Markets boosted by rate hopes ahead of Fed decision

HONG KONG - Most markets rose Monday ahead of a crucial Federal Reserve policy meeting later in the week, with investors hoping for a less hawkish tilt in their plans for interest rates.

A sense of relief has settled on trading floors over the past week following a report that the US central bank could take its foot off the accelerator in its push to rein in decades-high inflation.

Adding to the positive mood has been an indication that others around the world are looking at slowing down, though the excitement was tempered Friday by record inflation readings in Europe and data showing prices remained elevated.

Asian dealers were given a strong lead from Wall Street, where all three main indexes ended more than two percent higher thanks to a rally in tech firms following a strong earnings report from Apple.

Tokyo, Seoul, Sydney, Singapore, Taipei, Mumbai, Bangkok and Wellington all piled on more than one percent, while Jakarta was also up.

However, Hong Kong and Shanghai fell on concerns about China's growth outlook as the government continues its zero-Covid strategy of lockdowns, with restrictions imposed in towns and cities nationwide.

Data showing activity in the factory and services sectors contracted last month highlighted the impact the measures are having on the world's number two economy.

The drops also come after China announced a tally of over 2,500 new virus cases, the biggest outbreak in more than two months, fanning concerns of further painful shutdowns.

All eyes are on the Fed's policy meeting, which ends Wednesday.

While it is widely expected to announce a fourth successive 75 basis point hike, traders will be poring over the post-meeting statement looking for a hint that officials are open to dialing back the pace of increases.

The gathering comes as other central banks have recently indicated they are willing to ease up, with Canada raising rates less than expected last week, while authorities in Australia and Europe have taken a more dovish view.

Concerns that rapidly rising borrowing costs will send economies into a recession have hammered markets globally this year.

"There has been a succession of central bank downshifts, adding to the 'peak hawkishness' theme running through macro markets," said SPI Asset Management's Stephen Innes. "And investors are entirely focused on these U-turns as peak rates get priced in. 

"So, people don't want to miss the stock market rally wagon, especially if the Fed conveys a similar policy downshift this week, sending the rally into overdrive as pivot procrastinators will be forced to chase."

The policy decision is followed Friday by the release of US jobs figures, which will give a fresh snapshot of the economy in light of rising prices and interest rates.

A better-than-expected earnings season has also provided support to global markets, easing concerns that tighter monetary policies would hammer firms' bottom lines, though big-name tech giants have taken a blow.

National Australia Bank's Rodrigo Catril said more than 70 percent of companies that had reported had beaten forecasts, though he added that while markets had risen over the past month, some traders remained cautious.

"Those with a positive inclination may look at October's equity performance as a sign of a new uptrend while others would suggest we have not yet seen the worst given the lag effects from monetary policy and the prospect of still more tightening to come," he said in a note.

Key figures around 0710 GMT 

Tokyo - Nikkei 225: UP 1.8 percent at 27,587.46 (close)

Hong Kong - Hang Seng Index: DOWN 1.1 percent at 14,700.12

Shanghai - Composite: DOWN 0.8 percent at 2,893.48 (close)

Euro/dollar: DOWN at $0.9945 from $0.9967 on Friday

Pound/dollar: DOWN at $1.1596 from $1.1618 

Dollar/yen: UP at 147.76 yen from 147.46 yen

Euro/pound: UP at 85.79 pence from 85.77 pence

West Texas Intermediate: DOWN 0.9 percent at $87.09 per barrel

Brent North Sea crude: DOWN 1.0 percent at $94.85 per barrel

New York - Dow: UP 2.6 percent at 32,861.80 (close)

London - FTSE 100: DOWN 0.4 percent at 7,047.67 (close) 

Agence France-Presse

European Central Bank again eyes jumbo rate hike to 'tame inflation beast'

BRUSSELS - The European Central Bank is expected to set aside recession worries and deliver another jumbo interest rate hike this week to cool inflation, as Russia's war on Ukraine sends energy prices soaring.

Inflation in the 19-nation eurozone climbed to an all-time high of nearly 10 percent in September, five times the ECB's target of two percent.

The ECB's governing council last month raised its key interest rates by an unprecedented 75 basis points, and many observers expect it to repeat the move at Thursday's meeting.

Households and businesses are bracing for a grim winter as Russia continues to squeeze gas supplies to Europe, raising fears of energy shortages and high electricity and heating bills.

The war has also pushed up food costs, while pandemic-era supply chain snarls combined with higher manufacturing costs have added to price pressures on a range of goods.

"Those who thought inflation was dead now know better," said Joachim Nagel, the head of Germany's Bundesbank central bank.

"Now the beast has woken up from its slumber... it's up to monetary policymakers to tame it again," he recently told students at Harvard University.

Like other central banks, the ECB is using a series of rate hikes to bring inflation under control -- at the risk of slowing economic activity to such an extent that it triggers a downturn.

"The 75 basis point rate hike looks like a done deal," said ING economist Carsten Brzeski.

"The ECB has turned a blind eye on recession risks," he added.

Analysts from Capital Economics said they saw the ECB going even bigger, predicting a 100 basis-point jump followed by smaller hikes over the coming months.

In the United States, where inflation is running at a 40-year high, the Federal Reserve recently said there was no "painless" way to combat runaway prices.

A slowdown of economic growth and the US job market will be "required" to bring down inflation, said the Fed, which has hiked rates faster and more aggressively than the ECB.

ECB president Christine Lagarde has warned that the euro area was also facing "a significant slowdown".

If Russia completely cuts off gas flows to Europe, the eurozone economy could shrink by nearly one percent in 2023, ECB vice-president Luis de Guindos added.

It's a scenario that has become more likely after Russia in late August halted gas flows through the crucial Nord Stream 1 pipeline to Europe's biggest economy, Germany.

The German economy, whose energy-hungry industries relied heavily on Russian gas before the war, is now forecast to shrink by 0.4 percent in 2023.

Chancellor Olaf Scholz has unveiled a 200-billion-euro ($197 billion) energy fund to help citizens cope with price shocks, irking European neighbors who can't afford the same fiscal largesse.

With other eurozone countries such as France and Spain also rolling out support measures, the ECB has warned governments not to fall into the trap of spending so much that they boost inflation.

Germany's hawkish Finance Minister Christian Lindner agreed, saying last week that fiscal policy "must not counter the measures of central banks" by strengthening demand.

The ECB is also expected to use this week's meeting to discuss bringing other monetary policy levers in line with its inflation-busting efforts.

Policymakers are likely to consider changes to the super cheap, long-term loans (TLTROs) offered to banks in recent years to help the eurozone through several crises -- sometimes at negative rates.

As a consequence of the ECB's rapid rate hikes since July, lenders can now make a profit by parking their excess TLTRO cash at the central bank and pocketing the new, higher deposit rate -- leaving the ECB looking for ways to incentivize early repayment of the loans.

The ECB may also ponder how best to shrink its multi-trillion-euro balance sheet, after years of hoovering up government and corporate bonds to drive up stubbornly low inflation.

But given the uncertain outlook and the risk of rattling financial markets, analysts say the start of any "quantitative tightening" is some way off.

Agence France-Presse

ECB poised for big rate hike in face of record inflation

FRANKFURT, Germany - After raising interest rates for the first time in over a decade at their last meeting, European Central Bank policymakers are poised to deliver another bumper hike on Thursday in a show of determination to tame soaring inflation.

Steep increases in the price of energy in the wake of the Russian invasion of Ukraine have heaped pressure on households and sent the pace of consumer price rises to new highs. 

Eurozone inflation hit 9.1 percent in August, a record in the history of the single currency and well above the two-percent rate targeted by the ECB.

Meanwhile on Monday, the euro fell to a 20-year low against the dollar Monday, dropping below $0.99 as fears of a eurozone recession grew.

The ECB was unlikely to raise its rates "with the explicit goal of strengthening the currency", said Frederik Ducrozet, head of macroeconomic research at Pictet, but the euro's struggles against the greenback could "have some bearing on its decision-making".

The Frankfurt-based institution is playing catch-up with other central banks in the United States and Britain that started raising rates harder and faster in response to inflation.

The "only question" for the ECB's meeting this week was "whether it will be a 50 or 75 basis point hike," said Carsten Brzeski, head of macro at the ING bank.

Speaking at the annual Jackson Hole central banking symposium at the end of August, ECB board member Isabel Schnabel said the central bank needed to show "determination" to tame price rises.

Under this approach, the central bank would respond "more forcefully to the current bout of inflation, even at the risk of lower growth and higher unemployment", she said.

In her speech in the US, Schnabel stressed the need for the people to "trust" that the ECB will restore their purchasing power.

The ECB's 25-member governing council surprised with a 50-basis-point hike at its last meeting in July, bringing an end to eight years of negative interest rates in one fell swoop.

So-called forward guidance issued by the ECB, which limited its scope for action, has been ditched. Policymakers would now take their decisions "meeting-by-meeting", the ECB President Christine Lagarde announced in July.

With that, the door has been opened for the ECB to follow in the footsteps of the US Federal Reserve and raise rates by a 75 basis points.

Following August's red-hot inflation numbers, the influential head of the German central bank, Joachim Nagel, said the ECB needed a "strong rise in interest rates in September".

"Further interest rate steps are to be expected in the following months," the Bundesbank president predicted.

But the ECB's chief economist, Philip Lane, has counselled colleagues to follow a "steady pace" of interest rate rises.

Hiking at a rate that was "neither too slow nor too fast" was important due to the "high uncertainty" around the economy and the future path of inflation.

Alongside its policy decisions, the ECB will also share an updated set of economic forecasts for the eurozone.

In its last estimates, published in June, the ECB said it expected inflation to sit at 6.8 percent in 2022 before falling to 3.5 percent next year, while growth would slow from 2.8 percent this year to 2.1 in 2023.

But a more severe energy shock as Russia reduces gas deliveries to Europe could push the eurozone into a "deeper winter recession" and hold growth to zero percent in 2023, said Ducrozet.

At the same time, the soaring cost of energy would drive inflation close to double digits by the end of the year, he predicted.

The ECB had "no choice but to commit to faster monetary tightening as long as inflation keeps rising" even as a recession loomed, said Ducrozet. 

Agence France-Presse

Asian markets drop as Fed minutes cause fresh rate hike woe

HONG KONG - Markets dropped in Asia on Thursday following a sell-off in New York spurred by minutes from the Federal Reserve indicating officials intended to keep lifting interest rates to tackle decades-high inflation.

While policymakers said they would eventually have to start tempering their tightening pace, they said they would keep borrowing costs elevated "for some time", though admitted there was a risk of going too far and damaging the economy.

The minutes dampened hopes that after a period of quick, sharp increases this year, the bank could possibly begin lowering them in 2023 once inflation was coming down.

Bets on a more dovish approach in the new year had been boosted by data showing inflation came down quicker in July than expected. That helped drive a rally in equities from their June lows and weighed on the dollar.

But the realization that policy would likely stay restrictive undermined the sense of optimism, pushing all three indexes on Wall Street down Wednesday with the tech-heavy Nasdaq taking the biggest hit, while the dollar rallied and extended gains in Asia. 

And news that UK inflation spiked above 10 percent for the first time since 1982 added to the downbeat mood.

Asian traders appeared increasingly worried that the Fed will slip up as it tries to bring down inflation without causing another recession in the world's biggest economy.

Tokyo, Hong Kong, Sydney, Shanghai, Seoul, Taipei, Mumbai, Wellington and Bangkok were down, though Singapore, Manila and Jakarta edged up. 

London fell in the morning while Frankfurt and Paris rose.

"The key takeaway from these minutes would appear to show that there is little inclination on the part of anyone on the (policy board) to even look at the possibility of rate cuts," said Michael Hewson at CMC Markets.

He added that they "chime with more recent comments from Fed officials which suggest that we could see at least another 1.5% in rate rises by year end".

And JP Morgan Asset Management's Meera Pandit told Bloomberg Television: "We do still anticipate there's going to be a lot of interest-rate volatility in the back half of the year, especially once markets start to perhaps acknowledge the fact that we might not necessarily see cuts in 2023 that are being priced in."

Sentiment was also dragged by continuing worries about China's economy, with Goldman Sachs and Nomura slashing their growth outlooks again following another weak round of data and as the country reels from Covid-19 lockdowns.

The announcements came after Beijing on Monday cut interest rates in a surprise move, before Premier Li Keqiang called on six key provinces -- accounting for about 40 percent of the economy -- to bolster pro-growth policies.

But Nomura economists said that while officials will likely unveil further measures "rolling out a comprehensive stimulus package is of low probability in a year of government reshuffle, while the need for maintaining zero-Covid makes conventional stimulus measures much less effective". 

Agence France-Presse

Central banks must act quickly on inflation, warns BIS

ZURICH, Switzerland - Central banks must not let inflation become entrenched, with the threat of stagflation looming over the global economy, the Bank for International Settlements warned Sunday in its annual economic report.

BIS, considered the central bank of central banks, said institutions will have to move swiftly to ensure a return to low and stable inflation, while limiting the impact on growth.

"The key for central banks is to act quickly and decisively before inflation becomes entrenched," said BIS general manager Agustin Carstens.

"If it does, the costs of bringing it back under control will be higher. The longer-term benefits of preserving stability for households and businesses outweigh any short-term costs."

BIS's flagship report said that in restoring low, stable inflation, central banks should seek to minimize the hit to economic activity, in turn safeguarding financial stability.

BIS said engineering a so-called soft landing had historically been difficult, and the starting conditions now were making the task all the more challenging.

"It would be more desirable if we could have a soft landing because that would mean that the tightening of monetary policy could be more subdued," Carstens told a press conference.

"But even if this is not the case, definitely the priority should be to combat inflation," to prevent the world economy from slumping. 

STAGFLATION DANGERS

After the shock of the Covid-19 pandemic, central banks initially saw the return of inflation as temporary as the economy picked up again.

But the rise in prices has sharply accelerated since Russia's invasion of Ukraine in February.

BIS said the global economy risked entering a new era of high inflation.

The dangers of stagflation -- stagnant growth coupled with rising prices -- loom large, as a combination of lingering disruptions from the pandemic, the war in Ukraine, soaring commodity prices and financial vulnerabilities cloud the outlook, it added.

Policymakers must press ahead with reforms to support long-term growth and lay the groundwork for more normal fiscal and monetary policy settings, BIS said.

While the European Central Bank plans to raise interest rates in July and then again September, the US Federal Reserve on Wednesday carried out its largest rate hike since 1994.

The Fed announced a 0.75-percentage-point rise and said it is prepared to do so again next month in an all-out battle to drive down surging inflation.

1970s COMPARISON

Established in Basel in 1930, the BIS is owned by 62 central banks, representing countries that account for about 95 percent of global gross domestic product (GDP).

In its annual report, the BIS looked at the stagflation of the 1970s, when the oil shocks of 1973 and 1979 caused inflation to jump.

In 1973, oil prices had more than doubled in the space of a month. Oil occupied a much more central place in the economy, it said.

Moreover, inflation was already rising before the oil shock, while the global economy is now emerging from a long phase of low inflation.

But the BIS also highlighted other points of vulnerability, including the current high level of private and public debt.

And with Russia's war in Ukraine, inflation this time is not only based around oil, but also other sources of energy, agricultural raw materials, fertilizers and metals.

The most pressing challenge for central banks is therefore to bring inflation down to low levels, according to the BIS.

High inflation situations tend to be self-reinforcing, warned the BIS, especially when wages spiral into an attempt to offset rising prices.

Agence France-Presse

India hikes interest rates by 50 basis points to fight inflation

MUMBAI - India's central bank on Wednesday hiked rates for the second time in two months, as Asia's third-largest economy reels from galloping inflation in the wake of the Ukraine war.

The Reserve Bank of India raised its key repo rate by 50 basis points to 4.90 percent, a month after kicking off an aggressive monetary tightening cycle with a surprise 0.4 percentage point rise.

Agence France-Presse

Dollar shines, euro droops as Omicron spreads while Fed hawks circle

TOKYO - The US dollar hovered near the highest since July of last year against major peers on Monday after a Federal Reserve official signaled a first pandemic-era interest rate hike could come as early as March.

The euro sank with the British pound after the Netherlands went into lockdown on Sunday and Britain's health minister declined to rule out the chance of further restrictions before Christmas amid the rapid spread of the Omicron coronavirus variant.

The dollar index, which measures the currency against six major peers, stood at 96.629, not far from the peak at 96.938 reached last month.

The World Health Organization said on Saturday that the number of Omicron cases is doubling in 1.5 to 3 days in areas of the world with community transmission, but noted that much remains unknown about the variant, including the severity of the illness it causes.

On Friday, Fed Governor Chris Waller said an interest rate increase will likely be warranted "shortly after" the bank ends its bond purchases in March.

"Waller gave the (dollar index) a tailwind on Friday," which is now eyeing a new high, but "positioning is skewed long in USDs, so the prospect of position squaring into year-end is elevated," Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

"While central bank actions are the real issue, headlines on Omicron could be seen as the smoking gun for position squaring."

The greenback, which tends to attract demand as a safe haven, touched its highest since Dec. 15 against the euro, sterling and the risk-sensitive Australian dollar.

The dollar slipped though against fellow haven currency the yen, but still near the middle of the trading range of the past three weeks.

Ten-year US Treasury yields, to which the dollar-yen pair are often closely correlated, languished near a two-week low reached Friday. 

Earlier on Friday, New York Fed president John Williams told CNBC that the Fed will gain "optionality" to raise rates in 2022 by ending bond purchases by March.

Money markets price about 50-50 odds of a quarter point hike by March.

-reuters-

World stocks in third day of gains as Omicron fears ease

LONDON - A rebound in market sentiment continued in early European trading on Wednesday, with world shares set for their biggest two-day jump since November last year as investors became less concerned about the Omicron variant.

World shares plunged at the end of last month when the discovery of a new COVID-19 variant spooked investors. But sentiment has rebounded sharply this week in the absence of indications that the variant would derail the economic recovery.

The STOXX 600 had its biggest daily jump since November 2020 on Tuesday and, despite European stock index futures initially being in the red on Wednesday, at 0901 GMT the STOXX 600 was up 0.4 percent, set for its third consecutive day of gains.

The MSCI world equity index, which tracks shares in 50 countries, was up 0.2 percent - its highest since Nov. 26, when Omicron fears first hit markets.

"To be honest, it was more the absence of bad news rather than any concrete good news helping to drive sentiment," wrote Deutsche Bank strategist Jim Reid in a note to clients.

"Every day that passes without a wave of severe cases driven by Omicron is offering more hope that this won't be the curveball to throw the recovery off course."

British drugmaker GSK said on Tuesday its antibody-based COVID-19 therapy with US partner Vir Biotechnology was effective against all mutations of Omicron.

But a study in South Africa suggested that the Pfizer vaccine may only partly protect against Omicron.

"Clearly in the very short term uncertainty has risen over the Omicron virus... but overall at this stage we do not believe it will derail the macro picture in the medium-term," said Jeremy Gatto, multi-asset portfolio manager at Unigestion.

OUTLOOK FOR RATES

Oil prices eased as investors waited for more information about the extent to which the variant would impact demand. At 0911 GMT, Brent crude futures were down 0.4 percent and US West Texas Intermediate crude was down 0.5 percent on the day.

The dollar index was steady around 96.233, while the euro was up 0.1 percent at $1.1283.

The euro-dollar pair has struggled to recover from the 2021 lows it reached in November, hurt by expectations that the US Federal Reserve will tighten monetary policy more quickly than the dovish European Central Bank.

Last week, Fed Chair Jerome Powell said it might be time to stop seeing inflation as transitory, suggesting the central bank could speed up tapering.

"The market is pricing between two to three hikes next year now. We think that that pricing is too optimistic. We believe that the Fed will actually be slower to deliver on these rate hikes," said Unigestion's Gatto, adding that this would be supportive for equities.

The US 10-year Treasury yield, which had its biggest weekly drop since June 2020 last week due to a combination of Powell's hawkish comments and fears over Omicron, was a touch lower on Wednesday at 1.4597 percent.

US inflation data is due on Friday.

Meanwhile, shares in China's Evergrande Group hit a record low, after a missed debt payment deadline put the developer at risk of becoming the country's biggest defaulter - but the news had limited global market impact because it is already "well-priced" by the market, Unigestion's Gatto said.

In virtual talks, President Joe Biden warned Russian President Vladimir Putin that the West would impose "strong economic and other measures" on Russia if it invaded Ukraine, while Putin demanded guarantees that NATO would not expand farther eastward.

(Reporting by Elizabeth Howcroft; Editing by Alex Richardson)

-reuters- 

Indonesia's central bank cuts rates as economy tanks

JAKARTA - Indonesia's central bank on Thursday cut interest rates for the third time this year and scaled back its growth projections as the global pandemic batters Southeast Asia's biggest economy.

Policymakers at Bank Indonesia reduced the key lending rate by 25 basis points to 4.25 percent, while lowering their full-year economic growth forecast to between 0.9-1.9 percent, from a previous 2.3 percent.

The move comes days after the government warned of a 3.1 percent contraction in the second quarter -- the latest in a series of downward revisions.

Central bank governor Perry Warjiyo signaled there was "still room" to cut rates further in the coming months, but added that he expected growth to rebound next year.

"This (rate) decision is consistent with efforts to maintain stability and boost the economy during the COVID-19 era," he said Thursday.

Indonesia has announced a stimulus package worth some $48 billion to help offset the impact of coronavirus, which forced a wide-scale shutdown that hammered growth, including in the key tourism sector. 

"We expect further gradual easing over the coming months," research house Capital Economics said, citing a "very poor outlook" for the economy.

"Virus containment measures are having a huge impact on the economy," it added.

This month, the Southeast Asian archipelago, home to nearly 270 million people, said it was rolling out a "new normal" policy that included gradually easing movement restrictions in a bid to head off economic collapse.

But Indonesia's infections are mounting with cases topping 40,000 on Wednesday, surging beyond neighboring Singapore to mark the region's highest.

The country has also recorded 2,276 deaths. But with one of the world's lowest testing rates, the true scale of the public health crisis is widely believed to be much bigger.

Agence France-Presse

Federal Reserve ramps up help to US economy on life support

WASHINGTON - The Federal Reserve launched an unprecedented effort on Monday to flood the US economy with money amid the chaos caused by the coronavirus pandemic, as Congress debated a rescue plan for American workers and companies.

Like patients around the world battling the disease itself, the US economy is on life support, with some forecasters projecting a 14 percent contraction in the April-June quarter while the global economy could shrink 1.5 percent this year.

About a third of Americans have been ordered to stay at home, and the Fed warned of "severe disruptions" from the virus as it rolled out another series of measures to pump funds into the economy, including buying unlimited amounts of government debt -- a move akin to printing money.

But while that should provide oxygen to the financial system and keep businesses open, lawmakers continued haggling over an emergency aid package, with Democrats in the House unveiling a proposal that would cost a whopping $2.5 trillion as they demanded more funds to help workers directly and more strings on any aid going to corporations.

President Donald Trump signaled his approval of the Fed's move last weeks to slash the benchmark lending rate to zero, saying central bank chair Jerome Powell had "done a really good job," in a reversal of previous criticism over his refusal to lower rates.

The president also praised the strong US dollar but acknowledged it makes "trade much tougher" -- an unusual statement from an American president, who typically don't comment on the currency's value.

Treasury Secretary Steven Mnuchin spent the day meeting with congressional leaders, and played down Democratic concerns about taxpayers coming to the rescue of major corporations. 

"I want to be clear, there are no bailouts," he said on Fox Business Network. "This isn't corporate welfare. This helps all American workers."

EXISTENTIAL THREAT

Mnuchin said the Fed's measures would provide $4 trillion in needed liquidity into the US economy.

The Fed had already announced it would buy at least $500 billion of Treasury debt as well as $200 billion of mortgage-backed debt, but now has committed to buying "in the amounts needed to support smooth market functioning." 

The Fed's New York branch, which handles the financial transactions, said it would start out by purchasing $75 billion per-day in Treasuries and $50 billion per-day in mortgage-backed securities.

In the latest action, the Fed revived facilities it last used during the 2008 global financial crisis, and expanded others announced in recent days, including buying debt issued by US municipalities and by corporations. 

In addition, the Fed said it would soon unveil a program to lend directly to small- and medium-sized companies -- those that have been hardest hit by the near complete shutdown of the US economy as authorities fight to contain the spread of the virus.

"While great uncertainty remains, it has become clear that our economy will face severe disruptions," the Fed said in a statement, pledging to use all available tools to contain the damage.

"Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate."

CONGRESSIONAL INTERVENTION

Economists praised the effort, but said massive stimulus from Congress is still needed.

"The downturn is not avoidable. The economic carnage associated with downturn can be mitigated so that there is an economy left to ramp up," said Diane Swonk, chief economist at Grant Thornton.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, offered an equally dire warning: "The near-term threat to the economy is existential."

The central bank actions represent "an all-out effort to ensure that the business sector can continue to exist even as economic activity temporarily collapses. The Fed is now effectively the direct lender of last resort to the real economy, not just the financial system."

The central bank pledged to "continue to use its full range of tools to support the flow of credit to households and businesses."

One of the programs, the Term Asset-Backed Securities Loan Facility (TALF), will help backstop recent student loans, car loans and credit card debt as well as small business loans.

Agence France-Presse

Global central banks pull out all stops as coronavirus paralyses economies

SYDNEY - The US Federal Reserve and its global counterparts moved aggressively with sweeping emergency rate cuts and offers of cheap dollars to help combat the coronavirus pandemic that has jolted markets and paralysed large parts of the world economy. 

The coordinated response from the Fed to the European Central Bank (ECB) and the Bank of Japan (BOJ) came amid a meltdown in financial markets as investor anxiety deepened over the difficulty of tackling a pathogen that has left thousands dead and put many countries on virtual lockdowns.

The Fed moved first on Sunday, cutting its key rate to near zero in a move reminiscent of the steps taken just over a decade ago in the wake of the financial crisis.

The U.S. decision triggered emergency policy easings by central banks in New Zealand, Japan and South Korea, with Australia also joining with a liquidity injection in a coordinated move aimed at stabilising confidence as the pandemic threatened a global recession.

"The virus is having a profound effect on people across the United States and around the world," Fed Chair Jerome Powell said in a news conference after cutting short-term rates to a target range of 0% to 0.25%, and announcing at least $700 billion in Treasuries and mortgage-backed securities purchases in coming weeks.

The Reserve Bank of New Zealand (RBNZ) slashed rates to a record low as markets in Asia opened for trading this week, while Australia's central bank pumped extra liquidity into a strained financial system and said it would announce more policy steps on Thursday.

Later, the Bank of Japan too eased policy in an emergency meeting, ramping up purchases of exchange-traded funds (ETFs) and other risky assets to combat the widening economic fallout from the coronavirus epidemic.

Neighbouring South Korea stepped in as well with a 50 basis point rate cut in a rare inter-meeting review on Monday.

"I don't think we have reached a limit on how deep we can cut interest rates," BOJ Governor Haruhiko Kuroda said.

"If necessary, we can deepen negative rates further," he added.

"We can continue to pump ample liquidity into the market."

MARKETS RATTLED

The measures did little to calm market nerves though, as Asian shares and U.S. stock futures plummeted, underscoring the fears the health crisis might prove much more damaging to the global economy than initially anticipated.

France and Spain joined Italy in imposing lockdowns on tens of millions of people, while the United States saw school closings, runs on grocery stores, shuttered restaurants and retailers, and ends to sports events.

"Market reactions to each surprise monetary policy easing have been sell first and ask questions later," said Selena Ling, head of treasury research and strategy at OCBC Bank in Singapore.

"The more unprecedented measures by the Fed and other central banks, the more investors worry if (they) know something we don’t... fear remains the crux of the problem here as market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis."

Five other central banks cut pricing on their swap lines to make it easier to provide dollars to their financial institutions, ramping up efforts to loosen gummed up funding markets and calm credit markets. They also agreed to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual.

The move was designed to bring down the price banks and companies pay to access U.S. dollars, which has surged in recent weeks as a coronavirus pandemic spooked investors.

However, analysts say flooding banks with cash at near-zero rates won't help fix dislocations in credit markets caused by fear of lending to businesses with mounting losses, which in turn fuels distrust among banks.

Moreover, analysts at major banks and ratings agencies are predicting a marked downturn in the world economy, and some say a recession is unavoidable.

"We believe that financial markets stress could ultimately be the proverbial 'straw that breaks the camel’s back’, and hence, we continue to monitor these very closely," Fitch Solutions said in a note on Monday, adding its forecasts were subject to "downside risks."

"While we expect to see more major central banks cut interest rates further in a bid to support growth...there are limits to how low they can go."

The People's Bank of China (PBoC), which has rolled out powerful stimulus measures since the outbreak began in the country's Hubei province late last year, was a bit of an outlier as it kept its rates steady, though analysts expected a cut later this week.

(Additional reporting by Winni Zhou and Tom Westbrook; Editing by Shri Navaratnam)

Bank of England cuts rates in shock move over coronavirus

LONDON -- The Bank of England unexpectedly cut interest rates by half a percentage point to 0.25 percent on Wednesday in a move to bolster Britain's economy against disruption caused by the coronavirus outbreak.

"Although the magnitude of the economic shock from COVID-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months," the BoE said.

The cut was the first move to take place outside the BoE's normal schedule since the 2008 financial crisis, and takes Bank Rate back to the record low it reached after 2016's Brexit referendum.

Finance minister Rishi Sunak is due to present his first budget shortly after 1230 GMT (8:30 p.m. in Manila), which is expected to include more healthcare funding to fight the coronavirus, as well as further economic stimulus.


Sterling sank by more than half a cent against the US dollar after the news of the first rate cut since August 2016.

Last week the US Federal Reserve and the Bank of Canada lowered rates, and the European Central Bank is expected to take action on Thursday.

The BoE did not announce any new quantitative easing bond purchases, but did lower its counter-cyclical capital buffer for banks to zero from 1 percent and launch a new scheme to support lending to small businesses - both measures to keep borrowing flowing.

"Temporary but significant disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies," the BoE said.

source: news.abs-cbn.com

Markets mostly rise after emergency Fed cut sinks Wall St

LONDON - Asian and European stocks mostly rose Wednesday after the Federal Reserve sprang its first emergency rate cut since the global financial crisis to counter economic fallout from coronavirus.

In the first unscheduled rate reduction since 2008, the Fed axed its key interest rate by a half-point to a range of 1.0-1.25, arguing it was needed because "coronavirus poses evolving risks to economic activity".

Wall Street then tanked on fears the central bank was in panic mode over the spreading COVID-19 disease, which has so far killed 3,200 people worldwide and infected more than 90,000.

However, equities in Europe and Asia mostly advanced on Wednesday as investor nerves subsided, dealers said.

In commodities, oil rallied on indications that the OPEC crude producing cartel could slash output this week in order to prop up prices.

"Market sentiment certainly seems to have stabilized after a historic US session which saw the role of monetary policy undermined as traders sold into an extraordinary bout of easing from the Fed," said IG analyst Joshua Mahony.

"The US economy is actually yet to feel a significant economic impact from this virus, and thus the decision to take such drastic action provided markets with a warning of exactly how big this threat is," added Mahony, noting the Fed still has a scheduled rate call in two weeks.

In late morning deals, London stocks jumped 1.3 percent, while there were 1.0-percent gains in Frankfurt, Paris and Milan.

The deep cut in US rates on Tuesday followed a statement from G7 finance ministers that they stood ready to take "appropriate actions... including fiscal measures" in response to the virus.

Lower interest rates traditionally boost the global economy because they curb loan repayments for businesses and individuals, and also increase the level of consumers' disposable income.

Yet many analysts predict the US rate cut will not be enough to offset virus-fuelled economic turmoil.

- 'Fairly ineffectual' rate cut? -

"It is the first emergency cut since the financial crisis -- and the rate cut will be fairly ineffectual in offsetting the coming hit to the economy from the coronavirus," said Kingswood chief investment officer Rupert Thompson, predicting that the Bank of England could follow the same path.

"While these moves may help support equities short term, they do little to reduce the enormous uncertainty over the extent of the eventual spread of the coronavirus and the damage it could have on global growth."

In announcing the reduction, the US Federal Open Market Committee said US fundamentals "remain strong" but warned that "coronavirus poses evolving risks to economic activity". 

The move initially sent Wall Street rallying, but traders soon reversed course as they grew increasingly nervous about the economic outlook. 

All three main US equity indices finished almost three percent down.

However, Asian investors battled to build on the previous day's gains and Tokyo ended up 0.1 percent, while Shanghai added 0.6 percent.

Seoul surged more than two percent as South Korea -- which is the worst virus-hit country outside China -- reported a sharp drop in new cases, while the government is planning a $10-billion stimulus budget.

Hong Kong fell 0.2 percent after weak gauge of manufacturing, construction, wholesale, retail and services in the city fell to its lowest level in February since it started being recorded in mid-1998. 

- Oil output cut hope -

The rate cut sent yields on safe-haven 10-year US Treasuries, a go-to asset in times of turmoil, below one percent for the first time on record. Gold, another fallback for worried investors, jumped more than two percent to $1,634.

Oil prices added more than one percent after OPEC advisers suggested the group, along with other producers including Russia, slash output by up to a million barrels a day.

The recommendation comes as the oil big-hitters prepare to meet this week to discuss the crisis, which has hammered global demand for the commodity.

source: news.abs-cbn.com

European stocks, oil surge as central banks respond to virus

LONDON - European stock markets and oil prices surged Tuesday and most Asian indices finished higher after Wall Street rocketed, fuelled by hopes of a concerted global response to the deadly coronavirus.

The Japanese yen, seen as a haven investment, pared back recent strong gains versus the dollar.

Pledges of action from central banks and a planned conference call between Group of Seven financial chiefs provided a much-needed boost after last week's hammering to equities that saw major global stock markets lose around 12 percent in value.

"European stocks are following their US and Asian counterparts higher... as hopes of a global stimulus push helped lift market sentiment," commented Joshua Mahony, senior analyst at IG trading group.

Tuesday's positive sentiment filtered through to oil markets, where prices jumped around 3.5 percent with dealers betting on major producers cutting output to address a predicted plunge in crude demand.

On stock markets, Shanghai and Sydney closed up 0.7 percent, while Seoul put on 0.6 percent. Tokyo, however, fell 1.2 percent. 

Around 1100 GMT, London's benchmark FTSE 100 index was up 2.4 percent, around levels seen in Paris and Milan, while Frankfurt jumped 3.0 percent.

Traders were given a strong lead from Wall Street's best session in more than a year on Monday, with the Dow soaring more than five percent and the S&P 500 and Nasdaq piling on around 4.5 percent.

After last week's rout, investors returned to buying as central banks from the US, Japan and Europe said they were ready to provide support with monetary easing such as interest rate cuts and cash injections to financial markets.

The US Treasury also announced that Secretary Steven Mnuchin and Federal Reserve chief Jerome Powell will lead a conference call with their G7 counterparts Tuesday on how to respond to the virus.

Ahead of the call, Australia cut borrowing costs to a record low 0.50 percent and indicated it was ready to provide more help, making it the first major economy to take such measures.

Malaysia also announced a cut on Tuesday.

The Bank of England will meanwhile "take all necessary steps" to support the UK economy from coronavirus fallout, said governor Mark Carney.

"The Bank of England's role is to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary," Carney said.

The deadly outbreak has impacted economies, with an index of Chinese factory activity falling to a record low last month, while a US survey of manufacturers came in below forecast, with expectations of worse to come.

And with demand for crude tipped to take a battering -- particularly from crucial consumer China -- OPEC will hold an extraordinary meeting Thursday with other producers, led by Russia, to weigh its response.

The disease that began in China has killed more than 3,100 people and infected more than 91,000, though the Asian nation has reported its lowest number of new cases in six weeks.

source: news.abs-cbn.com

Australia central bank cuts rates to record low on virus fears

SYDNEY, Australia - Australia's central bank on Tuesday slashed interest rates to a record low on fears the deadly coronavirus outbreak could push the country into recession.

The Reserve Bank of Australia said it had lowered rates by 25 basis points to 0.50 percent in an effort to offset the impact of COVID-19.

The announcement came as other institutions, such as the Federal Reserve and European Central Bank, indicated they were willing to take action to mitigate the economic pressure of the outbreak.

Bank Governor Philip Lowe said global economic growth was expected to be lower in the first half of 2020 because of the novel coronavirus, while it was also having a "significant effect" on the domestic economy.

Australia's education and travel sectors, which are heavily reliant on China -- where it started -- have been particularly hard hit and surrounding uncertainty is also likely to impact spending.

"Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be," Lowe said in a statement.

"Once the coronavirus is contained, the Australian economy is expected to return to an improving trend."

Agence France-Presse

OECD cuts 2020 global growth outlook on coronavirus outbreak

TOKYO - The Organization for Economic Cooperation and Development on Monday lowered its forecast for global economic growth this year, citing the impact of the new coronavirus epidemic on the manufacturing and travel sectors.

The world's gross domestic product is likely to expand a real 2.4 percent in 2020, down from an earlier forecast of 2.9 percent released in November and 2.9 percent growth in 2019, the OECD said in its latest economic report.

The latest estimate was based on the assumption that the epidemic would peak in China in the first quarter of 2020 and outbreaks in other countries would prove mild, according to the interim report for a biannual OECD economic assessment.

"The coronavirus (COVID-19) outbreak has already brought considerable human suffering and major economic disruption," the OECD said. "Output contractions in China are being felt around the world, reflecting the key and rising role China has in global supply chains, travel and commodity markets."

In the event of "a longer lasting and more intensive coronavirus outbreak, spreading widely throughout the Asia-Pacific region, Europe and North America," global growth this year could drop to 1.5 percent, the Paris-based organization said, adding that the prospects "remain highly uncertain."

Meanwhile, global GDP in 2021 is expected to expand 3.3 percent, up from a forecast in November of 3.0 percent, if the effects of the virus outbreak fade as assumed under the optimistic scenario, the report said.

By country, economic growth in China, the epicenter of the COVID-19 outbreak, is projected at 4.9 percent in 2020, lower than the previous forecast of 5.7 percent and the 6.1 percent expansion logged in 2019. The world's second-largest economy is projected to grow 6.4 percent in 2021, up from 5.5 percent forecast earlier.

The report said "the adverse impact on confidence, financial markets, the travel sector and disruption to supply chains" contributed to downward revisions for all Group of 20 major economies this year, particularly "Japan, Korea and Australia" that are strongly interconnected with China.

The organization cut its forecast for Japanese economic growth to 0.2 percent in 2020 from its previous estimate of 0.6 percent but left unchanged its 2021 outlook at 0.7 percent. Japan logged growth of 0.7 percent in 2019.

South Korea and Australia are expected to register economic growth of 2.0 percent and 1.8 percent this year, down 0.3 percentage points and 0.5 percentage points, respectively, from previous projections.

The U.S. economy, which grew 2.3 percent last year, is expected to see a limited impact from the virus, with growth in 2020 cut to 1.9 percent from the November forecast of 2.0 percent.

Growth in the eurozone is projected at 0.8 percent in 2020, down from an earlier estimate of 1.1 percent.

source: news.abs-cbn.com

Yen, euro gain on dollar as Fed rate cut talks heat up

TOKYO -- The yen and the euro rose against the dollar on Monday on growing expectations that the US Federal Reserve will cut interest rates at its policy review this month to protect the economy from the rapid spread of the coronavirus.

As US shares were routed in recent days, Federal Reserve Chair Jerome Powell said on Friday the central bank will "act as appropriate" to support the economy in the face of risks posed by the coronavirus epidemic.

Investors took his comments as a hint that the Fed will cut interest rates by at least 0.25 percentage point at its next scheduled meeting on March 17-18.

There is even increasing chatter of an unscheduled move, with a US bank lobby economist saying a coordinated global interest rate cut by the top central banks could happen as early as on Wednesday.

The expectations around the Fed underscored the speed and scale of the virus' spread from China through to dozens of countries and the potentially crippling blow to the global economy.

Investors expect the dollar's yield advantage - a key support for the US currency - to shrink as the European Central Bank and the Bank of Japan are seen having limited room for further cuts given their rates are already in negative territory.

The yen rose to as high as 107 to the dollar in early Monday trade and last stood at 107.75 yen, up 0.3 percent from its levels in New York late on Friday.

The Japanese currency had risen 3.2 percent last week, the biggest gain since July 2016. Japan's current account surplus and the yen's vast liquidity make the yen behave like safe haven asset.

The euro stood at $1.1042, up 0.14 percent so far in Asia, trading near its highest level in almost a month after a 1.7 percent gain last week, the largest in two years.

The common currency's rise stemmed from unwinding of so-called euro carry trade, in which speculators borrow the euro to invest in higher-yielding currencies, market players said.

The safe haven Swiss franc also hit 1-1/2-year high of 0.9610 franc per US dollar on Friday and last stood at 0.9642.

Underscoring investors' concerns, China's official Purchasing Managers' Index (PMI) fell to a record low of 35.7 in February from 50.0 in January, the National Bureau of Statistics said on Saturday, showing factory activity contracted at the fastest pace ever.

"The data showed the severity of the damage from the coronavirus. If upcoming data undershoots market expectations, that will weigh on sentiment further," said Kyosuke Suzuki, director of currency trading at Societe Generale.

The offshore yuan slipped only slightly to 6.9840 yuan per dollar, down about 0.17 percent in early Asian trade, off Friday's high of 6.9777, its highest since Feb. 17.

But the Australian dollar, often used as a liquid proxy on China, lost 0.34 percent to $0.6485, down 0.34 percent having hit a 11-year low of $0.64345 on Friday.

The New Zealand dollar was also on the defensive after sliding to a decade low of $0.6180 last week. It last traded at $0.6218, down 0.46 percent.

Selling spread to some emerging market currencies.

The Mexican peso and the South African rand both lost more than 1 percent in early Monday trade.

The Turkish lira, which has been weighed by the country's intensifying involvement in fighting in Syria, slipped a tad to record lows.

Among developed market currencies, the pound is seen more vulnerable than its peers at time of major economic crisis as UK's sizable current account deficit meant the country depends on foreign capital.

Investors are also fretting about Britain's negotiations with the European Union over a trade deal and whether a UK budget next month will include much more spending, which many investors say is necessary to boost economic growth.

Sterling traded at $1.2799, down 0.15 percent so far on the day, not far from its 4-1/2-month low of $1.2726 hit on Friday.

The pound stood near its lowest levels since October against the euro and the yen.

source: news.abs-cbn.com

China virus fallout pushes central banks to cut rates: analyst

MANILA -- Virus-stricken China poses a drag on the global economy, giving the world's central banks, including the Philippines, room to cut interest rates earlier than expected, ING Bank said Friday.

World commodity prices will remain "depressed" due to weak demand from China, where millions are on lockdown and with many countries closing their borders to those from the mainland, said ING Bank analyst Nicholas Antonio Mapa.

With Thailand cutting rates and the US Federal Reserve likely to cut this year due to the coronavirus outbreak, Mapa said investors seeking higher yields are unlikely to leave the Philippines.

"If everyone's cutting, there's no change in the relative field," Mapa told ANC's Market Edge. "Everybody's alternatives are few and far between."

Bangko Sentral ng Pilipinas Governor Benjamin Diokno fired the first half of his planned 50-basis point cut in the overnight borrowing rate last Thursday, calling it a "preemptive" move.

Diokno said first half economic growth could be reduced by 0.3 point because of the virus. Mapa said he could lower his forecast for full year growth to 6.4 percent from 6.5 percent.

The BSP governor is "very clear where he wants to be," Mapa said. "Transparency and good communications from the BSP will go a long way in maintaining financial market calm."

source: news.abs-cbn.com

US Fed to hold steady at final 2019 meeting

WASHINGTON -- The Federal Reserve on Wednesday was due to resume its final policy meeting of 2019, with markets overwhelmingly expecting the central bank to leave interest rates untouched.

After cutting rates 3 times in the summer and fall, policymakers have said they are now pausing to watch how the world's largest economy performs.

With robust job growth and steady consumer spending, central bankers believe the United States has proved "resilient" in the face of a slowing world economy and a trade war with China, both of which have helped send American manufacturing into decline.

The Fed is due to announce its latest decision, along with a new set of economic forecasts, at 1900 GMT on Wednesday (3 a.m. Thursday in Manila), followed by a news conference by Fed Chairman Jerome Powell shortly afterward.

The forecasts could be of more interest, providing a window on where central bankers think the economy is headed.

Job creation shot well past expectations last month, according to official data released Friday, wiping away fears that employers' demand for labor has begun to fade.

"This just leaves the Fed very comfortably on the sidelines for 2020, or at least as we enter the new year," Diane Swonk, chief economist at Grant Thornton, told AFP.

Futures markets as of Tuesday predict the Fed will be on hold until September of next year. But some economists think another rate cut could come before the summer.

Consumer spending and confidence are strong. The housing market has picked up. Unemployment is still very low as hiring continues. GDP growth slowed in the third quarter but was still better than feared.

SOME DARK CLOUDS

The chances of a recession within the next 12 months, according to the New York Federal Reserve Bank, have also begun to decline -- though odds are still pretty high at about one in three.

If Washington and Beijing manage to seal a partial trade deal and at least cease hostilities, the end to uncertainty could give businesses a sharp boost.

The United States, Mexico and Canada on Tuesday agreed to modify a new trade agreement so that it can pass the US Congress, which also removes a source of uncertainty.

However, economists say the Fed could soon begin to feel pressure to resume cutting rates.

Even with the more positive data, dark spots in the economy have mostly persisted. Adjusted for inflation, consumer spending in October was the weakest since February. Business investment is soft. Exports have decreased and much of the manufacturing sector has had a year to forget.

Should GDP growth fall below two percent in the final quarter of this year and the first quarter of 2020, the Fed could be compelled to add stimulus to the economy, according to Rubeela Farooqi of High Frequency Economics.

"They might be forced to move by the end of the first quarter," she told AFP. 

Agence France-Presse

Asian stocks edge higher after Fed rate cut, focus shifts to BOJ

TOKYO -- Asian shares rose on Thursday and US stock futures edged higher after the US Federal Reserve cut interest rates as expected to keep economic expansion on track.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent. Japan's Nikkei stock index rose 0.41 percent, but Australian shares fell 0.24 percent.

US Treasury yields extended declines in Asia after the rate cut, but further declines may be limited as Fed Chairman Jerome Powell signaled additional rate cuts are unlikely because there are several areas of strength in the US economy.

The yen held steady versus the dollar before a Bank of Japan policy meeting later on Thursday. The BOJ is expected to keep its ultra-easy monetary policy in place, but the decision could be a close call.

Debate at the Fed and the BOJ highlights the struggle that many central banks are facing.

The US-China trade war and Britain's divorce from the European Union have increased uncertainty, but central banks are somewhat reluctant to ease policy aggressively because interest rates are already very low in many major economies.

"The biggest thing that stands out is stocks look stronger after the Fed," said Tsutomu Soma, general manager of fixed income business solutions at SBI Securities in Tokyo.

"Risks like US-China or Brexit haven't been resolved completely, but the markets are starting to look beyond these risks. The BOJ is likely on hold, so it will be difficult for currencies to react."

US stock futures nudged 0.07 percent higher on Thursday in Asia after the S&P 500 rose 0.33 percent to close at a record high on Wednesday for the second time in three trading sessions.

The Fed lowered its policy rate to 1.50 to 1.75 percent, but dropped a previous reference in its statement to "act as appropriate" to sustain the economic expansion.

In his news conference, Powell listed several reasons why he feels the economy is doing well, such as robust consumer spending, strengthening home sales, and healthy asset prices.

The yield on benchmark 10-year Treasury notes fell to 1.7838 percent in Asia on Thursday, while the two-year yield eased slightly to 1.6076 percent.

The dollar index against a basket of six major currencies fell 0.22 percent to 97.427, extending declines from Wednesday.

The yen was little changed at 108.80 per dollar as traders awaited the outcome of the BOJ meeting.

Japan's central bank may trim its consumer price forecasts but leave policy unchanged due to hopes that progress in scaling back a US-China trade dispute will give it room to save its dwindling policy tools.

Optimism that Washington and Beijing will sign a preliminary agreement to call a truce to their 16-month trade war was also a factor behind the Fed's decision to signal that further rate cuts are on hold, highlighting the importance of trade talks to global monetary policy.

In the energy market, oil futures extended declines on Thursday as a massive buildup in U.S. crude stock piles reinforced concerns about oversupply in the world's energy markets.

US crude fell 0.29 percent to $54.90 per barrel.

Crude inventories, excluding the Strategic Petroleum Reserve SPR, rose 5.7 million barrels in the week to Oct. 25, the Energy Information Administration said on Wednesday.

This blew past analysts' expectations for a 494,000-barrel build.

source: news.abs-cbn.com