prompt some volatility. A heads up.
Coming up today, 5 May 2020 ,Germany's constitutional court (in Karlsruhe) will announce its decision on whether the ECB's public sector purchase QE program is legal under German law.

The earnings calendar for next week includes Netflix, IBM, Intel, and American Express

A lot of the big names are still ahead but some interesting names reporting next week

Tuesday, January 21
  • UBS
  • Netflix
  • United Airlines
  • Capital One
  • IBM
Wednesday, January 22
  • Abbott
  • Johnson & Johnson
  • Texas Instruments
Thursday, January 23
  • Comcast
  • P&G
  • Intel
  • American Airlines
  • Kimberly-Clark
Friday, January 24
  • American Express
  • synchrony

Chinese diplomat: A trade deal with us needs mutual respect, equality

Comments by Chinese diplomat, Lu Kang, on trade


This is a similar message to what the foreign ministry delivered earlier today here.

Part of me thinks that they are hinting at something – perhaps they still don’t see the tariffs exchange for their firm commitments as being on equal terms. But it could also be just some neutral messaging in trying not to reveal anything just yet.
If we do see a trade deal struck, I reckon both sides will be able to keep a trade truce for a good few months – or even up to a year – but eventually, either one will start alluding to the other “not living up to the bargain” and that is when the war begins again.

Key events and releases next week

Key events and releases for the week starting November 18

Monday, November 18
  • US NAHB housing market index, 10 AM ET. Estimate 71 versus 71 last
  • Fed’s Mester speaks at University of Maryland, 2 PM ET/1700 GMT

Tuesday, November 19

  • RBA monetary policy meeting minutes, 7:30 PM ET (Monday)/0030 GMT
  • Canada manufacturing sales, 8:30 AM ET/1330 GMT.  Estimate -0.5 versus +0.8 last month
  • US building permits and housing starts, 8:30 AM ET/1330 GMT. Building permits estimate 1385K.  Housing starts 1320K
  • FOMC member William’s speaks, 9 AM ET/1400 GMT.  Speaking at Capital Market conference
  • New Zealand global dairy trade price index, tentative
  • BOC member Wilkins speaks, 1 PM ET/1800 GMT
Wednesday, November 20
  • Japan trade balance, 6:50 PM ET/2350 GMT (Tuesday). 301.0 billion versus -124.8 billion
  • Canada CPI, 8:30 AM ET/1330 GMT.  YoY estimate 1.9% versus 1.9%
  • FOMC meeting minutes, 2 PM ET/1900 GMT
Thursday, November 21
  • ECB monitor policy meeting report, 7:30 AM ET/1230 GMT
  • US Philly Fed manufacturing index, 8:30 AM ET/1330 GMT. Estimate 6.6 versus 5.6 last month
  • Initial jobless claims, 8:30 AM ET/1330 GMT. Estimate 219K vs 225K last week
  • US existing home sales, 10 AM ET/1500 GMT.  Estimate 5.5M vs 5.38M last
Friday, November 22
  • Australia flash manufacturing/services PMI, 5 PM ET (Thursday)/2200 GMT (Thursday).  Last month manufacturing 50.0.  Services PMI 50.8 last month
  • Japan CPI data, 6:30 PM ET (Thursday)/2330 GMT (Thursday).  YoY 0.3% versus 0.2% last
  • Japan flash manufacturing PMI, 7:30 PM ET/0030 GMT
  • German final GDP 3Q, 2 AM ET/0700 GMT
  • ECB Pres. Lagarde speaks, 3 AM ET/0800 GMT
  • France PMI data, 3:15 AM ET/0815 GMT
  • German PMI data, 3:30 AM ET/0 830 GMT
  • EU PMI data, 4 AM ET/0900 GMT
  • Canada retail sales, 8:30 AM ET/1330 GMT. Estimate -0.1% versus -0.1% last month
  • US Markit manufacturing/services PMI, 9:45 AM ET/1445 GMT.  Services estimate 51.5 versus 51.0 last month. Manufacturing 51.5 versus 51.3 last month
  • University of Michigan consumer sentiment (final), 10 AM ET/1500 GMT. Estimate 95.7 versus 95.7 preliminary

Highlights in the Week Ahead

Three events that will capture the market’s attention next week:  The consequences of the Japanese election, the first look at US Q1 GDP, and the ECB meeting.  The central banks of Turkey and Russia also meet. Both are expected to cut interest rates, following rate cuts in the middle of last week by South Korea, Indonesia, and South Africa.
Japan goes to the polls on July 21 to elect the upper chamber of the Diet.  There is little doubt that the LDP-Komeito coalition will retain its majority.  The real issue is whether it keeps its 2/3 super-majority, which allows it to pursue constitutional changes.  The economy itself is struggling, and the sales tax increase in October is unpopular.  In addition, news of a (~JPY20 mln or $185k) gap between pension payouts and the cost of a 30-year retirement is seen as due to longevity more than low returns savings but does not sit well in either case.  The opposition is weak and divided, and there is much pride attached to hosting the Rugby World Cup in September and the Olympics next year.
The recent Tankan Survey showed sentiment among large manufacturers stood at three-year lows at the end of June.  The government reported a larger than expected year-over-year decline in exports–for the seventh consecutive month. The Bank of Japan has reduced its bond purchases with little fanfare, while its equity purchases dominate the ETF space.  There is no exit strategy in sight.  Indeed, it seems more likely that it steps up its JGB purchases again if the government debt finances a supplemental budget to blunt the effect of the sales tax increase.  Before the weekend, Japan reported that its core measure of CPI, which excludes fresh food, fell to 0.5% in June, a two-year low.
Regardless of the results of the election, just getting it over will impact the agenda.  The US-Japanese trade talks will turn more serious.  At first, the US seemed to want a comprehensive agreement, but now it appears it wants to show positive results.   Due to Japanese trade agreements under the TPP and the EU, US farmers are at a commercial disadvantage.  It has not been clear what Japan wants in exchange, but some have suggested reduced tariffs on auto parts.  Abe interest is projecting Japan’s power dovetails with Trump’s push that greater burden-sharing, including protecting oil tankers in the Gulf.
Perhaps with the election behind him, Prime Minister Abe will be in a better position to have a rapprochement with South Korea.  The issue has been escalating since Moon Jae-in took office in 2017 and distanced his administration from the 2015 agreement about Japan’s apology and compensation.  At the start of this year, Korea’s high court allowed the seizure of the assets of a Japanese corporation for compensation for forced labor.
The shape of Abe’s response, a licensing process for South Korea companies who buy semiconductor and display materials from Japan on national security grounds, may have been influenced by the US precedent.  In fact, it was likely that the US was notified beforehand.  Although the US helped broker earlier agreements between its two allies, like one in 1965, the US has shown little interest in mediating.  Abe could still ratchet the pressure up a notch as early as next month by removing South Korea from its list of countries with privileged access to Japan’s exports.  This would broaden Japan’s impact and notably include auto parts.


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