Global economy already in recession due to COVID-19: Reuters poll

BENGALURU -- The global economy is already in a recession as the hit to economic activity from the coronavirus pandemic has become more widespread, according to economists polled by Reuters amid a raft of central bank stimulus actions this week.

The spread of the disease caused by the virus, COVID-19, has sent financial markets into a tailspin despite some of the biggest emergency stimulus measures since the global financial crisis announced by dozens of central banks across Europe, the Americas, Asia and Australia.

The panic was clear in stocks, bonds, gold and commodity prices, underlining expectations of severe economic damage from the outbreak.

More than three-quarters of economists based in the Americas and Europe polled this week, 31 of 41, said the current global economic expansion had already ended, in response to a question about whether the global economy was already in recession.

"Last week we concluded that the COVID-19 shock would produce a global recession as nearly all of the world contracts over the three months between February and April," noted Bruce Kasman, head of global economic research at JP Morgan.

"There is no longer doubt that the longest global expansion on record will end this quarter. The key outlook issue now is gauging the depth and the duration of the 2020 recession."

Economists have repeatedly cut their growth outlook over the past month and have increased their forecast probabilities for recession in most major economies.

The worst-case views on growth taken just weeks ago in some cases have already into the central scenario for private sector economists in Reuters polls.

"The evolving news on COVID-19 has triggered 'forecast leap frogging,' with economists and strategists repeatedly lowering their forecasts. Among the big 3 economies, the US and the euro area will see negative growth, while Chinese growth is expected to come in at a paltry 1.5 percent," said Ethan Harris, head of global economics at BofA.

"Our first piece on the virus shock was titled 'bad or worse'; now we amend that to 'really bad or much worse.' We now expect COVID-19 to cause a global recession in 2020, of similar magnitude to the recessions of 1982 and 2009."

The global economy was forecast to expand 1.6 percent this year, about half the 3.1 percent predicted in the January poll, and the weakest since the global financial crisis of 2007-09. Forecasts for 2020 global GDP ranged from -2.0 percent to +2.7 percent.

"As cases of coronavirus spiral upward, disruptions to the global economy are increasing. We have cut our global GDP growth forecast to 1.25 percent for the year - less severe than the deep recessions of 1981-82 and 2008-09, but worse than the mild recessions of 1991 and 2001," noted Goldman Sachs' economics research team.

"Consistent with this, our economists now expect recessions in Europe, Japan, Canada and possibly the United States."

The US economy was almost certain to enter a recession this year, if it is not in one already, according to a poll published on Thursday and taken after the Federal Reserve's emergency move on Sunday.

"The US economy is going to have a shock from this coronavirus and I think that there's still a lot of uncertainty around the size and the depth and the prolonged period of the shock," said Tiffany Wilding, North American economist at Pacific Investment Management Co (PIMCO).

"We're still getting our heads wrapped around that. We think it's quite likely that the US has a small technical recession this year."

As for the world's second largest economy, China, where the virus outbreak originated, a Reuters poll published on March 6 showed the outlook was once again cut significantly for this quarter, next quarter, and for 2020.

Since then, economists have been slashing their forecasts even more.
The economic damage from the outbreak was predicted to reverberate through other major economies in Asia too, with most forecast to slow significantly, halt or shrink outright in the current quarter according to a Feb. 26 Reuters poll.

Japan's economy, which already contracted sharply toward the end of 2019, was expected to grow only 0.1 percent in the new fiscal year that begins in April, a March 6 Reuters survey found, revised down from 0.5 percent projected in February.

Following the rapid spread of virus infections from China to other countries, including Europe, the risk of a euro zone recession doubled in a poll taken earlier this month.

It was not very different for the UK, where the Bank of England cut rates to near-zero on Thursday and re-started its asset purchases.
The British economy was expected to expand 0.1 percent this quarter and then contract 0.3 percent next quarter, a sharp revision from the 0.3 percent expansion they had expected before for both the quarters in the previous poll.

In a worst case scenario, the economy was forecast to contract 1 percent next quarter and by 0.7 percent in 2020. Forecasts were as low as -5 percent and -3 percent, respectively, with no economist expecting growth in either period in the worst case.

source: news.abs-cbn.com

Federal Reserve likely to raise rates a bit more: official

NEW YORK -- Despite a series of increases, the key US interest rate remains low and the central bank is likely to raise it further, but gradually, a top Federal Reserve official said Monday.

Financial markets have been roiled in recent weeks amid contrary comments from Fed officials interpreted as either a sign rates would have to move much higher or a signal the Fed will take a break.

New York Federal Reserve Bank President John Williams was reluctant to wade into the debate but said the benchmark lending rate was "still low" even after three increases this year.

"We'll be likely raising interest rates somewhat but it's really in the context of a very strong economy," Williams said in response to a question from AFP at a community event.

"We've been doing the best we can to find a gradual path of getting monetary policy back to more normal level of interest rates."

Williams is the vice chairman of the policy-setting Federal Open Market Committee, which has consistently said continued gradual interest rate increases will allow the US economy to continue to expand while keeping inflation under wraps.

But there have been some mixed signals from officials, including Federal Reserve Chairman Jerome Powell who alternately in recent weeks has made a comment indicating the Fed had many moves ahead, and more recently that the central bank will move cautiously and watch the signs in economic data.

Economists have wavered between expecting 4 rate increases next year to predicting the Fed will pause, though another increases is almost unanimously expected in December.

Williams said the Fed was "not on preset course," and would adjust policy as needed.

"Our goal here is to keep the economy strong, keep this expansion going as long as possible," he said during a discussion at the New York City Hispanic Chamber of Commerce.

He said the Fed was "in a great position," with very low unemployment and inflation.

The conditions are ideal for communities focusing on improving training and workforce development to get more people into jobs, since employers almost universally are having troubling filling open positions, Williams said.

Wall Street was down sharply in midday trade but stocks appeared more moved by housing market released earlier which showed a plunge in homebuilder sentiment and weakness in tech giant Apple.

source: news.abs-cbn.com

China looks to connect with ASEAN financial markets: PSE official

China is looking at capital market integration and exploring how it can connect with ASEAN financial markets as part of its Belt and Road initiative, an official of the Philippine Stock Exchange said Friday.

PSE chief operations officer Roel Refran also said the ASEAN Trading Link initiative needs to be further studied as the Philippines is not yet "as deep in product offerings".

source: news.abs-cbn.com

China, Japan, S. Korea to jointly combat financial instability

TOKYO - East Asia's three biggest economies vowed Friday to work together to help prevent market instability as tensions run high over Pyongyang's weapons programs.

North Korea's efforts to develop an arsenal of nuclear-armed missiles have fueled concerns among its Asian neighbors and led to threats of military action from Washington, as well as calls for China to rein in its reclusive ally.

Financial markets have been rattled by the events which have hit investor sentiment, and on Friday finance ministers and central bank governors from China, Japan and South Korea affirmed their cooperation in the face of future uncertainty.

"We will continue high degree of communication and coordination among China, Japan and Korea to cope with possible financial instability in the context of increased uncertainty of global economy and geopolitical tensions," a joint statement said.

The three-way talks were held on the sidelines of the Asian Development Bank's annual meeting in Yokohama, southwest of Tokyo.

Financial ministers and central bank governors of the 10-strong Association of Southeast Asian Nations (ASEAN) were also attending the ADB gathering, which began on Thursday.

In a separate meeting with ASEAN countries, Japan on Friday proposed to create a new currency swap arrangement worth 4 trillion yen ($36 billion) in case the region faces a financial crisis.

A swap is a useful device in times of economic stress, when normal foreign exchange markets can seize up.

"The yen is a stable currency and can work effectively for the stability of financial markets," Japanese Finance Minister Taro Aso told reporters, according to public broadcaster NHK.

Participants responded positively to the proposal, NHK said.

Since the onset of the Asian currency crisis in the late 1990s, Japan has spearheaded efforts to build a multilateral currency swap agreement.

source: news.abs-cbn.com

Global markets: Stocks up, oil slides

NEW YORK - A measure of stocks across major markets globally inched up to a record high on Tuesday, lifted by gains in Europe amid corporate and economic strength, while crude futures tumbled as prices breached key technical levels.

A broad index of European stocks rose to its highest since August 2015, boosted by company earnings and as a survey of factory activity in the euro zone jumped to its highest since April 2011. French blue chips hit their highest in nearly a decade and Germany's DAX set a record high.

Robust results have helped lift share prices across the globe this year, with major U.S. indexes at or near record levels. First-quarter profits of companies on the benchmark S&P 500 index are expected to have risen 13.9 percent, the strongest rise since 2011, according to Thomson Reuters data.

Financial markets in Hong Kong, Japan and South Korea are closed on Wednesday for public holidays.

BP shares rose 1.6 percent after the oil major's first-quarter profit tripled.

Apple shares fell 1.2 percent to $145.75 in extended trading after the iPhone maker reported a surprise fall in iPhone sales.

"The economy is doing better within Europe, but these also tend to be global companies," said Isabelle Mateos y Lago, chief multi-asset strategist at BlackRock.

"The main reason why we are optimistic is because European companies are extremely well plugged in to benefit from the global reflation story, from China and US growth picking up."

The Dow Jones Industrial Average rose 36.43 points, or 0.17 percent, to 20,949.89, the S&P 500 gained 2.84 points, or 0.12 percent, to 2,391.17 and the Nasdaq Composite added 3.76 points, or 0.06 percent, to 6,095.37.

The pan-European STOXX 600 rose 0.75 percent to end at a near 21-month high and MSCI's gauge of stocks across the globe gained 0.27 percent to an all-time high.

The US dollar hit a six-week high of 112.30 Japanese yen as traders anticipated that despite some recent weak data the Federal Reserve would prepare markets for an interest rate increase in June in its statement following a policy meeting this week.

The yen weakened 0.13 percent against the greenback to 111.99 per dollar.

The Fed is expected to hold interest rates steady after its two-day meeting that began Tuesday, as it pauses to examine more economic data, but may hint it is on track for an increase in June.

Traders do not anticipate a hike on Wednesday but are currently forecasting a 65.2 percent chance of a 25-basis-point hike at the Fed's June meeting, according to Thomson Reuters data.

US benchmark 10-year Treasury notes were last up 11/32 in price to yield 2.2874 percent, from 2.327 percent late on Monday, ahead of the Fed statement on Wednesday.

WTI plunged on reports of rising output in the United States and extended losses on technical selling, while Brent crude oil prices fell to the lowest in over five months, erasing all the gains since OPEC agreed to cut production at the end of November.

US crude futures pared losses after data showed a bigger-than-expected inventory draw.

US crude fell 1.84 percent to $47.94 per barrel and Brent was last at $50.77, down 1.46 percent on the day.

Gold touched a three-week low of $1,251.37 an ounce as demand for the safe-haven asset waned. Spot gold was little changed at $1,256.36 an ounce.

source: news.abs-cbn.com

Dollar rallies alongside US yields; bank stocks up

NEW YORK - The US dollar hit an 11-month peak against a basket of currencies on Monday as the risk of faster US inflation and wider budget deficits sent Treasury bond yields shooting higher.

Both the US currency and yields pared some gains in afternoon trading, but continued to point to a new reality in financial markets on expectations of more spending and less regulation when US President-elect Donald Trump takes office in January.

On Wall Street, the Dow Industrials set a record high, led by financial stocks, on bets on higher interest rates and looser consumer protections. Gains in broader indexes were capped by declines in the technology sector.

The dollar traded above the 100 level on an index of the US currency against the world's other major currencies. The euro briefly touched its lowest versus the greenback since last December, while the yen was at its weakest since June.

The greenback has been romping ahead since Trump's win in the US presidential election last week triggered a massive sell-off in Treasuries.

"A lot of the move with the dollar has to do with higher yields," said Christopher Vecchio, currency analyst at FXCM in New York. "It's a seismic moment for markets."

Trump's win also sparked expectations of similar victories in Europe in the coming months. Worries over a rising tide of nationalist sentiment and restrictions on trade across Europe put pressure on the euro, analysts said.

Yields on the U.S. 10-year Treasury notes climbed to their highest since December at 2.302 percent, while 30-year paper climbed above 3.06 percent, also the highest since December. German 30-year yields touched their highest since March, above 1.06 percent, but gave up most of the day's rise.

Benchmark 10-year notes fell 39/32 in price to yield 2.2543 percent, from 2.118 percent on Friday.

The benchmark US yield has risen nearly 40 basis points over the past three sessions and analysts said they see no end in sight for the overall move lower in bond prices and higher in yields.

"I think there's more to go. I think we've topped out as far as the value of bonds," said Tom Simons, money market economist at Jefferies and Co.

"Trump is talking about running an extremely loose fiscal policy, higher spending and lower taxes, and his trade and immigration policies suggest that the labor market is going to get even tighter. All of that adds up to a pretty high inflation environment in the future."

Rising inflation hurts bond prices because it makes their future interest payments worth less.

The market has priced in a 79 percent chance of a 25 basis point rate increase at the upcoming Federal Reserve meeting, scheduled for next month.

WALL ST ENDS LITTLE CHANGED

Bank stocks were the leading force on Wall Street, with the S&P 500 bank index ending at its highest level since March 2008. However, a drop in the biggest tech companies, which also carry the largest market capitalizations, offset the gains and the S&P 500 ended flat.

Investors have been betting technology will look relatively less attractive if Trump lives up to his promise to review regulation in healthcare and financial sectors and to increase government spending on infrastructure to boost economic growth.

"If growth becomes more even and available, we may see a continuation of rotation into lower-valuation, more cyclical businesses and out of high-valuation growth stocks like technology," said James Abate, chief investment officer at Center Asset Management in New York.

The Dow Jones industrial average rose 21.03 points, or 0.11 percent, to 18,868.69, the S&P 500 lost 0.25 point, or 0.01 percent, to 2,164.2 and the Nasdaq Composite dropped 18.72 points, or 0.36 percent, to 5,218.40.

Emerging market stocks fell 1.2 percent and hit their lowest since July and MSCI's gauge of stocks across the globe fell 0.4 percent.

By contrast, Japan's Nikkei jumped 1.7 percent to its highest since February, boosted by the weaker yen.

In commodities, the strong US dollar put pressure on gold, which fell for a third consecutive session despite its appeal as an inflation hedge. Copper rose 0.2 percent after earlier gaining as much as 3.4 percent.

In the oil market, Brent rebounded from three-month lows after a report that OPEC members were seeking to resolve their differences on a deal to cut production ahead of a meeting later this month.

US crude was up 0.8 percent at $43.75 a barrel and Brent last traded at $44.75, flat on the day.

source: www.abs-cbnnews.com

Stocks, dollar, Mexico peso jump after FBI clears Clinton

TOKYO - US stocks jumped and the US dollar and the Mexican peso soared early on Monday after the FBI said it stood by its earlier recommendation that no criminal charges were warranted against Democrat Hillary Clinton.

The news boosted US S&P 500 Index futures 1.2 percent, a gain that is likely to snap the nine-day losing streak in the U.S. stock index - its longest in more than 35 years.

Investors had been unnerved by signs of a tightening presidential race between Democrat Hillary Clinton and Republican Donald Trump, whose stance on foreign policy, trade and immigration has rippled through financial markets.

Clinton is seen as a candidate of the status quo and her policies are viewed as more predictable than her Republican rival, a political novice.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent as Australian shares gained 0.7 percent. Japan's Nikkei looks set to gain 1.5 percent based on Chicago-traded futures.

The FBI said on Sunday it stood by its earlier finding that no criminal charges were warranted against Clinton for using a private email server for government work, lifting a cloud over her presidential campaign two days before the US election.

FBI Director James Comey made the announcement in a letter to Congress, saying the agency had worked "around the clock" to complete its review of newly discovered emails and found no reason to change its July finding.

The review of the emails had rattled financial markets and so the latest news triggered a relief rally.

In the currency market, the dollar rose as much as 1.4 percent against the yen and last stood at 103.96 yen, up 0.8 percent from late US levels while the euro dropped 0.5 percent to $1.1089.

The biggest winner was the Mexican peso, which has acted as something of a bellwether of sentiment as Trump's proposed policies are considered to be deeply negative for the country.

The peso 19.03 rose 2.2 percent to 18.61 to the dollar, hitting its highest level since Oct 26.

source: www.abs-cbnnews.com

US markets not fully buying a Clinton win

NEW YORK - As the US presidential election moves into the home stretch, financial markets are not fully invested in polls that show a win for Hillary Clinton.

Even though polls show the Democratic candidate with a strong lead over Republican Donald Trump, analysts say investors are waiting until after November 8 to lay their money on the table.

"I don't think it's fully 100 percent Clinton is in," said JJ Kinahan, chief market strategist at TD Ameritrade, who sees a pullback in risk-oriented investments as a sign of investor caution.

"Usually people are looking to take on extra risk for reward," he said. "I think this is one case where people are paring back on their risk."

Wall Street is thought to generally favor Clinton over Trump for president, and equity markets have hovered at historically high levels since July, with the S&P 500 less than three percent below its all-time peak.

Clinton is considered the more market-friendly outcome, expected to maintain the policies of outgoing President Barack Obama, while the market views Trump as a great unknown, both because of his penchant for controversy and his lack of a record in public office.

Trump has attacked trade partners China and Mexico and accused Federal Reserve Chair Janet Yellen of being a political tool of the Democratic party. Investors are also unsettled by Trump's seeming embrace of Russian President Vladimir Putin, a sign he may take foreign policy in radical new directions.

Signs of nervousness have been seen in certain trades, analysts say, like the Mexican peso. Trump's pledge of immigration controls and trade restrictions with Mexico have raised worries over its economy.

The peso sank against the dollar as Trump's campaign added momentum, but then rebounded on Clinton's gains following the first presidential debate on September 26.

But it remains down about 9 percent since Trump secured his party's nomination in May.

On the other hand, another gauge of market sentiment has been the biotechnology sector, which is seen as vulnerable in a Clinton presidency given the Democrat's vow to address runaway drug prices. The Nasdaq biotechnology index has fallen about nine percent over the last month.

Some analysts say the markets have already assumed a Clinton victory.

"To me, the markets clearly want a Clinton win and they have priced that in," said Nathan Thooft, senior managing director at Manulife Asset Management.

"That's what they predict, and that's what they want. If that doesn't happen, I feel there's a great level of uncertainty and possible downside to the markets."

SOME 'COMPLACENCY' OVER TRUMP

Indeed, investors are aware that Trump has been consistently underestimated by the political, media and business establishment. Many are also loath to repeat the error of Britain's June referendum to leave the European Union, when polling supported the market bet on a "stay" vote, only to be thrown into turmoil when Brexit passed.

"There's a bit of complacency in the market." said Kathy Lien of BK Asset Management,

"I think the market's underestimating the possibility of things going wrong as a result of either a Trump victory or the possibility of internal strife in the nation as a result of Clinton winning," she said.

Briefing.com analyst Patrick O'Hare cited sluggish trading volume, as well as the flatness of the S&P 500, as a sign investors are in "seeing is believing mode" with respect to polls pointing to a Clinton triumph.

One sign of a pickup in caution is the VIX volatility index, also known as the "fear" index. The index has risen the last three days and jumped nearly 8 percent Thursday to 15.36. Still, that is far below the 25.76 level on the day after the Brexit shock.

A big jump in the VIX before November 8 would signal "that the market is fearing something odd," Kinahan said.

source: www.abs-cbnnews.com

IMF's Lagarde denies any 'panic' of the market after Brexit

WASHINGTON - Financial markets have "grossly underestimated" the outcome of the British referendum on leaving the European Union but did not panic said the Executive Director of IMF international (IMF), Christine Lagarde, on Sunday.

At a forum in Aspen, Colorado, Christine Lagarde said that central bankers had their work Friday at the announcement of the victory of Brexit, and ensured that the broad masses of cash are available.

Political leaders have worked themselves for market participants that "the situation was under control. And it was under control," she said.

"There was a violent movement, brutal and immediate, the pound fell 10 percent," said Christine Lagarde.

"But there was no panic and central bankers have done the work for which they were ready in case, that is to say inject a lot of liquidity in the markets," she continued.

There was no liquidity problem Friday, unlike most severe moments of the 2008 financial crisis, she said.

The market reaction depends now, she continued, measures that take the British and European leaders to handle divorce and limit the uncertainty that results.

"To date, officials both in the UK and Europe take the uncertainty in their hands. The way they act in the coming days will really influence the direction that will take the risk," said the director General of the IMF.

Policy makers and international institutions must cooperate to manage the implications of the vote for the release of the EU the UK, she continued, noting that only Britain could formally initiate divorce proceedings, and Europe can not force his hand.

"We have strongly encouraged the effective continuation of the transition in the most efficient, most predictable, to reduce the level of uncertainty, which in turn will determine the level of risk," she said.

source: www.abs-cbnnews.com

UK PM Cameron says will step down after Brexit vote

LONDON - David Cameron said he would resign as prime minister by October, after Britons ignored his plea to stay in the European Union and voted in a referendum to leave.

Cameron addressed the world's media outside his Downing Street offices on Friday morning as financial markets pummeled sterling and investors sold off British shares after the 52-to-48-percent victory for the "Leave" campaign was confirmed.

"The British people have made the very clear decision to take a different path and as such I think the country requires fresh leadership to take it in this direction," he said.

"I do not think it would be right for me to be the captain that steers our country to its next destination."

He sought to reassure investors that the country's economy was "fundamentally strong", after sterling plunged to its lowest since 1985 and European shares fell more than 8 percent - on course for their worst-ever day's trading.

Making the statement alongside his wife Samantha, Cameron choked back tears. He said he had already advised Queen Elizabeth of his decision to stand down.

Cameron, 49, Britain's prime minister for six years, gave no detailed timetable for his departure but said there should be a new leader by the time his Conservative Party holds its annual conference in October.

"This is not a decision I've taken lightly but I do believe it is in the national interest to have a period of stability and then the new leadership required," he said.

"I think it's right that this new prime minister takes the decision about when to trigger article 50 and start the formal and legal process of leaving the EU," he said. Article 50 of the EU's Lisbon Treaty deals with the mechanism for departure.

As he spoke under the gaze of cameras crammed into the narrow London street, celebratory horns sounded from cars passing nearby and "Leave" supporters marked their victory by waving Union Jack flags.

Cameron took office in 2010 as leader of a coalition government and in May last year won a second term with a surprise outright majority at a national election. He had been due to serve as prime minister until 2020.

He said he believed he had made "great steps" during his time in office, citing, among other things, his landmark move to legalize gay marriage in Britain.

"I love this country - and I feel honored to have served it ... I will do everything I can in future to help this great country succeed," he said before taking his wife's hand, turning away and walking back into Number 10 Downing Street.

The vote is expected to deliver at least a short-term hit to growth in Britain and might push it into recession. It could prompt the Bank of England to cut interest rates to zero and test the willingness of creditors to keep on funding Britain's current account deficit.

Further ahead, the implications of the vote will depend on what kind of trading relationship Britain can strike with the EU, which accounts for nearly half the country's exports.

source: www.abs-cbnnews.com

The Best Publications for Aspiring Forex Traders

Trading currencies is undeniably complex. The financial markets are some of the fastest moving in the world, and with a thousand different drivers to influence new trends and patterns, it can be incredibly hard for aspiring traders to wrap their heads around the intricacies of the foreign exchange.

Like any art, however, forex can be mastered by most. It’s not always an easy education, but provided that you have the time, grit, and desire to learn about the currency markets, most people can pick up enough information to trade successfully.

A lot of would-be investors struggle to know where to start their search for knowledge, but fortunately there are plenty of places to acquire an education. Here are a few to get you started…

#1: Books

There are few resources that can rival a good book when it comes to acquiring new information, and this is as true for forex as it is for any other area of academic interest. A quick Amazon search should soon reveal a myriad of useful titles to choose from, each of them boasting handy reviews to help you find the perfect purchase. With both new and second-hand books available, you should also be able to find some great bargains even if you’re trying to stick to a budget. Your local library will also be worth checking out, as there could well be some handy tomes gathering dust on its shelves.

#2: Online Journals and News Sites

Books are a fantastic way to learn about tactics and strategies, but they’re unlikely to offer a contemporary insight into current market trends. Online journals, on the other hand, will do just that. News site are often an incredibly useful source of information, and can provide a handy heads up with regards to emergent trends. What’s more, many will contain commentaries to help you understand not only what’s happening on the markets, but also why it’s happening. Archived content can even provide examples of how the market has reacted to certain stimuli in the past, which can be a useful tool for deducing how a similar contemporary event will impact your currency pairings.

#3: Blogs

Thirdly and finally, be sure to take full advantage of any beneficial blogs that you stumble across. Lots of professionals and expert investors will share their insights on the currency markets and current events, and these can prove invaluable in lending a sense of direction to your trading. The right advice really can make all the difference if you feel like you’re floundering, and many bloggers will provide insights into their own strategy and tactics, as well as their commentary on current events, which you can adapt to suit your own needs. Brokers’ blogs, like this one from FxPro, are often particularly useful and well informed, and can be a fantastic resource for the inexperienced investor.

Transform your trading today with these three essential resources.

source:  20smoney.com

BOJ launches negative rates, already dubbed a failure by markets

TOKYO - The Bank of Japan (BOJ) implements negative interest rates on Tuesday in a radical plan already deemed a failure by financial markets, highlighting Tokyo's lack of options to spur growth as global markets sputter.

The central bank, putting into effect a Jan. 29 decision that stunned investors, will charge banks 0.1 percent for parking additional reserves with the BOJ - in a bid to push down interest rates and encourage banks, businesses and savers to spend and invest.

While the negative-rate announcement briefly drove down the yen and buoyed Japanese share prices, markets quickly reversed as the policy backfired with investors.

"It's getting clearer that Abenomics is a paper tiger," said Seiya Nakajima, chief economist at Office Niwa, a consultancy, referring to Prime Minister Shinzo Abe's policy mix of monetary easing, spending and reform.

"The impact of monetary easing is similar to currency intervention. The first time they do it, there's a huge impact. But as they repeat it, the impact will wane," said Nakajima.

Though senior BOJ officials were at pains to say they had calibrated only a minor impact on Japanese banks, their stock prices plunged, contributing to a global meltdown in financial shares that drove the latest leg down in the global market rout.

BAD TIMING

To some extent, the BOJ was beset by bad timing, as global markets were already in a tailspin over concerns about China's slowdown, U.S. rate hikes and cratering oil prices. Still, the reaction appeared to fly in the face of BOJ Governor Haruhiko Kuroda's assertion that his policy was having its intended effects.

"It seems as though the BOJ's action triggered the market moves," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management. "But a better explanation would be that concerns elsewhere overwhelmed the BOJ action."

In the 11 days since the BOJ board's announcement, the benchmark Nikkei index has fallen 8.5 percent, despite a sharp rebound on Monday, while the yen has climbed 6.5 percent against the dollar.
Japanese bank shares have slumped by as much as 30 percent as it is considered unpalatable for them to pass on negative rates as a surcharge on depositors, who already barely get any interest on their savings. Negative rates could push down bank operating profits by 8-15 percent, Standard and Poor's said.

The 10-year Japanese government bond yield initially fell below zero on the easing - a first among Group of Seven economies. But it has recovered from minus 0.035 percent last week to 0.090 percent above zero, with Japanese markets becoming more unstable as investors are at a loss on how to reckon fair value.

Prices on 10-year JGB futures imply volatility above 5 percent, a 2.5-year high and more than triple the level at the start of the year. This high volatility could persist, and the BOJ has only itself to blame, some market players say.

IN DEFENSE

Kuroda told parliament it wasn't the BOJ's policy but "excessive risk aversion" that was behind the global market turbulence.

And BOJ Deputy Governor Hiroshi Nakaso told a New York audience on Friday that the new, three-tiered rate scheme "is carefully designed to mitigate aggressive impact on banks' profitability while ensuring the effect of negative rates on prices in financial markets."

But a former BOJ official who retains close contact with central bankers said this "is essentially saying that the effect of its policy itself is limited," adding: "If the move was aimed at weakening the yen, it failed completely."

Some BOJ officials privately worry whether the central bank can keep gobbling up JGBs at the current pace of $700 billion a year, as negative rates would discourage financial institutions from piling up the cash they would earn by selling JGBs to the BOJ. Japan's three 'megabanks' have scrambled to buy JGBs and corporate bonds, seeking whatever meagre interest they can earn without taking on much risk.

While Kuroda notes the BOJ can cut rates deeper below zero, market participants say there's little hope that more of the same would have a beneficial effect.

source: www.abs-cbnnnews.com

French economy minister doubts China growth data

DAVOS - France's economy minister, Emmanuel Macron, said Friday he believes China's official figures overstate the true pace of its economic expansion, warning that the tough international climate will not help Europe.

The minister cast doubt on the reliability of China's figures, including its announcement this week that its economy grew by 6.9 percent in 2015, the slowest rate in a quarter century.

"I said a few months ago that I don't believe for a second the figures that are being given. I think those that are still being officially announced are probably well above the reality but we just have to live with it," Macron said at a gathering of the business and political elite in the Swiss ski resort of Davos.

Concerns that the slowdown in Chinese economic growth may be more brutal than Beijing admits have contributed to deep concern on world financial markets.

The global economic environment is unlikely to be helpful to the French or European economies, the minister said, underscoring the need to pursue economic reforms.

"What is really worrying is to see to what extent we have an economic and geopolitical environment that has become extremely volatile," Macron told reporters.

'RADICAL REFORM'

"Honestly, to be clear, we cannot expect any surprise events to boost French and European growth," he added.

"Truly, if we should focus on something this year it is to reform our economy as radically as possible," said the minister, who is fighting to push through economic reforms including making it easier for shops to open on Sundays.

Besides the slowdown in growth in China, the world's second largest economy after the United States, slumping oil prices were also destabilising petroleum-exporting countries, he said.

Adding to global uncertainties were the problems facing emerging economies, financial market volatility, conflict in the Middle East, the refugee crisis and jihadist terror attacks in Europe, he said.

The Europe Union's internal tensions compounded the difficulties, he said.

"We have the risks of fragmentation, the divergence of our economies, of our political choices, of our collective preferences," he said, evoking notably terrorism and European nations' response to the huge flow of refugees from fighting in the Middle East.

France emerged from three years of economic stagnation last year with growth of more than 1.0 percent, but 650,000 people have been added to the jobless total since Francois Hollande became president in 2012.

Hollande pledged Monday to spend more than 2.0 billion euros ($2.2 billion) on tackling France's "state of economic emergency".

Joblessness, which stands at around 10 percent or 3.57 million people in the eurozone's second-largest economy, was the "only issue that ranks above security for the French people", the president said.

source: www.abs-cbnnews.com

3 reasons why Forex is the Most Advantageous Financial Market

When it comes to appraising the popular and unique forex market, your opinion will be shaped almost entirely by your appetite for risk. While risk-averse investors can scarcely see beyond the high levels of volatility and excessively long trading sessions, for example, those in the market for higher returns are more likely to embrace the leverage and liquidity that defines the foreign exchange. With the Bank for International Settlements reporting that forex trading generates in excess of $5.3 trillion a day, however, it would appear as though the majority of investors are willing to take a calculated risk in the quest for larger returns.


3 Reasons why Forex is the Most Advantageous financial Market

 The reason for this is that the forex market remains arguably the single most advantageous financial market in the world, and here are just some of the reasons why: –

The Low Cost of Forex Trading

 Debt comes in many forms, and all of these variations have a tangible influence on traders and investors from around the world. From nation debt (which in the UK continues to grow at a rate of £5,170 per second) to consumer liabilities, this reduces disposable income and often forces investors to seek out low-cost trading vehicles. Fortunately, forex trading is one of the most inexpensive methods of investing your money, with a far tighter spread than those applied to securities, stocks and commodities. This creates an accessible market where future profits can be easily maximised.

Benefit from Marginal Returns

 In forex trading, you are speculating on the performance of one currency in comparison with another. This type of trading is margin-based, which means that it is possible to earn far more than your initial investment and drive huge returns. While the reverse is also true (in so much that you can lose far more than you originally committed to the cause), this is where the delicate balance between risk and reward must be given careful consideration by investors. The potential gains are certainly huge, however, while traders are also helped by the presence of expert brokerage firms and the type of resources.

Profit in a Depreciating Market

 Another advantageous aspect of margin-based investments is that they relieve traders from the burden of ownership, while also enabling them to profit even in a depreciating market. Simply by taking a short-position in the market as and when rates decline, you can optimise the margin in a specific currency pair and drive huge, short-term gains. Conversely, you can assume a long position when rates begin to rise, before selling currency at a later date for more than you initially paid. This type of flexibility is unique to the forex market, and it represents the core difference of trading derivatives and fixed assets.

source: 20smoney.com

Asian shares tumble as global stocks rout deepens

HONG KONG, China - Asian shares slumped on Friday, plunging deeper into the red after weak manufacturing data from China fuelled panic among investors over the clouding outlook for the world economy.

The dollar notched more losses against the euro and yen after minutes from the US Federal Reserve dampened hopes for a rate rise next month, while Asia-Pacific currencies were hit by concerns about regional growth.

Shanghai shares closed down 4.27 percent, or 156.55 points, at 3,507.74, ending their worst week since 2011 as worries over the flagging economy and the possibility of weaker government support weighed.

China's benchmark index closed at almost exactly the same level as the bottom of a recent market rout on July 8, before Beijing stepped in with a vast rescue package for equities.

Hong Kong fell 1.53 percent, or 347.85 points, to finish the day at 22,409.62 -- its lowest point since May 2014 -- taking it into a bear market after a more than 20 percent slump from its April peak.

Tokyo shares fell 2.98 percent, or 597.69 points, to finish at 19,435.83, a more than three-month low and down 5.28 percent on the week.

Seoul fell 2.01 percent, or 38.48 points, to 1,876.07 as tensions climbed with North Korea, and Sydney dropped 1.40 percent, or 73.98 points, to close at 5,214.60.

"It seems like we're seeing the makings of the 1997 Asian financial crisis all over, with emerging-market currencies plunging," Nicholas Teo, a strategist at CMC Markets in Singapore, told Bloomberg News.

"China's knock-on effect on the rest of the world is huge and China's deepening economic slowdown will have an impact for the next couple of months or so."

Asia got a negative lead from Wall Street after US shares sank more than 2.0 percent Thursday, with the Dow dropping to its lowest level for 2015.

Gold gained as investors looked for safer bets, rising to $1,150.67 in Asia compared to $1,138.80 late Thursday.

Sea of red

Market sentiment has nosedived since China's central bank devalued its currency last week in a surprise move widely seen as aimed at boosting the country's flagging exports.

Stoking concerns, the preliminary reading of Caixin's Purchasing Managers' Index (PMI) came in at 47.1 this month, its worst reading since March 2009 and significantly below analysts' forecasts.

"Global markets are in panic mode as the full scale of China's slowdown becomes clearer and the market pricing for a Fed September rate hike is unwound," said Angus Nicholson at IG Markets.

"China's currency devaluation, further stock market declines, and now another weak PMI appear to have put it front-and-centre in investors' minds."

Commodity shares continued their slide as concerns about a slowdown in China, the world's top importer of industrial metals and energy, continued to weigh.

A slump in raw materials prices has wiped off some $2 trillion from commodity stocks since the middle of last year.

US benchmark West Texas Intermediate (WTI) for October delivery, a new contract, lost 27 cents to $40.78 a barrel in afternoon trade, while Brent crude for October tumbled 32 cents to $46.30 a barrel.

The WTI September contract closed 32 cents higher at $41.14 in New York on Thursday, marginally higher than recent six-and-a-half year lows.

Analysts said oil held above the key $40 a barrel level thanks to a weaker greenback, which makes it cheaper for international investors to buy dollar-denominated oil.

Investors will be watching the weekly US oil rig count, due out on Friday, to see if a slump in crude prices has started to dampen production in the world's top economy.

In currency markets, the dollar stood at 122.97 yen, down from 123.38 yen in New York on Thursday.

The euro rose to $1.1255 and 138.39 yen, compared with $1.1241 and 138.69 yen in New York.

In other markets:
-- Wellington rose 0.13 percent, or 7.71 points, to 5,751.19.

Telecoms giant Spark New Zealand gained 9.42 percent to NZ$3.02 after they increased shareholder dividends. Fletcher Building was down 1.57 percent at $7.53

-- Taipei fell 3.02 percent, or 242.89 points, to 7,786.92.

Taiwan Semiconductor Manufacturing Co shed 3.97 percent to Tw$121.0 while Fubon Financial Holding lost 3.02 percent to Tw$49.85.

Financial markets in Manila are closed for a public holiday.

-- Bloomberg News contributed to this article --

source: www.abs-cbnnews.com

Asian shares, oil prices tumble on growth worries

TOKYO - Asian shares shuddered and Brent crude oil prices tumbled to their lowest since 2010 on Friday after weak German export data raised fears that Europe's economic woes could drag down the global economy.

A bleak market day dawned in Europe, where futures for the Euro STOXX 50 STXEc1, the UK's FTSE 100 FFIc1, Germany's DAX FDXc1 and France's CAC FCEc1 were all down more than 1 percent, indicating that opening losses were likely.

"European markets face the prospect of a weak open and the bulls will hope for improvement in French and Italian industrial production today. One suspects the negative news low will continue," Chris Weston, chief market strategist at IG in Melbourne, said in a note.

Many investors fear that the gradually recovery U.S. economy - the world's largest, but comprising less than a quarter of the entire global economy - cannot escape unscathed as Europe stalls and other big economies, including China, Japan and Brazil, face their own hardships.

"The global economy continues to recover moderately. But the degree of recovery varies quite a lot from country to country," Japanese Finance Minister Taro Aso told reporters in Washington, where he's attending the annual International Monetary Fund meetings.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 1.5 percent in late afternoon trade, leaving it down 0.8 percent for the week.

Japan's Nikkei share average ended down 1.2 percent as the yen strengthened on safe-haven bids, and skidded 2.6 percent this week. Japanese markets are closed on Monday for a holiday.

Hong Kong's Hang Seng Index was down 1.8 percent, undermined by global growth fears as well as concern about a possible flare-up in pro-democracy protests there after students said they would maintain their campaign after the city government canceled talks.

Worries about global growth hit oil prices hard. European benchmark Brent crude oil fell as low as $88.11 a barrel, its lowest since December 2010. It last stood at $88.77, down 1.4 percent on the day.

U.S. crude futures plunged 1.9 percent to $84.14, after dropping as low as $83.59, their lowest since July 2012.

The latest tumble was a reverberation from Germany's downbeat data on Thursday, which showed exports from the engine of the euro zone economy fell 5.8 percent in August, the worst decline since January 2009.

A string of dismal data from Germany in recent weeks has fed anxieties about recession in the euro zone.

Wall Street stocks slumped 2 percent on Thursday, with the S&P 500 index hitting a two-month closing low. The CBOE volatility index, a measure of investor anxiety, rose to highs not seen since early February.

"If U.S. stocks jumped back today, then the market could go back to the same habit of assuming everything will be all right. But if they fall big for two days in a row, markets will be clearly entering a whole new phase," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

Anxieties about global economic growth smothered a short-lived rally in equity markets around the world that was sparked by speculation the Federal Reserve would not rush interest rate rises.

Adding to jitters, St. Louis Federal Reserve Bank President James Bullard said he was concerned by a disconnect between the market's view of the Fed's rate-increase path and the central bank's own view.

Financial markets have constantly expected much slower tightening by the Fed than U.S. central bank policymakers' own projections.

Federal funds rate futures are pricing in rate hikes to just above 0.50 percent by the end of next year, far below the Fed board members' median forecast above 1.25 percent.

The 10-year U.S. Treasuries yield fell to a 16-month low of 2.2790 percent on Thursday before bouncing back slightly on profit-taking. It last stood at 2.324 percent, down from the U.S. close of 2.327 percent.

The euro steadied on Friday, inching slightly higher to $1.2297. It had reached a 2-1/2 week high of $1.2791 early on Thursday, before the downbeat German data knocked it lower.

The risk-off mood underpinned the yen, with the dollar trading at 107.80 yen, having fallen to three-week low of 107.53 yen on Thursday.

The dollar's index against a basket of six major currencies edged down to 85.510. It slipped as low as 84.937 on Thursday, its lowest level since late September, moving away from a four-year high of 86.746 hit one week ago.

Spot gold edged down 0.1 percent to $1,222.40 an ounce but retained most of its gains from a four-day rally, and was headed for its best week in nearly four months on safe-haven buying.

source: www.abs-cbnnews.com

Typhoon 'Glenda' heads towards China

MANILA - Financial markets are set to reopen in the Philippines on Thursday as residents clear debris and authorities work to restore power after a typhoon churned across the Southeast Asian country, killing at least 20 people.

Typhoon Glenda (international name ''Rammasun''), the strongest storm to hit the Philippines this year, is heading towards China after cutting a path across the main island of Luzon, shutting down the capital and knocking down trees and power lines, causing widespread blackouts.

Most schools remain closed in the capital and southern Luzon provinces, the most densely populated part of the country with about 17 million people. Power has been restored to just over half of the Luzon grid, a transmission agency official said.

Disaster officials are still assessing damage but the coconut-growing Quezon province south of Manila appears to have borne the brunt of Rammasun, which intensified into a category 3 typhoon as it crossed the Philippines.

Tropical Storm Risk, which monitors cyclones, has downgraded Rammasun to a category 1 storm on a scale of one to five as it heads northwest into the South China Sea.

"In the aspect of infrastructure, it looks like Quezon province was most affected," said retired Admiral Alexander Pama, executive director of the national disaster agency.

"As of last night, it looks like there was a lot of damage," he said. An aerial survey would be conducted to confirm reports that about 95 percent of the province was damaged, he said.

Quezon governor David Suarez said the province was preparing to declare a state of calamity. He said officials had confirmed seven people died in the province.

"Last night we had difficulty going around because many trees and fallen poles are blocking highways and roads," Suarez said in a radio interview.

Nationwide, more than 420,000 people were forced out of their homes and into evacuation centers, many in the eastern Bicol region where the typhoon first made landfall, the disaster agency said.

At least 20 people died, most of them hit by fallen trees and electric poles, and five others were missing, the agency said. The number of deaths may rise, with government officials citing new reports of casualties.

Officials said more than half a million people were affected by the typhoon, including some in the central Philippines. The area is still recovering from Haiyan, one of the biggest cyclones known to have made landfall anywhere. Haiyan killed more than 6,100 in the central provinces in November, many in tsunami-like sea surges, and made millions homeless.

source:  www.abs-cbnnews.com

What's behind the wave of market anxiety?

What has caused the sudden anxiety attack that overwhelmed financial markets after the New Year? We may find out the answer at 8.30 on Friday morning, Eastern Standard Time.

Almost all agree that the market turmoil has been linked to alarming events in several emerging economies - including Turkey, Thailand, Argentina and Ukraine - that has spilled over into concerns about more important economies, such as China, Russia, South Africa, Indonesia and Brazil.

But why has near-panic hit so many emerging markets at the same time?

There seem to be four broad explanations. Whether this current volatility marks the end of the straight-line ascent in asset prices that started in March 2009, or whether it is just another opportunity to "buy on dips," will largely depend on the relative importance of each of these factors.

Most headlines about the emerging market instability blamed China - especially a plunge in Chinese economic statistics released New Year's Day.

If China is really the main cause, investors can relax. Not because China's weakness and credit tightening is an illusion, but because virtually every business and investor in the world has been aware of the Chinese slowdown for more than a year now. And so has Beijing.

The Chinese authorities, having achieved the slowdown and credit tightening they were seeking, now have both the tools and the willingness to keep credit from tightening much further and growth from falling significantly below the recent pace of roughly 7 percent.

The second explanation of the turmoil has been the tightening of global credit conditions due to the U.S. Federal Reserve's December decision to "taper" its program of printing money and buying bonds. This is another threat that is more apparent than real.

Financial conditions have certainly deteriorated in many emerging economies. But to blame this on a global tightening of credit makes no sense. The Fed is still printing new money at a rate of $65 billion monthly, while the Bank of Japan is expanding its balance sheet by an average of $58 billion each month - with a strong possibility that even more aggressive monetary expansion will be announced in the next few weeks.

More important, it is now clear that short-term interest rates will remain near zero in the United States, Japan and Europe until well into 2015. As for long-term interest rates, far from rising on expectations of tighter monetary conditions from 2016 on, have fallen sharply since the end of last year. So it is impossible to blame this financial turmoil on tightening credit or fears of an increase in U.S., European or Japanese interest rates.

If credit in the developed world is still abundant and interest rates falling, why is the tide of global capital flowing out of so many emerging economies? The answer may lie in two problems that are actually more worrying than either the Chinese slowdown or Fed tapering.

The biggest threat to emerging economies is flight of domestic capital - as savers and businesses inside these nations lose confidence in the safety of their savings, the integrity of their currencies or the stability of their political systems.

When domestic capital starts to flee, the outflow can quickly overwhelm apparently strong policy defences, such as foreign exchange reserves, monetary tightening or apparently healthy trade accounts. As this capital flight accelerates, more domestic savers lose confidence in their governments, leading to more capital flight and then even greater economic and political instability.

This vicious circle of financial panic leading to political instability can quickly degenerate into death spirals that end with revolutions and military coups. A pattern familiar from many EM politico-economic crises.

But before getting too apocalyptic, we should remember that such vicious circles can also reverse and turn into virtuous circles - often in response to quite small improvements in domestic policies and global economic conditions.

Which brings us to the last possible explanation of the recent scary market dynamics.

Perhaps the main reason for the sudden swing of the global financial pendulum from greed back to fear has been the deterioration in U.S. economic data that started with the shockingly weak U.S. payroll employment report of January 10.

Economists dismissed that report as an aberration, due to exceptionally cold weather. It was indeed inconsistent with most other data - such as last week's gross domestic product figures, which showed strong U.S. growth in the fourth quarter, despite the government shutdown. The private sector expanded at a boom-time rate of 5.1 percent.

But despite such conflicting evidence, many investors have chosen to follow the aberrantly weak payroll figures - though few people believe them to be accurate.

This should not be surprising, however. Financial markets are driven not just by what investors believe, but also by what investors think other investors believe.

As I have often pointed out in this column, the monthly U.S. employment figures have largely determined the direction of financial markets the world over since mid-2009. After the 2008 Lehman Brothers crisis, it seems that investors have simply not been prepared to believe in a global economic recovery unless they could see evidence of strong U.S. job growth.

It is therefore possible that decent U.S. employment figures are a key condition for financial confidence to be restored - not just on Wall Street, but also in Istanbul, Moscow and Sao Paulo.

The next U.S. employment figures are due out at 8.30 on Friday morning. So we will soon find out if this simplistic-sounding theory makes sense.

source: www.abs-cbnnews.com

Uncertainties in US debt deal worrisome, says expert

MANILA, Philippines – Despite the last-minute debt deal to avoid a default in the United States, economic uncertainties surrounding the debt ceiling are worrying, Security Bank EVP for Financial Markets Rafael Algarra said on Thursday.

Algarra warned that by early 2014, US will face the same problem as the deal only funds the US government until January 15 and raises the debt ceiling until February 7.

“I think that’s where most of the worry of the market is. The problem is that every time they do this, it starts to affect the economy in general and another shutdown will further affect the economy,” he told ANC’s “News Now” on Thursday.

“I think the bigger worry is the long-term effect of what has happened. As we've seen, they estimated that the GDP would be affected by around 6%, that’s around $24 billion. This should probably effect US economy and they’ll have worries of ongoing problems like this in the future. We’ll probably see the Federal Reserve be conscious of the fact that they might withhold tapering and move it at a much later date,” he added.

The 11th-hour deal ended a 16-day US government shutdown and averted a historic debt default that could have brought financial calamity.

According to Algarra, the forecast for the Philippine financial market is still positive for the rest of the year.

He said the Philippine Stock Exchange index (PSEi) is seen to hit 6,800-6,850 level by yearend.

“We expect the PSEi to move up before the yearend,” he said.

Algarra also said the Philippine peso is expected to strengthen against the US dollar, with the peso-dollar exchange rate seen to range between P42.50-P43 to a $1.

“With the uncertainty of the US dollar it may even be more pronounced this time,” he said.

He added that prospects for the country’s financial market are promising with remittances and balance of payments surplus.

“On a risk aversion scenario, you buy US dollar. But the problem is the US dollar is causing all the uncertainty. So on taking out risk, you should be selling local currency and buying another currency, but if the US dollar is not the one, in a cross basis it cancels off. But the prospects for the Philippines are quite good,” he said. -- With Reuters

source: www.abs-cbnnews.com

Senate Passes Student Loan Deal

The Senate passed legislation Wednesday that would make it less expensive for college students to borrow money to pay for classes, housing and books. But interest rates could soon start climbing.

The proposal, that passed by 81 votes to 18, would link interest rates on federal student loans to the financial markets. That means student loans for the next few years would have lower interest rates. Higher rates would come in later years if the economy improves as expected.

Liberal Democrats opposed the White House-backed proposal as a bait-and-switch measure that would lure in new borrowers. Republicans supported the measure and helped the bill win passage. The bill is similar to one the House has already passed.

The White House and its allies said the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest But there was no denying the new structure could cost future students if the economy improves as expected and interest rates climb. The White House's allies instead suggested the new formula is better than the status quo.

After the bill's passage the White House released a statement from President Obama applauding the vote.

"This compromise is a major victory for our nation's students," the statement read. "It meets the key principles I laid out from the start: it locks in low rates next year, and it doesn't overcharge students to pay down the deficit. I urge the House to pass this bill so that I can sign it into law right away, and I hope both parties build on this progress by taking even more steps to bring down soaring costs and keep a good education - a cornerstone of what it means to be middle class - within reach for working families."

Rates on subsidized Stafford loans doubled to 6.8 percent July 1 because Congress could not agree on a way to keep them at 3.4 percent.

Liberal members of the Democratic caucus were vocal in their opposition over the potentially shifting rates included in the Senate measure, which passed with support from both parties. The bill passed with support from 45 Republicans, 35 Democrats and Sen. Angus King, the independent from Maine who helped negotiate the deal.

Sen. Mike Lee, R-Utah, joined 16 Democrats and Sen. Bernie Sanders, the Vermont independent who caucuses with Democrats, to oppose the legislation.

Sen. Claire McCaskill, D-Mo., did not cast a recorded vote.

"This permanent, market-based plan makes students' loans cheaper, simpler and more certain," said Sen. Lamar Alexander, the top Republican on the Senate education panel. "It ends the annual game of Congress playing politics with student loan interest rates at the expense of students planning their futures."

Under the bipartisan deal, undergraduates this fall could borrow at a 3.9 percent interest rate. Graduate students would have access to loans at 5.4 percent, and parents could borrow at 6.4 percent. Those rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.

The compromise could be a good deal for students through the 2015 academic year. After that, interest rates are expected to climb above where they were when students left campus in the spring, if congressional estimates prove correct.

As part of the compromise, Democrats won a protection for students by capping rates at a maximum 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents' rates would top out at 10.5 percent.

Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.

But even among those who voted for it, frustrations remained evident.

"The bill that is before us represents a number of compromises that were made on both sides," said Sen. Tom Harkin, the Iowa Democrat who chairs the Senate Health, Education, Labor and Pensions Committee, before the vote.

Harkin said the legislation is not what he would have written if he had the final say but he also said that he recognizes the need to restore the lower rates on students before they return to campus for classes.

"It's the best that we can do," Harkin said on the Senate floor. "If we don't pass this today, there will be one sure effect: student loans will be almost twice what they would be under this bill."

Most Senate Republicans who pushed for interest rates to be linked to the financial markets voted for the measure. It was negotiated by Democratic Sen. Joe Manchin of West Virginia and GOP Sens. Richard Burr of North Carolina and Lamar Alexander of Tennessee, the top Republican on the Senate Health, Education, Labor and Pensions Committee.

"They may come from different political parties, but they all really care about students. And this bill proves it," said Senate Republican leader Mitch McConnell of Kentucky. "And there's something else this bill proves, too: That Democrats can work with Republicans when they actually want to do it -- when they check their partisan, take-it-or-leave-it approaches at the door and actually talk with, rather than at, us."

The compromise negotiated in the Senate closely hews to what House Republicans passed this year, and that's a sticking point for some liberals.

Sen. Jack Reed, D-R.I., pushed for an extension of the current 3.4 percent rate so lawmakers could address the subject this fall during the revision of the Higher Education Act. Sen. Elizabeth Warren, D-Mass., has objected to students paying higher interest rates than the Federal Reserve offers to big banks.

"I understand that compromise isn't always pretty, but there isn't any compromise in this bill," Warren said last week when the deal was announced.

"In fact, I think the whole system stinks," she added during a Senate speech.

Sens. Patty Murray, D-Wash., and Al Franken, D-Minn., planned amendments that would redirect any profits made through the bill to help low-income students.

The Congressional Budget Office estimated the bill as written would reduce the deficit by $715 million over the next decade. During that same time, federal loans would be a $1.4 trillion program.

"We've got to get out of the business of making profits of struggling families who want nothing more than to be able to send their kids to college," said Sen. Bernie Sanders, a Vermont independent who caucuses with Democrats. "This legislation only makes a bad situation worse."

The Associated Press contributed to this report.

source: dailyfinance.com