Fed trumps Trump as dollar, US Treasury yields soar

LONDON - The dollar and U.S. Treasury yields jumped on Wednesday, while stocks were mixed, as investors focused less on U.S. President Donald Trump's first speech to Congress and more on what they see as a growing chance of a U.S. interest rate hike this month.

Trump took a measured tone in his keenly awaited speech on Tuesday, saying he was open to immigration reform, but failing again to provide much detail on his plans for tax reform and infrastructure spending.

For markets, the speech was overshadowed by comments from a handful of Federal Reserve policymakers, who suggested rate-setters are worried about waiting too long to raise interest rates in the face of pending economic stimulus from Washington.

New York Fed President William Dudley -- one of the most influential U.S. central bankers, and usually considered a dove -- said the case for tightening monetary policy had become "a lot more compelling", while San Francisco Fed President John Williams said he saw "no need to delay" raising rates.

Having priced in only around a 30 percent chance that the Fed would move this month before the Fed comments, investors moved to price in around a 68 percent probability of a March hike, according to Reuters data. By June, an 84 percent chance of at least one hike has now been priced in.

The dollar index, which measures the greenback against a basket of other major currencies, climbed as much as 0.7 percent to its highest levels in seven weeks, having also been helped by data showing robust U.S. consumer spending.

Two-year U.S. Treasury yields jumped to 1.304 percent, the highest since December, to match their highest levels since 2009. The gap between them and their German equivalents increased to its widest since 2000.

"After dominating the markets since November, President Trump could now fade into the background as the focus shifts to the Fed and the prospect of rate increases," said Kathleen Brooks, Research Director at City Index in London.

"Fed members don't just let words slip out when they speak to the press - this was a message for the markets, and the markets have duly reacted."

SHORT ON DETAIL

European shares gained, with basic resources the top-performers on Trump's promise of $1 trillion of infrastructure spending.

The pan-European STOXX 600 index rose 1 percent, with Germany's DAX and France's CAC 40 outperforming peers to climb 1.3 percent and 1.4 percent respectively, helped by strong company earnings reports.

The global MSCI ACWI index, which has risen more than 10 percent since Trump's election in November, was flat, with gains in Europe offsetting earlier falls on Asian and U.S. bourses. The MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent.

Trump pledged to overhaul the immigration system, improve jobs and wages for Americans and deliver "massive" tax relief to the middle class and tax cuts for companies, but offered few clues on how they would be achieved.

"The market has been looking for reassurance that Trump intends to follow through on his campaign promises for fiscal spending, tax cuts and deregulation," said James Woods, global investment analyst at Rivkin in Sydney.

"He mentioned these policies but did not provide any actual details or time lines, which is what investors are looking for."

U.S. stock futures still pointed to a higher open after Trump's address. E-mini S&P futures ES1 rose 0.5 percent, after the Dow Jones Industrial Average snapped a 12-day winning streak to close down 0.1 percent in the prior session.

A raft of surveys pointing to stronger factory activity in China, Japan and other parts of Asia were largely overshadowed by Trump's speech.

In commodity markets, crude oil prices lost more ground, with rising U.S. oil output adding pressure on the market, although OPEC production cuts continued to offer support.

The stronger dollar weighed on gold, which dropped 0.3 percent to 1,244.36 an ounce, extending Tuesday's decline.

source: news.abs-cbn.com

Fed policymakers agree Trump fiscal boost poses inflation risk

WASHINGTON - Almost all Federal Reserve policymakers thought the economy could grow more quickly because of fiscal stimulus under the Trump administration and many were eyeing faster interest rate increases, minutes from the central bank's December meeting showed.

The minutes, released on Wednesday, showed how broadly views within the Fed are shifting in response to President-elect Donald Trump's promises of tax cuts, infrastructure spending and deregulation.

Policymakers were clear that the outlook for those policies remained uncertain, but they could, if implemented, stoke higher inflation which would lead the central bank to raise borrowing costs more aggressively.

"About half of the participants incorporated an assumption of more expansionary fiscal policy in their forecasts," according to the minutes from the Dec. 13-14 meeting, referring to the 17 policymakers who participated.

"Almost all also indicated that the upside risks to their forecasts for economic growth had increased," the minutes stated.

The central bank's policy-setting committee unanimously raised interest rates last month by a quarter of a point and policymakers signaled a faster pace of rate increases in 2017 than previously expected. That was seen as the Fed's first reaction to Trump's victory in the Nov. 8 election.

But the minutes showed policymakers might signal an even more aggressive path of rate increases if inflationary pressures rose. Trump campaigned on promises to double America's pace of economic growth and "rebuild" the country's infrastructure.

"This is a slightly hawkish set of minutes," said Paul Ashworth, an economist at Capital Economics in Toronto.

'CONSIDERABLE UNCERTAINTY'

Fed policymaker projections released last month pointed to a labor market heating up to just a little stronger than its longer-run normal level.

The minutes, however, showed "many participants judged that the risk of a sizable undershooting of the longer-run normal unemployment rate had increased somewhat and that the Committee might need to raise the federal funds rate more quickly."

At the same time, Fed policymakers "emphasized their considerable uncertainty" about future economic policy changes.

Trump will take office on Jan. 20 and has yet to outline in detail his economic policy plans.

US short-term interest rate futures rose slightly after the release of the minutes but not enough to suggest altered expectations for the central bank's rate hike path this year.

Traders continued to price in two rate hikes this year and slightly less than a 50 percent chance of a third, based on the price of fed funds futures contracts traded at CME Group's Chicago Board of Trade.

US stock prices were largely unchanged by the minutes, with the Standard & Poor's 500 index holding a gain of about 0.5 percent. The dollar weakened against the euro and the British pound.

The Trump administration is expected to add more so-called inflation hawks to the Fed's ranks, which could offset a dovish tilt this year on the policy-setting committee and rattle a fragile consensus to go slow on rate hikes.

source: news.abs-cbn.com

Federal Reserve closer to rate hike, but inflation doubts remain

WASHINGTON - Several voting Federal Reserve policymakers judged a rate hike would be warranted "relatively soon" if the US economy continued to strengthen but doubts on inflation remained, according to the minutes of the Fed's September policy meeting released on Wednesday.

The minutes of the Sept. 20-21 meeting, at which the US central bank held rates steady, also showed the depth of division over timing.

"Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as ... expected," the Fed said in the minutes.

Seventeen policymakers participated at the September meeting, of whom 10 had a vote. In the minutes, both voting members and the wider group were divided on how much more they can allow the labor market to strengthen before raising rates.

Some believe that with the United States already near full employment, inflation could rise too quickly if the Fed waits too long.

The minutes said "it was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation."

US stocks rose slightly following the release of the minutes, while yields on US government debt pared earlier gains.

"They just want a bit more data to be sure. We think they will have those data by the time of the December meeting," said Ian Shepherdson, an economist at Pantheon Macroeconomics.

Three voting members of the rate-setting committee dissented in the September policy statement in favor of an immediate hike, the first time since 2011 that so many have taken such action in the same direction at a single meeting.

In that policy statement, the Fed incorporated new phrasing saying it would maintain current interest rate levels for "the time being," widely seen as a hawkish signal.

According to the minutes, however, a few voters were concerned the inclusion of the phrase "might be misread as indicating that the passage of time rather than the accumulation of evidence" would drive future decision-making.

Although Fed policymakers disagree on whether the current 1.7 percent inflation rate is sufficiently close to their 2 percent objective, many voting members remarked that "there were few signs of emerging inflationary pressures."

Since the meeting, Chair Janet Yellen and several other Fed policymakers have said they expect a rate hike by year-end should the labor market and inflation continue to strengthen.

Almost all agree that after another rate hike, the path of interest rates will be much shallower than the Fed's last tightening cycle. At the September meeting, the Fed scaled back the number of rate hikes it expects next year, to two from three.

New York Fed President William Dudley said earlier on Wednesday the Fed could afford to be "gentle" in raising rates as the US economy has "plenty of room to run."

Last Friday's monthly jobs report for September showed that while employment gains are slowing, they are still well above the level required to offset population growth.

There are two more meetings scheduled this year, on Nov. 1-2 and Dec. 13-14. Traders have all but ruled out a move at the November meeting, which takes place just a week before the US presidential election. They currently see about a 70 percent probability the Fed will raise rates in December, little changed from before the minutes, according to data from CME Group.

Yellen is scheduled to deliver a speech on Friday in Boston, which may offer insight into the Fed's latest thinking.

source: www.abs-cbnnews.com

Rate hike case 'less compelling': Fed governor

WASHINGTON - The case for raising US interest rates remains less than convincing, given weak inflation and current under-employment levels, influential Federal Reserve Board Governor Lael Brainard said Monday.

The remarks come a week before US policymakers are due to review interest rate policy, with markets lingering in uncertainty as to whether the Fed will resume a course of rate hikes it had embarked on in December.

"To the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling," Brainard said in remarks at the Chicago Council on Global Affairs.

Brainard has been a consistent voice for postponing increases in interest rates in favor of allowing job creation.

Her remarks stood in contrast to more hawkish members of the Federal Open Markets Committee who say they fear inflation and an overheating economy. The FOMC was divided in June on the timing of the next rate increase.

Earlier on Monday, Dennis Lockhart, president of the Atlanta Federal Reserve Bank, said policymakers were due for a "lively discussion" when they meet next week, but he did not pronounce on likely actions by the Fed this year.

Brainard said the conventional link between inflation and unemployment had not held as labor markets had strengthened over the past four years.

"At a time when the unemployment rate has fallen from 8.2 percent to 4.9 percent, inflation has undershot our 2 percent target now for 51 straight months," she said.

She also said that the current unemployment rate had not budged despite recently despite steady job growth of an average of about 180,000 new positions per month, suggesting that labor markets still had significant slack.

International economic conditions also argued in favor of caution, said Brainard, noting that weak growth and low inflation in Europe and Japan as well as instability in China could impinge on the US economy.

"Recent experience suggests global financial markets are tightly integrated, such that disturbances emanating from Chinese or euro-area financial markets quickly spill over to US financial markets," she said.

On Friday US equity markets lost more than two percent in reaction to more hawkish remarks from Boston Fed President Eric Rosengren.

However, stocks did not appear directly influenced by Brainard's remarks on Monday. Toward 1800 GMT, while the S&P 500 was up 0.9 percent.

source: www.abs-cbnnews.com

Fed leaves rates unchanged, says risks to outlook reduced

WASHINGTON - The Federal Reserve left interest rates unchanged on Wednesday but said near-term risks to the U.S. economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year.

The U.S. central bank said the economy had expanded at a moderate rate and job gains were strong in June. It added that household spending also had been "growing strongly," and pointed
to an increase in labor utilization.

While Fed policymakers said they continued to closely monitor inflation data and global economic and financial developments, they indicated less worry about possible shocks that could push the economy off course.

"Near-term risks to the economic outlook have diminished," the Fed's policy-setting committee said in its statement following a two-day meeting in which it left its benchmark overnight interest rate in a range of 0.25 percent to 0.50 percent.

The Fed noted, however, that inflation expectations were on balance little changed in recent months, and gave no firm indication of whether it would raise rates at its next policy meeting in September.

Most Fed policymakers had urged caution in raising rates until there was concrete progress in moving inflation toward the central bank's 2 percent target.

"It's a little bit more hawkish, but not much," said Walter Todd, chief investment officer at Greenwood Capital Associates in South Carolina.

The Fed's preferred inflation rate currently stands at 1.6 percent and has been below target for more than four years.

U.S. Treasury prices pared gains after the Fed's decision, while the U.S. dollar briefly strengthened against the euro and yen. U.S. stocks extended declines before later reversing course to trade largely flat in the session.

Federal funds futures implied traders still see roughly even odds of a rate increase at the Fed's December meeting and about a 20 percent chance of such a move in September, a bit lower than before the decision, according to CME's FedWatch Group.

The policy-setting committee will also meet at the beginning of November, but a rate hike at that time is generally seen as unlikely because it would occur a week before the U.S. presidential election.

A Reuters poll of economists suggested the Fed is most likely to wait until December to raise rates.

"There wasn't any tip that the Fed will raise rates in September," said Mike Materasso, co-chair of Franklin Templeton's fixed income policy committee in New York. "A rate increase is warranted this year, most likely at the end of the year, but a lot has to do with a benign world arena."

Kansas City Fed President Esther George was the only policymaker to dissent at this week's meeting. She has favored raising rates at three of the last four meetings.

FOCUS ON DATA, YELLEN

The Fed has held steady on rates since December, when it raised them for the first time in nearly a decade and signaled another four rate increases were in the offing for 2016.

That was scaled back to two hikes this year after central bank policymakers issued new projections in which they also lowered their longer-term growth estimates for the U.S. economy.

A global economic slowdown, financial market volatility and uncertainty over the impact of Britain's June vote to leave the European Union have repeatedly forced the Fed to delay another
rate increase.

The U.S. economy, however, has suffered little initial impact from the so-called 'Brexit' vote. A string of better-than-expected economic data recently as well as an easing in financial conditions also have calmed nerves.

Fed officials will now turn their attention to this Friday's first initial estimate of U.S. gross domestic product for the second quarter, which is expected to show a healthy rebound from the previous quarter.

The economy likely expanded at a 2.3 percent annualized rate during the second quarter, according to the Atlanta Federal Reserve's latest forecast.

The closely-watched U.S. monthly employment report will be issued on Aug. 5, followed three weeks later by a speech from Fed Chair Janet Yellen at the annual central banking conference in Jackson Hole, Wyoming.

Fed policymakers have used the conference to give major steers on central bank policy.


source: www.abs-cbnnews.com

Fed minutes suggest rate hikes on hold until Brexit impact clearer

WASHINGTON - Federal Reserve policymakers decided in June that interest rate hikes should stay on hold until they have a handle on the consequences of Britain's vote on EU membership, according to the minutes of the Fed's June policy meeting released on Wednesday.

The minutes of the June 14-15 meeting, which took place ahead of the June 23 referendum in which Britons voted to leave the European Union, showed widespread unease over the so-called "Brexit" vote, including among voting members on the rate-setting Federal Open Market Committee.

"Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data on the consequences of the U.K. vote," according to the minutes.

Worries have only intensified since the vote and Fed Governor Daniel Tarullo cited the rise in uncertainty on Wednesday when he argued for holding off on rate hikes until inflation had turned decisively higher.

At the June policy meeting, policymakers also cited a severe slowdown in hiring by U.S. employers as a reason for leaving interest rates steady last month, the minutes showed.

The Brexit vote shocked investors and triggered $2 trillion in losses in global stock markets the day after the referendum.

Anxieties remain, with global financial conditions tightening as investors anticipate it could take years before Britain and the EU agree to new rules on finance, trade and immigration.

On Wednesday, U.S. benchmark and long-dated Treasury yields hit record lows, with some investors betting the Fed would keep rates on hold through 2017.

"We would need to see a few months of good data ... to support a hike," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

The dollar, which has gained more than two percent against a basket of currencies since the Brexit vote and could weigh on U.S. exporters, weakened slightly following publication of the minutes.

Before the British vote, the Fed had signaled two interest rate hikes would likely be needed this year to keep the U.S. economy from eventually overheating.

But since the British referendum, several Fed policymakers have said the uncertainty warrants caution, including New York Fed President William Dudley who said on Tuesday the Fed needed to be patient on rate increases and that it was too soon to know the fallout from the British decision.

A severe slowdown in hiring during May and weak business investment even outside the sagging energy sector had raised questions about the U.S. outlook even before the Brexit vote.

Still, in the minutes of the June meeting, many Fed policymakers who participated in the policy discussion stressed the sharpness of the hiring slowdown could be statistical noise, and most argued the economy would be ready for rate increases unless a financial or economic shock knocks America off course, according to the minutes.

Since the Brexit vote, the British pound has plunged 13 percent against the dollar, including a 1 percent decline on Wednesday, and investors and policymakers are watching out for further signs of financial stress that could hit economic growth in America and worldwide.

"None of us really knows the magnitude and I doubt there will be a moment when people say Brexit is done," Tarullo said on Wednesday. "There is a good bit of uncertainty."

source: www.abs-cbnnews.com

Shares snap losing streak after Fed decision

Philippine shares opened higher on Thursday, snapping four straight days of losses after the US Federal Reserve kept policy rates steady.

The Philippine Stock Exchange Index (PSEI) was up 0.54 percent to 7,219.19 in early trade. Analysts however said shares would trade within a tight range as investors stay on the sidelines ahead of the May 9 elections.

“We may have some slight relief but I think the markets will tend to hold in this range-bound pattern until elections are over,” Smith Chua, vice president at Bank of the Philippine Islands’ Asset and Trust management Group told ANC’s “Market Edge with Cathy Yang.”

Bangko Sentral ng Pilipinas Governor Amando Tetangco signaled he would keep local policy rates unchanged ahead of a monetary board meeting next month.

“At the moment, we really don’t expect any major developments cropping up that would necessitate a shift in our stance of policy,” Tetangco said in a statement.

The Federal Reserve action was “broadly in line” with market expectations and “should help clear up global positioning in the near term,” Tetangco said, adding a Bank of Japan decision on Thursday was also being monitored.

Tetangco said he did not see “significant changes in economic policy thrusts” after the May 9 elections. Tough-talking Davao City Mayor Rodrigo has widened his lead over erstwhile frontunner, Sen. Grace Poe, in the most recent surveys.

source: www.abs-cbnnews.com