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RANsquawk week in Focus (week commencing 1 April 2019)

BREXIT:

UK MPs voted by a margin of 58 (344 vs 286) to reject PM May’s Withdrawal Agreement. In light of the rejection, the EU exit date becomes 12 April (vs 23 May, should it have been accepted). European Council President Tusk called an emergency EU summit on 10 April in light of the rejection, with the UK needing to explain its Brexit Plan B before 8 April, so leaders have time to give consideration (analysts are of the view that the EU would likely grant an extension to the Brexit process, but will want to see the UK present a concrete plan and participate in EU elections). A spokesperson said that it was almost certain the UK would now have to participate in the European election on 23-26 May. Attention shifts to Monday, where further indicative votes are expected, and UK PM May might have to re-think some of her red lines in order to bring some consensus among lawmakers, so she can take unified position to the EU in order to request the extension. Elsewhere, there has been some suggestion that the rejection opens the possibility of a general election; however, this does not appear to be a consensus view given that it would not provide any clarity for the process, and from a political perspective, risks unseating the Tories/DUP. There is also the possibility that May could bring her deal back to the floor to be voted on again, though at pixel time, it is not clear if there is appetite for this. It is unclear exactly what happens next, with certainty expected now in around a fortnight. Capital Economics says one of four things must happen: either May's deal is passed, the UK will have left the EU without a deal, the UK will have decided to stay in the EU, or another delay to the Brexit process will have been agreed.

US EMPLOYMENT SITUATION REPORT:

The Street looks for payroll growth to bounce back in March, with the consensus looking for 175k vs 20k in Feb. Bank of America's private payrolls tracker suggests a bigger gain of 292k in March. But the bank says that they are fading the strength as the tracker has tended to be smoother than the month-to-month changes in the Bureau of Labor Statistics (BLS) data, and has had a modest upward bias in estimating job growth from the BLS in the past 12 months. "That said, the strong reading from our private payroll tracker suggests that last month's slowdown in job gains may prove temporary and poses upside risks." Elsewhere, other data support the notion of a rebound; "weekly Initial jobless claims continue to track at low levels consistent with tight labor market conditions," BAML writes, "furthermore, the latest read from business surveys such as the Philly Fed and Empire State manufacturing surveys shows hiring activity remained robust throughout the month." The bank also sees the jobless rate holding at 3.8%, with BAML expecting the strong job gains to be offset by additional workers re-entering the labor market to look for work. On wages, BAML says "wage growth broke out in a meaningful way in February increasing by 3.4% yoy, reaching a new cyclical high," adding that it expects a continuation of the strong gains in March (BAML sees AHE +0.3% MM, +3.4% YY).

CHINA OFFICIAL PMIs:

On Sunday (Monday Asia time), China will release official NBS March manufacturing and non-manufacturing PMIs; the street is only looking for a small tick-up, the mfg seen rising 0.3 to 49.5, and the non-mfg is seen rising 0.2 to 54.5, likely underpinned by factory production returning to normal after the Chinese new year; last month's data also saw new orders rise, which could be a positive for production index in the March data. ING argues that the PMI data has shown clearly that the trade conflict has been adversely impacting the Chinese economy, which is in turn negative for global markets. The manufacturing gauge has been in the sub-50 contractionary territory since December, and it is seen remaining there in March; "Weak PMI surveys square with the hard data on industrial production showing a sharp slowdown in the first two months of the year," ING says, "which sets GDP growth on course for a further slowdown in 1Q19."

CANADIAN JOBS:

Following the bumper 55,900 rise in February, RBC's analysts look for a 10k decrease in March. The bank warns that although other gauges of the labour market have suggested strong job growth (the bank cites the SEPH survey, which showed 203k jobs added in the six months through January), RBC says the gains "remain at odds with GDP growth slowing (sub-1%) around year-end," and despite the fall in employment in March, the bank sees no change in the jobless rate, at 5.8%. It adds that average hourly earnings for permanent workers improved to 2.2% YY in February, and RBC is expecting another increase in the March data. As a side note, the bank makes the case that the 0.7% MM decline in hours worked in the February data "seems entirely due to an abnormally large loss of hours owing to weather (-1.0%), so we expect a strong bounce back in March." It is also worth noting that the jobs data will be released alongside the US employment situation report (Friday 1330BST/0830EDT), and as such, USDCAD traders will be focussing on the relative differentials between the report, given that it can inspire some choppy price action.

AUSSIE BUDGET:

The Aussie government is presenting its budget early, on 2 April, ahead of elections on either 11 May, or 18 May 2019. TD Securities is looking for an AUD 4bln surplus for the 2019/20 year (amounting to 0.2% of GDP), and a surplus of AUD 12bln for 2020/21 (which would be 0.6% of GDP). The bank estimates that net debt will have peaked at 18.5% of GDP last year, and it projects that outstanding Aussie bond issuance will rise from around AUD 533bln to around AUD 563bln by mid-2021. "These estimates are similar to MYEFO as we expect the AUD 4bln 'stronger economy' windfall (Feb to date) to be recycled back into the economy," TD says, "we expect the Budget to announce targeted welfare payments and deliver personal income tax cuts to middle/high income earners from 1 July." The bank also notes that fiscal surpluses in the out years rely on buoyant employment growth and commodity prices, and that while both have over-delivered in the last two years, the outlook is "less robust," going forward. However, given that politicians are in campaigning mode, "the government can proclaim that a 'strong economy' is delivering fiscal surpluses and tax cuts," and in contrast, the RBA is more cautious about the outlook. TD's preference is for fiscal stimulus to boost household spending, rather than rely on the RBA to lower the cash rate to attempt to lift spending and exacerbate already elevated debt levels."

RBA PREVIEW:

After the dovish pivot of many major central banks, of late, attention is on the RBA, to see if it follows suit. There is an expectation that the central bank will cut rates this year (Aussie bank Westpac reckons two cuts in 2019). The RBA certainly has enough ammo to make the pivot; GDP data for Q4 disappointed; some have questioned how the data is measured, particularly since nominal GDP was strong and accelerated through 2018, HSBC's RBA watcher Bloxham notes. Bloxham adds that, at the same time, the labour market has remained strong (jobs growth at 2.3% YY in Feb, with most of the gains in the recent report in the full-time jobs component); forward-looking labour market indicators also are positive, HSBC says. There is then the Federal Budget to consider, ahead of the May elections, which could see fiscal injections via tax cuts and government spending, which could support growth. The kicker, Bloxham says, is that "the bar for the RBA to cut the cash rate is very high." Bloxham explains that "the RBA would need to believe the unemployment rate was set to rise materially (perhaps to 5.5%) before we think they would consider a cash rate cut. At this stage, and given already low interest rates, fiscal stimulus to support growth may be more appropriate and, given the upcoming election, fiscal support seems likely." HSBC base case is that the RBA will be on hold through 2019 and that the next move is more likely to be up than down, albeit not until mid-2020. That isn't the consensus view, however. Westpac, for instance, looks for the RBA to adopt an easing bias after the May elections, and after it has cut its growth projections - the bank concedes that there may not be signs of this at the April meeting, and expects the affair to be rather low key, especially so given that the rate decision comes on the same day as the Federal budget.

RBI PREVIEW:

Some analysts are of the view that the Reserve Bank of India will cut rates at its policy meeting next week, by 25bps to 6.25%. While newswires do not yet have a consensus view for the meeting, analysts have pointed out that in the late February survey, the majority were looking for a rate cut before the end of Q2, which would suggest at either next week's meeting, or the June meeting. But ING notes that the central bank might be under pressure from the government to ease policy ahead of elections in May. "At the last meeting in early February, the RBI shifted its policy stance from a 'calibrated tightening' to 'neutral'. Yet it also cut rates by 25 basis points, catching the markets -- which had overwhelmingly expected no change -- off guard," ING writes. "The only supportive factor for the last rate cut was the falling current rate of inflation (CPI). But inflation expectations were still high and remained supported by loose fiscal policy and a weak currency (INR) - which were strong arguments against a rate cut." The bank makes the case that inflation has now bottomed, and the rise in February represents the start of a new uptrend. GDP data was in line in Q4, but there could be further downside in the current quarter; and on a geopolitical level, the US recently stripped India of the GSP preferential trade status, signalling a possible shift in the US trade battle from China to India, ING says. Additionally, the INR has benefited from the Fed's dovish pivot, and was among the top FX performers in March, all leaving scope for the RBI to ease.

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