Posts Tagged ‘Interest Rates’

Trade-Talk Progress Lifts U.S. Stocks

December 12, 2018
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*Stock Futures Rise on WSJ Report That China Plans to Boost Access for Foreign Companies

*S&P Futures Up 1.3% Vs. 0.9%

*DJIA Futures Up 1.4% Vs. 0.9%

(This article will be updated)

Global stocks gained Wednesday on a fresh wave of trade optimism and climbing oil prices, shrugging off a leadership challenge against U.K. Prime Minister Theresa May.

U.S. futures put the S&P 500 and the Dow Jones Industrial Average on course to rise 1% at the open, with trade-sensitive stocks like Caterpillar and Cisco up 2% and 1.1% in premarket trade, respectively. Meanwhile rising oil prices helped push Exxon Mobil stock 2.1% higher ahead of the market open.

Brent crude oil prices rose 1.6% to $61.18 a barrel and West Texas Intermediate Futures were up 1.5% at $52.58 a barrel, after weekly American Petroleum Institute figures released Tuesday revealed a larger-than-expected fall in U.S. inventories.

Stocks in Europe built on Tuesday’s gains, with the pan-continental Stoxx Europe 600 index up 1.3% in afternoon trade, while the British pound edged up 0.7% but remained near its lowest level in 20 months.

Lawmakers in the U.K.’s ruling Conservative party initiated a no-confidence vote against Mrs. May. On Monday, she postponed a parliamentary vote on her Brexit bill, which prompted a new volley of criticism over her handling of the country’s exit from the European Union. The yield on U.K. 10-year government bonds was at 1.23%, up from 1.18% late Tuesday. Yields rise as prices fall.

Traders at the New York Stock Exchange on Tuesday.
Traders at the New York Stock Exchange on Tuesday. PHOTO: BRENDAN MCDERMID/REUTERS

Rises in European stocks echoed gains in Asia, where the Nikkei climbed 2.2% and Hong Kong’s Hang Seng Index rose 1.6% as signs of a further softening in trade tensions revived risk appetite. Benchmarks in Taiwan, South Korea and Singapore all increased more than 1%.

Details continued to emerge from the first trade talks between Washington and Beijing, with China agreeing to boost purchases of soybeans and other crops, and to reduce auto tariffs.

The warming in U.S.-China trade relations has prompted cautious optimism among some investors, said Viktor Hjort, global head of credit strategy at BNP Paribas.

“A resolution on global trade is one of the most important issues for markets going into 2019,” Mr. Hjort said. “The positive angle is that U.S. and Chinese negotiators appear to be making an effort, but I think at this point, any absence of bad news is good news.”

President Trump said in an interview with Reuters he would intervene in the Justice Department’s case against Huawei Chief Financial Officer Meng Wanzhou if it would help smooth a trade deal with China. Ms. Wanzhou was granted bail by a Canadian judge Tuesday, after her arrest last week sent shock-waves through global stocks.

Uncertainty around trade will remain elevated, though, with technological and intellectual property disputes between Washington and Beijing unlikely to die down despite more conciliatory rhetoric, said Ann-Katrin Petersen, investment strategist at Allianz Global Investors.

The Chinese yuan was last up 0.1% against the U.S. dollar. The WSJ Dollar Index, which measures the buck against a basket of other currencies, was up 0.2%, its five-day gains eroded to 0.4%.

U.S. investors were also keeping an eye out for inflation data, due out later in the day. It comes a day after producer price data, another gauge of inflation, signaled a third straight monthly rise. The numbers will be scrutinized in the context of next week’s Federal Reserve meeting, at which investors broadly expect Chairman Jerome Powell to raise interest rates.

CME Group data gave a 78.,4% probability that Mr. Powell will announce an interest-rate increase.

Market participants will closely monitor the no-confidence vote on U.K. Prime Minister Theresa May’s leadership later Wednesday, although British assets’ initial reaction to the announcement was muted. The U.K.’s FTSE 100 index was last up 1.3%, broadly in line with gains elsewhere in Europe, while the FTSE 250 was up 1.2%.

More volatility may be ahead for U.K. assets, though, with some analysts seeing the confidence vote as a binary event for sterling.

Wednesday’s vote is the latest in a series of developments that have prompted investors from outside the U.K. to limit their exposure to Brexit uncertainty in recent months, said Emmanuel Cau, head of European equity strategy at Barclays.

“Global investors have left the U.K. equities and FX markets and not many people have the ability to trade on what’s going to happen,” said Mr. Cau. “In this particular situation, nobody’s been able to make forecasts so they’ve stopped trying.”

A victory for Mrs. May could prompt a rally as large as 2% for the pound, while defeat would shave off another 3%, Nomura said in a note.

Elsewhere in Europe, investors monitored the reaction to French President Emmanuel Macron’s decision to cut taxes in the wake of protests. The move may test the EU’s budgetary rules and embolden other members, such as Italy, to do the same.

In commodities, gold was up 0.2% at $1,249.50 a troy ounce.

Write to David Hodari at David.Hodari@dowjones.com

https://www.wsj.com/articles/trade-talk-progress-lifts-global-stocks-11544606026?mod=hp_lead_pos3

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U.S. Adds Below-Forecast 155,000 Jobs as Wage Gain Misses

December 7, 2018
  • Monthly earnings increase 0.2%, compared with 0.3% forecasts
  • Unemployment rate holds at 3.7%, lowest level since 1969
U.S. Adds 155,000 Jobs in November, Jobless Rate Holds Steady at 3.7%

U.S. jobs and wages rose by less than forecast in November while the unemployment rate held at the lowest in almost five decades, indicating some moderation in a still-healthy labor market.

Image result for U.S. Auto workers, factory, photos

Nonfarm payrolls increased by 155,000 after a downwardly revised 237,000 gain in the prior month, a Labor Department report showed Friday. The median estimate in a Bloomberg survey called for an increase of 198,000. Average hourly earnings rose 0.2 percent from the prior month, compared with forecasts for 0.3 percent, though wages matched projections on an annual basis, up 3.1 percent for a second month.

Treasury yields initially dipped and the dollar declined as the report added to signs that economic growth is cooling a bit, following weakness in business-equipment orders and an ebbing of consumer optimism. While the data may spur more concern over the outlook after stocks and bond yields tumbled this week, some investors may see the prospect of a slower pace of Federal Reserve interest-rate increases as a positive following an expected hike this month, as equity futures rose following the jobs data.

“It’s not like 155,000 is a terrible number, but it’s below what people were looking for,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. After an unusually strong two quarters for the economy, “we’re looking for growth to step down this quarter and you should probably also expect to see the labor market cool off some. It’s consistent with the economy coming off what people call a sugar rush.”

For the Fed’s interest-rate hikes, “December is pretty close to a done deal,” Feroli said. “For next year, it depends what the data looks like the next couple of months. It doesn’t feel like things are softening in an alarming way. If it’s really soft, they’ll take a break.”

The jobless rate was unchanged at 3.7 percent in November, matching estimates. Fed Chairman Jerome Powell said late Thursday that the U.S. labor market is “very strong” by many measures and that the economy is “performing very well overall.”

Even so, one key risk is the trade war between the U.S. and China, the world’s two largest economies. While the nations agreed last weekend on a 90-day pause for new tariffs, the accumulated levies and developments have created uncertainty for companies and may weigh on the employment outlook.

Retail Payrolls

Retailers showed solid demand for workers overall, hiring 18,200 people in the month before Christmas; general-merchandise stores added the most employees while clothing and electronics stores cut workers. Transportation and warehousing, a category closely linked to retail, also saw gains of 25,400 in the month.

Construction jobs rose by 5,000, the weakest since a decline in March, as gains cooled among residential specialty trade contractors. Manufacturing remained strong at an increase of 27,000.

The monthly gain in average hourly earnings for all private workers followed a downwardly revised 0.1 percent increase, the report showed. The annual increase topped 3 percent for a second month, reflecting how companies are steadily raising pay to attract and retain workers as the availability of workers tightens.

The gains probably still aren’t fast enough, though, to spur concerns of runaway inflation among Fed officials. While the unemployment rate is well below the level that central bankers consider sustainable in the long run, inflation has remained close to the central bank’s target, leading some to question whether the Fed should keep raising interest rates.

Here are other highlights from the report:

Payrolls

  • Revisions subtracted 12,000 jobs from payrolls in the prior two months, resulting in a three-month average gain of 170,000.
  • Private payrolls rose by 161,000, compared with the median estimate for 198,000; government payrolls decreased by 6,000.
  • Service providers added 132,000 jobs, including 40,100 in health care and social assistance. The 32,000 gain in professional and business services was the smallest since December 2017.

Wages

  • Average hourly earnings for production and non-supervisory workers increased 3.2 percent from a year earlier, following 3.2 percent in the prior month.
  • The average work week decreased to 34.4 hours from 34.5 hours in the prior month; a shorter workweek has the effect of boosting average hourly pay.

Households

  • The participation rate was unchanged from the prior month at 62.9 percent. The measure tracks share of working-age people either with jobs or actively looking.
  • The employment-population ratio, another broad gauge of labor-market health, was unchanged at 60.6 percent.
  • The U-6, or underemployment rate, rose to 7.6 percent from 7.4 percent. This measure includes part-time workers who want a full-time job and people who are less active in seeking work.

https://www.bloomberg.com/news/articles/2018-12-07/u-s-payrolls-rise-below-forecast-155-000-as-wage-gain-misses

Related:

U.S. Stock Futures Buck Rebound in Europe and Asia

December 7, 2018
  •  Yield on 10-year Treasuries falls to 2.88%; crude retreats
  •  Italy bonds climb; emerging-market shares edge up; gold rises
Image result for Jamie Dimon, bloomberg, pictures
The Key Clues to Look for in the November Jobs Report

European stocks rebounded from the worst day in more than two years and Asian shares posted modest gains as investors sought to end a bruising week on a more upbeat note. Signs of stress remained, however, as U.S. equity futures declined and Treasuries rose.

The Stoxx Europe 600 Index, which on Thursday dropped the most since the U.K. voted to leave the EU in 2016, jumped as every sector rallied. S&P 500 futures came off their lows as the European session wore on, but remained in the red for a second day. Japanese equities outperformed as most Asian gauges nudged higher. Italian debt climbed as European bonds largely drifted. The dollar edged up and the pound fell as U.K. Prime Minister Theresa May was said to be weighing a plan to postpone the vote on her Brexit deal.

Financial markets remain on tenterhooks amid worries the trade truce between China and the U.S. won’t last after the arrest of the chief financial officer of Huawei. As traders start to doubt the Federal Reserve will raise rates in 2019, JPMorgan Chase & Co. CEO Jamie Dimon said while the focus has been on the central bank moving too quickly, there’s also a risk it does too little, too slowly.

For his part, Fed Chair Jerome Powell delivered a bullish assessment of the U.S. economy and the job market ahead of Friday’s labor report. It comes as market-implied U.S. rate expectations crumble amid the tumult in equities.

“The big question mark still is what’s going to happen in 2019” with the Fed, Omar Aguilar, CIO of equities and multi-asset strategies at Charles Schwab, told Bloomberg TV. “The jobs report could easily be the catalyst that will tell us a little more about what the path may be.”

Elsewhere, oil continued to be a drag on sentiment, with West Texas Intermediate trading below $51 a barrel as OPEC struggled to reach a deal on oil-production cuts. Cryptocurrencies continued their slide with a fresh bout of losses after U.S. regulators dashed hopes that a Bitcoin exchange-traded fund would appear before the end of this year.

Some of the key events investors will be focused on this week:

  • OPEC ministers meet again in Vienna Friday.
  • The U.S. monthly employment report for November is due.
  • China November trade data are due on Saturday.

And here are the main moves in markets:

Stocks

  • Futures on the S&P 500 Index dipped 0.4 percent as of 9:42 a.m. London time, to the lowest in more than a week.
  • The Stoxx Europe 600 Index gained 1.4 percent, the biggest rise in more than five weeks.
  • The U.K.’s FTSE 100 Index increased 1.5 percent, the largest climb in 11 weeks.
  • Germany’s DAX Index gained 0.9 percent.
  • The MSCI Asia Pacific Index rose 0.2 percent.
  • The MSCI Emerging Market Index climbed 0.3 percent.

Currencies

  • The Bloomberg Dollar Spot Index increased 0.1 percent.
  • The euro fell 0.1 percent to $1.1364.
  • The British pound declined 0.3 percent to $1.2747, the largest fall in a week.
  • The Japanese yen decreased 0.1 percent to 112.84 per dollar.

Bonds

  • The yield on 10-year Treasuries dipped two basis points to 2.88 percent, hitting the lowest in three months with its seventh straight decline.
  • Germany’s 10-year yield rose one basis point to 0.24 percent.
  • Britain’s 10-year yield climbed one basis point to 1.257 percent.
  • The spread of Italy’s 10-year bonds over Germany’s declined seven basis points to 2.9001 percentage points.

Commodities

  • West Texas Intermediate crude decreased 1.4 percent to $50.77 a barrel, the lowest in more than a week.
  • Gold rose 0.1 percent to $1,239.42 an ounce, the highest in more than 20 weeks.
 Updated on 

— With assistance by Adam Haigh

https://www.bloomberg.com/news/articles/2018-12-06/asia-signals-mixed-start-for-stocks-yields-drop-markets-wrap?srnd=premium

Asian markets tentatively higher at end of volatile week

December 7, 2018

Huawei headline could not have come at a worse time

Asian investors battled to finish a volatile week on Friday with some stability as they weigh the outlook for China-US trade talks and uncertainty in oil markets, while looking ahead to the release of key US jobs data.

After the furious selling of the past two days, there was some optimism after a report said the Federal Reserve could slow down its pace of interest rate hikes next year, providing some much-needed relief to under-pressure dealers.

AFP/File / WANG ZHAO

The general mood across trading floors is of unease, just days after the euphoria of Donald Trump’s G20 tariffs ceasefire deal with China’s Xi Jinping that put the row off for 90 days while they try to resolve the crisis.

No sooner had the rally from that announcement run its course than questions began to be raised about the details and whether the world’s top two economies could actually resolve their differences.

That was compounded by news that a top executive at Chinese telecoms giant Huawei had been arrested in Canada and faces extradition to the US over allegations the firm had broken sanctions linked to Iran.

The apprehension of Meng Wanzhou fuelled concerns about already fraught relations between Washington and Beijing and the future of the trade talks.

Ren Zhengfei, Huawei founder and father of Meng Wanzhou.   Photographer: Jason Alden/Bloomberg

China on Thursday appeared to try to ease concerns by saying it would “immediately” implement measures agreed under the truce, while Trump later sent a tweet highlighting progress.

“Statement from China: ‘The teams of both sides are now having smooth communications and good cooperation with each other. We are full of confidence that an agreement can be reached within the next 90 days.’ I agree!,” he wrote.

In early trade Hong Kong and Shanghai each added 0.3 percent, while Tokyo went into the break 0.1 percent higher.

Sydney edged up 0.4 percent, Singapore gained 0.6 percent and Seoul added 0.3 percent, with Wellington and Taipei also higher.

– Overreaction? –

Providing some support were hopes the Fed will not hike borrowing costs as much as previously expected over the next year.

A report in the Wall Street Journal said the bank would take a wait-and-see approach to its decisions as signs point to a possible slowdown in the world’s top economy.

The prospect of rates continuing to rise for some time — making it more expensive to borrow to invest — has been a major reason for selling on world markets this year.

Bank head Jerome Powell, who has grown more dovish in recent weeks, remains upbeat and attention will be closely on the release of key non-farm payrolls figures Friday.

Analyst Neil Innes, head of Asia-Pacific trade at OANDA, suggested markets may have overreacted this week.

“The Huawei headline could not have come at a worse time, with the market reeling as confusion reigned over the G20 fallout,” he said.

“But when you laminate trade war issues with observed dovish shifts from major central banks, it merely adds a whole new level of unwanted confusion entering year-end.”

He added: “I’m trying to suggest… we were going through a market-driven event rather than a meaningful shift to the dark economic side that had all the doom and ‘gloomers’ coming out of their caves this week.”

Oil prices extended their losses on worries that a meeting of OPEC and non-OPEC producers will not see a hoped-for cut in output.

Markets have been spooked after the cartel called off a planned news conference Thursday that was expected to see a reduction announced, while Saudi Arabia oil minister Khalid Al-Falih said he was “not confident”.

Prices are now only slightly above last week’s levels, before a Monday-Tuesday rally sparked by comments from President Vladimir Putin that Russia and the Saudis had agreed to shut the taps in light of a production glut.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.1 percent at 21,524.02 (break)

Hong Kong – Hang Seng: UP 0.3 percent at 26,239.94

Shanghai – Composite: UP 0.3 percent at 2,611.66

Oil – West Texas Intermediate: DOWN 24 cents at $51.25 per barrel

Oil – Brent Crude: DOWN 39 cents at $59.67 per barrel

Euro/dollar: DOWN at $1.1373 from $1.1381 at 2130 GMT

Dollar/yen: UP at 112.72 yen from 112.69

Pound/dollar: DOWN at $1.2773 from $1.2783

New York – Dow Jones: DOWN 0.3 percent at 24,947.67 (close)

London – FTSE 100: DOWN 3.2 percent at 6,704.05 (close)

AFP

See also:

https://www.afp.com/en/news/15/top-huawei-executive-detained-canada-angering-china-doc-1bd6ka12

India interest rates on hold as growth slows

December 5, 2018

India’s central bank kept interest rates unchanged on Wednesday after Asia’s third-largest economy slowed ahead of elections next year.

The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would remain at 6.50 percent.

It was the second meeting in a row that the bank has kept borrowing rates stable following two rises this year.

The Reserve Bank of India (RBI) said the benchmark repo rate -- the level at which it lends to commercial banks -- would remain at 6.50 percent

The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would remain at 6.50 percent The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would remain at 6.50 percent AFP/File

The decision was “consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent”, the bank said.

India last week reported slowing economic growth, expanding 7.1 percent in the July-to-September quarter, down from 8.2 percent in the previous period.

Analysts say India needs to regularly record growth of at least eight percent to generate employment for the millions entering the workforce each year.

Inflation remains tame however, easing to 3.31 percent in October, below the RBI’s 4-percent target band.

The slowdown in growth was on the back of a liquidity crunch in the banking system, linked to problems in the shadow banking sector, hitting investment.

Another hike in interest rates could have exacerbated the crunch ahead of general elections expected in April or May next year.

Sujan Hajra, economist at Mumbai-based Anand Rathi Securities, told AFP that he expected rates to be kept on hold until the vote.

AFP

Economists, Wall Street split on Fed signals

November 30, 2018

Economists and investors have been scratching their heads this week over signals from the Federal Reserve, which left the future of US monetary policy open to broadly divergent interpretations.

In remarks delivered Wednesday in New York, Fed chairman Jerome Powell uttered words that set Wall Street on fire.

Claiming that benchmark lending rates were “just below” a range of estimates for “neutral,” that is, neither stimulating nor slowing growth, Powell sent a signal that markets took to mean the Fed might ease off on raising rates in 2019.

Traditionally, stock markets love lower interest rates.

© GETTY IMAGES NORTH AMERICA/AFP/File | Claiming that benchmark lending rates were “just below” a range of estimates for “neutral,” Fed chairman Jerome Powell sent a signal that markets took to mean the Fed might ease off on raising rates in 2019

And as a result, Wall Street on Wednesday had its best day since March, with the Dow Jones Industrial Average rising 2.5 percent and European equities lifted higher as well.

Minutes released Thursday from the Fed’s last policy meeting also showed some policymakers believed going above neutral could slow the economy needlessly.

And Powell’s words stood in stark contrast to his remarks of a month earlier, when he said rates were still “a long way” from neutral, perhaps suggesting the Fed actually had a lot more tightening to do.

Currently, the Federal Open Market Committee forecasts three quarter-point hikes for next year after a December increase, which is virtually guaranteed.

The neutral rate can seem like a central bankers’ Holy Grail: the “Goldilocks” setting for monetary policy, neither so low as to allow excess inflation nor so high as to weigh on the economy.

Nevertheless, it is a tricky concept: economists put the range between 2.5 percent and 3.5 percent. The US federal funds rate range is now 2.0 – 2.5 percent.

And some economists say the markets misread Powell.

Tom Porcelli of RBC Capital Markets said investors were wrong to interpret Powell’s words as “dovish.”

“Powell is not suggesting that since they are just below the range they may stop soon. All he is doing is pointing out an obvious idea,” Porcelli wrote in a client note.

But Powell’s most recent words should be taken along with other recent remarks in which he showed concern for the global economic outlook.

– ‘An absurd concept’ –

He said then that growth abroad was likely to weaken and that US fiscal stimulus, which had goosed consumption, would soon fade.

On Wednesday, Powell also emphasized these uncertainties.

“We also know that the economic effects of our gradual rate increases are uncertain and may take a year or more to be fully realized,” he said, adding that there was “no preset policy path.”

“We will be paying very close attention to what incoming economic and financial data are telling us.”

According to Joseph LaVorgna, chief Americas economist at Natixis, “the Fed needs to stop raising rates.”

“The neutral rate is an absurd concept. We already passed that, as the housing market shows,” he said on CNBC, referring to this year’s steady decline in home sales and construction — something analysts partly blame on higher mortgage rates.

Minutes released Thursday from the Fed’s November 7-8 policy meeting showed disagreements about the path of interest rates, with some policymakers worrying that tightening too fast could stem economic growth.

But Fed members agreed they would offer fewer signals about the future in their public statements, insisting, as Powell did this week, that they would instead monitor economic data and respond accordingly.

October inflation figures published Thursday showed upward price pressures right at the Fed’s two percent target while consumers continued to spend at a brisk pace.

The rate hike likely coming on December 19 would raise the benchmark lending rate, which influences borrowing costs throughout the wider economy, to 2.5 percent.

But from there, paths diverge. Oxford Economics now predicts a single increase in 2019 while JP Morgan and Goldman Sachs see four.

And any signs of an increase continued to be met by vituperation from President Donald Trump, who has denounced the current tightening cycle at the Fed, which Congress made independent of the White House.

AFP

Asian Markets: Dollar down but stocks up in Asia on Fed hopes, focus on Trump-Xi

November 29, 2018

The dollar extended losses in Asia while equities rallied after the head of the Federal Reserve hinted at a softer pace of interest rate hikes, though investors remain wary about the weekend’s crunch trade talks between Donald Trump and Xi Jinping.

US markets were sent soaring Wednesday after Fed chief Jerome Powell said borrowing costs were still historically low but only “just below” the neutral level, a rate that neither stimulates nor restrains the economy.

While the central bank is widely expected to lift rates, his comment was a far cry from his characterisation last month of them being “a long way from neutral”.

© Getty Images North America/Getty Images | The dollar extended its losses in Asia after dovish comments from Federal Reserve head Jerome Powell

The fear of higher US interest rates — fuelled by a surging economy — has been a key driver of a global equity sell-off over the past few months, while the dollar has soared as traders put cash into the US looking for better, safer returns.

Observers said the remarks provided some much-needed cheer ahead of the festive period.

“Powell’s dovish pivot reduces nagging concerns about vigorous interest rate hikes while providing the market with one of the best holiday gifts, a significant bounce in global equity markets,” said Stephen Innes, head of Asia-Pacific trade at OANDA.

The dollar was down against its major peers as well as high-yielding and emerging market currencies, which have suffered a painful 2018. The pound even managed to strengthen despite warnings about the dire consequences of a no-deal Brexit from the Bank of England.

Among the big winners, the South African rand and Mexican peso each climbed more than one percent, Indonesia’s rupiah was 0.9 percent up and Australia’s dollar jumped 0.8 percent.

– ‘Too early to call Santa rally’ –

Asian equities tracked a rally in New York, where the Dow and S&P 500 surged more than two percent while the tech-rich Nasdaq piled on three percent.

Hong Kong and Shanghai each rose 0.4 percent in early trade while Tokyo was 0.9 percent higher going into the break.

Sydney added 0.5 percent, Singapore rallied one percent and Seoul was up 0.8 percent, with Wellington, Manila, jakarta and Taipei also registering strong gains.

Powell is “taking away the concern about aggressive interest-rate increases, which resolves one of the issues that hung over the markets during the last couple of months”, Bob Phillips, at Spectrum Management Group, said.

“We still have the trade war issue with China and we’ll see how that works out this week. If that comes out positive, we’ll have a decent rally at the end of the year.”

The meeting between the leaders of the world’s top two economies is being watched with trepidation following a series of mixed signals from Washington.

In the latest development ahead of Saturday’s talks at the G20 in Buenos Aires, US Trade Representative Robert Lighthizer said Beijing had failed to offer “meaningful reform” on its trade policies that he says hurts US jobs.

Taking aim at “China’s aggressive, state-directed industrial policies”, Lighthizer also threatened tariffs on Chinese autos.

His comments come a day after top White House advisor Larry Kudlow told journalists Trump “said there’s a good possibility we can make a deal” and two days after the president warned of more levies if he and Xi do not reach an agreement.

“While global equity markets are revelling in the afterglow of (Powell’s comments), in the wake of US Trade Representative Lightizer’s statement… it’s far too early to suggest that a Santa Claus rally is in the cards,” said Innes.

Both main oil contracts edged up but remain under pressure at 13-month lows after Wednesday’s plunge of about 1.5 percent, which was fuelled by a tenth straight weekly increase in US stockpiles, adding to fears of a supply overhang.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.9 percent at 22,378.46 (break)

Hong Kong – Hang Seng: UP 0.4 percent at 26,777.21

Shanghai – Composite: UP 0.4 percent at 2,611.43

Pound/dollar: UP at $1.2830 from $1.2824 at 2140 GMT

Euro/pound: UP at 88.64 pence from 88.61 pence

Euro/dollar: DOWN at $1.1371 from $1.1369

Dollar/yen: DOWN at 113.55 yen from 113.65

Oil – West Texas Intermediate: UP 30 cents at $50.59

Oil – Brent Crude: UP 10 cents at $58.86 per barrel

New York – Dow Jones: UP 2.5 percent at 25,366.43 (close)

London – FTSE 100: DOWN 0.2 percent at 7,004.52 (close)

AFP

Powell Sees Solid Economic Outlook as Rates ‘Just Below’ Neutral

November 28, 2018

Federal Reserve Chairman Jerome Powell said interest rates are “just below” the so-called neutral range, softening previous comments that seemed to suggest a greater distance and spurring speculation central bankers are increasingly open to pausing their series of hikes next year.

Image result for Jerome Powell, photos

Wall Street embraced the news with a rally for Treasuries and surge of more than 2 percent for major U.S. stock indexes. His “just-below” comment tempered remarks last month that markets read as a signal of more tightening. Speaking on Oct. 3, Powell said that “we may go past neutral. But we’re a long way from neutral at this point, probably.”

In his speech Wednesday to the Economic Club of New York, Powell said the Fed’s benchmark interest rate was “just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth.”

The S&P 500 was up 1.6 percent as of 1:26 p.m. in New York, on track for its biggest rally in three weeks, while the Dow Jones Industrial Average rose as much as 2 percent. The rise in Treasuries pushed down the yield on 10-year notes as low as 3.04 percent, from 3.07 percent before Powell’s speech. The Bloomberg Dollar Spot index was down 0.6 percent after rising earlier in the day.

If rates are closer to what policy makers ultimately judge is the neutral level, that could signal the Fed will tighten monetary policy less than previously projected. Eurodollar futures pricing reacted to Powell’s comments, reflecting even firmer expectations that the Fed will hike only once next year.

Powell’s remarks on the economy and monetary policy were seen as keeping the Fed on track to raise interest rates in December. They offered few explicit clues, however, as to how many hikes he thinks will be necessary in 2019. Powell repeated his view that the Fed will have to be especially responsive to incoming economic data.

“We also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized,” he said. “While FOMC participants’ projections are based on our best assessments of the outlook, there is no preset policy path,” Powell said, referring to the central bank’s Federal Open Market Committee, which sets interest rates.

Investors Skeptical

Even before the speech, investors had grown skeptical that Fed officials will reach their own median projection for three hikes in 2019 against a backdrop of slowing growth and uncertainty over the U.S.’s ongoing trade dispute with China.

“As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation,” Powell said.

The Fed still sees the economic outlook as relatively strong. “My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent,” Powell said in the speech.

On the same day the Fed released its first-ever semi-annual Financial Stability Report, Powell highlighted some concern over corporate debt levels, pointing especially to highly-leveraged borrowers who may “surely face distress if the economy turned down.” Still, he judged the area posed little systemic risk, labeling broader, overall risks to financial stability as “moderate.”

“Such losses are unlikely to pose a threat to the safety and soundness of the institutions at the core of the system,” he said.

— With assistance by Sarah McGregor

https://www.bloomberg.com/news/articles/2018-11-28/powell-sees-solid-economic-outlook-as-rates-just-below-neutral

Mnuchin Asked About Fed Option That Could Avoid Rate Hikes

November 28, 2018

Treasury Secretary Steven Mnuchin privately asked bond dealers and investors in October whether they want the Federal Reserve to tighten monetary policy by raising interest rates or through faster cuts in its securities portfolio, six people familiar with the matter said.

Steven Mnuchin.  Photographer: Andrew Harrer/Bloomberg

Mnuchin’s question could be seen as suggesting a way for the central bank to accomplish its goal of preventing a strong economy from overheating without triggering the ire of President Donald Trump, who has blasted Fed Chairman Jerome Powell for raising rates. For his part, Mnuchin has refrained from commenting on monetary policy, citing the importance of the Fed’s independence.

In an Oct. 30 meeting with a Treasury advisory committee that makes recommendations to the government quarterly on its debt sales, Mnuchin asked which they favored — an accelerated balance sheet run-down or further rate hikes — if they had to choose one or the other, according to the six people, who asked not to be identified because the conversation was private. One of the people said that Mnuchin asked the question out of curiosity of what bond market participants thought of the two alternatives before the Fed.

The committee was split in response, two of the people said.

Mnuchin raised the question during a regularly scheduled quarterly meeting with the Treasury Borrowing Advisory Committee, or TBAC, which includes representatives from investment funds and banks. Its membersinclude executives from Goldman Sachs Group Inc., Citadel LLC and JPMorgan Chase & Co.

The TBAC provides the secretary a chance to engage with bond market participants to help inform debt management plans, a Treasury spokesman said, declining to elaborate further.

Trump’s Nominee

Trump has broken with decades of precedent by commenting on Fed policy with repeated attacks on the central bank’s rate increases. He has also recently blamed Mnuchin for recommending Powell for the job, two people familiar with the president’s thinking said.

Still, Mnuchin hasn’t been the target of any direct, public criticism from Trump and, despite reports he may leave the Treasury Department as part of a broader Cabinet shakeup, is likely to stay in the administration for now, according to people familiar with the plans.

Read More: Trump Is Said to Keep Mnuchin, Ross in Cabinet Posts for Now

On Monday, Trump told the Wall Street Journal that “the Fed right now is a much bigger problem than China,” which is locked in a trade war with the U.S. He also seemed to widen his criticism of the Fed to include its ongoing balance-sheet reduction. “I don’t like what they’re doing,” the president said. “I don’t like the $50 billion.”

The Fed is currently reducing the bond holdings on its $4.1 trillion balance sheet by a maximum of $50 billion per month — $30 billion of Treasuries and $20 billion of government agency debt and mortgage-backed securities.

Fed watchers voiced skepticism that the independent central bank would change its monetary strategy along the lines Mnuchin talked about, noting that Powell and his colleagues are much more comfortable altering interest rates to steer the economy than they are tinkering with the balance sheet. Fed officials have repeatedly said the target range for the federal funds rate — not the balance sheet — is their main tool for setting policy.

Any acceleration in the balance sheet unwind wouldn’t be without consequences for the Treasury either, given that part of the government’s increased debt issuance has been a result of the central bank’s waning purchases.

Powell, whom Mnuchin meets regularly to discuss economic issues, has described gradual rate increases as an effort to strike a balance between tightening credit too much, thus triggering a recession, and not enough, subsequently spurring inflation and asset-price bubbles.

December FOMC

The central bank is widely expected to boost rates by another quarter percentage point next month. But the path in 2019 is less clear.

Powell himself laid out a scenario earlier this month for a pause in the rate hiking campaign sometime next year by highlighting potential headwinds to the U.S. economy.

The Fed in October 2017 began its program to methodically shrink its balance sheet by allowing some of the bonds it holds to mature without reinvesting the proceeds. It started off small, with bond drawdowns initially limited to $10 billion per month, and then gradually raised that to the current $50 billion maximum.

Paring the portfolio puts some upward pressure on long-term interest rates by adding to the supply of bonds that investors must absorb. It thus effectively tightens financial conditions and acts as a drag on economic growth, just as increases in short-term interest rates do.

But it’s much less visible and has attracted little attention outside of the financial markets since it was launched. Indeed, several Fed officials have said that their aim was to make the balance sheet unwind the equivalent of “watching paint dry.”

Powell told reporters in June that the program was “proceeding smoothly” and evinced little desire to change it. The balance sheet has shrank $354 billion since the plan began. The chairman will deliver a speech on Wednesday to the Economic Club of New York.

— With assistance by Jennifer Jacobs

Fed official upbeat on economy, but rate hikes to be gradual

November 27, 2018

The US economy faces fewer risks and is poised to continue to expand, but the central bank will move gradually to raise interest rates, a senior Federal Reserve official said Tuesday.

Fed Vice Chairman Richard Clarida stressed that officials will be watching for signs of inflation and developments in labor markets before making any decision to raise the benchmark lending rate.

Risks to the economy are “less skewed to the downside” and “US economic fundamentals are robust,” meaning the recovery next year is likely to “become the longest US expansion in recorded history,” Clarida said in a speech to a conference in New York, home of the US financial markets.

© AFP | With share prices falling, Fed leaders have emphasized the need to move cautiously on interest rates

The combination of upbeat analysis of the economy, with what might be viewed as a less aggressive stance on monetary policy, is likely to be cheered by markets which in the past two months have erased most if not all of the year’s winnings.

In a speech in late October, Clarida said that even after three increases this year the Fed’s policy interest rate at 2.25 percent was still providing stimulus to the economy.

A few weeks earlier, Fed chief Jerome Powell said the central bank still had a “long way” to go before returning to a neutral point where it was no longer juicing the economy.

But with falling share prices — markets also were spooked by the impact of President Donald Trump’s trade wars — both officials have have dialed back their comments, emphasizing the need to move cautiously.

Both have also stressed that raising rates too quickly also entails risks to the economy, as much as raising too slowly risks fueling price increases.

Clarida on Tuesday said the current rate level is “much closer” to neutral now, but how many more increases will be needed is a matter of judgement based on incoming economic data.

The need for new data about “unknown parameters” in the economy “supports the case for gradual policy normalization, as it will allow the Fed to accumulate more information.”

The vast majority of economists still expect the Fed to increase the key policy interest rate in December, but how many moves are likely in 2019 has become more a matter for debate.

Clarida stressed that policymakers will aim to keep inflation from accelerating beyond the two percent target, while supporting full employment.

Even with unemployment at a 50-year low of 3.7 percent, he said there could still be room for job gains, especially for “prime age” workers 25-54 years old.

AFP

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