Fed chair nominee Powell defends push to review financial regulations

WASHINGTON - Jerome Powell, President Donald Trump's choice to lead the US Federal Reserve, defended plans to potentially lighten regulation of the financial sector during a controversy-free hearing on his nomination to take over the central bank.

Tapped to replace current chair Janet Yellen, Powell on Tuesday skirted several efforts by members of the Senate Banking Committee to draw him into the debates preoccupying Capitol Hill.

Powell refused to analyze the impact of proposed tax cuts or, as some of his colleagues at the Fed have done, argue for more immigration to boost the labor force. He said economic growth was likely bound in a range of between 2 and 2.5 percent annually, short of Trump's 3 percent goal, without a jump in productivity that many economists regard as unlikely.

In general the 64-year-old lawyer stuck close to script, reciting the current Fed consensus that interest rates are due to continue rising gradually, that the course of inflation remains a mystery, and that weak wages and low labor force participation indicate the jobs market still has room to improve.

Early in his time as a governor, Powell, a lawyer who has spent the bulk of his career in the private sector as an investment banker, shared some conservative concerns about the extent of the Fed's crisis response.

But he ultimately came to agree that the benefits of current Fed policy, with years of loose money allowing time for displaced workers to trickle back to the job market, outweighed the risks - and that future crisis would require the Fed, as he said in his opening statement, "to respond decisively."

The sharpest and most detailed exchanges involved financial regulation, an area Powell has focused on during his years as a Fed governor and where he said it was time to take a pause and evaluate where things stand eight years after the end of a deep 2007 to 2009 recession.

"I am not characterizing what we are doing as deregulation...It is looking back and making sure what we did makes sense," Powell told the committee. "It does not help anyone for banks to waste money."

Powell said he wanted to be sure regulations were "tailored" to the size and role of different institutions, perhaps allowing smaller banks more latitude to trade securities and make other investments, and decreasing the frequency and intensity of "stress tests" for all but the largest financial companies.

In a statement that may surprise some analysts and regulatory experts, he declared the problem of banks that were "too big to fail" all but solved. Asked if any firms were still so large that their collapse would cause wide-ranging harm to the financial system, he responded "I would say no to that."

Over the course of the roughly 2-hour hearing none of the senators voiced opposition to Powell, though the back and forth over regulation prompted Democrats to question whether he would coddle Wall Street, while Republicans wondered if the Fed would go far enough in lightening the burden on financial businesses.

No Senate committee or floor vote has been scheduled yet, but Powell is expected to win confirmation before Yellen's term expires in early February.

There was no obvious market reaction to Powell's appearance in Congress. Analysts, meanwhile, noted the near-rote response to some questions and wondered what that portends when Powell - who would be the first non-economist to hold the top Fed job since the 1970s - confronts conditions that require him to improvise.

Trump nominated Powell from a list of 5 finalists that included Yellen, seeing in him a way to extend Fed policies that have driven unemployment to 4.1 percent and the stock market to record highs, but without having to renominate a veteran of prior Democratic administrations.

Powell's hearing "contained few signs that he will bring any new thinking or a change of approach," wrote Michael Pearce, US economist for the Capital Economics consulting firm, referring to the nominee as "closely guarded" in his reiteration of existing Fed talking points. "We are increasingly worried that a policy mistake in either direction is possible in the years ahead."

Compared to some other confirmation hearings in the Trump era, however, Powell's was an almost congenial affair. During 5 years as a Fed governor, with deep ties to the region as a Maryland native and former Treasury Department official, he has built relationships with both Democrats and Republicans on the panel who said they respected his work.

Perhaps as a result, much of the questioning involved efforts to draw him out on issues like whether the tax plan being debated on Capitol Hill would - as Republicans argue - boost economic growth, or simply explode the debt as Democrats contend.

Powell dodged, resorting to a common Fed stance that tax and spending policy is up to elected leaders and outside the Fed's authority.

"I am not an expert on what analysis is out there," Powell said.

source: news.abs-cbn.com

Weak oil weighs on stocks; data puts focus on rate hikes

NEW YORK - Stocks around the world registered their longest losing streak in 8 months on Wednesday as weaker oil prices weighed and the dollar came back from session lows after US data boosted expectations of further Federal Reserve interest rate hikes.

The dollar clawed back earlier losses against a basket of major currencies after US data showed a rise in retail sales last month and an uptick in underlying inflation, which cemented expectations for further interest rate hikes.

The US Treasury yield curve flattened to a 10-year low as fixed income investors also priced in rate hikes.

"With signs that underlying inflation pressures are starting to pick back up again, we think the Fed will need to step up the pace of tightening next year, raising the Fed funds rate a total of four times in 2018," said Michael Pearce, US economist at Capital Economics in New York.

The MSCI world equity index, which tracks shares in 47 countries, was set for its fifth straight day of declines, its longest run in the red since March.

While oil pushed down energy sector stocks, declines in defensive sectors such as utilities and gains in the financial sector implied bets on rising rates.

Lifted by steady economic growth, supportive monetary policies and rising corporate earnings, global equities have rallied this year, with indexes in the United States and Europe recently scaling record highs and Japan's Nikkei climbing to a 26-year peak.

The Dow Jones Industrial Average fell 138.19 points, or 0.59 percent, to 23,271.28, the S&P 500 lost 14.25 points, or 0.55 percent, to 2,564.62 and the Nasdaq Composite dropped 31.66 points, or 0.47 percent, to 6,706.21.

The pan-European FTSEurofirst 300 index lost 0.43 percent and MSCI's gauge of stocks across the globe shed 0.51 percent.

OIL SLIDE CONTINUES

Oil prices fell for a fourth consecutive session after the US government reported an unexpected increase in crude and gasoline stockpiles, but an increase in refining runs and a drawdown in distillates moved prices up from session lows.

Prices also remained under pressure from this week's International Energy Agency (IEA) outlook for slower growth in global crude demand.

US crude fell 0.77 percent to $55.27 per barrel and Brent was last at $61.82, down 0.63 percent on the day.

The gap between US two-year note and U.S. 10-year note yields contracted to 63.4 basis points, the flattest since November 2007.

Benchmark 10-year notes last rose 16/32 in price to yield 2.3257 percent, from 2.381 percent late on Tuesday.

The 30-year bond last rose 1 and 13/32 in price to yield 2.7685 percent, from 2.839 percent late on Tuesday.

Base metal prices fell as China data stoked fears of a slowdown in the world's top commodities consumer, and oil and stocks declines indicating broad-based risk aversion.

Spot gold dropped 0.2 percent to $1,278.72 an ounce.
 
source: news.abs-cbn.com

Fed turns to Trump agenda with rate hike nearly in the bag

WASHINGTON - The Federal Reserve inaugurates the Trump era this week with a near-certain interest rate increase and new economic forecasts providing a first glimpse into whether the U.S. election has reshaped the central bank's growth and inflation outlook.

Fed fund futures show a 97 percent probability that the Fed will lift rates by a quarter of a percentage point at the end of its two-day policy meeting on Wednesday, according to the CME Group.

All 120 economists in a Reuters poll expect a rate hike in the wake of a string of solid U.S. economic reports.

More telling will be whether the stock market rally and jump in bond yields triggered by Trump's Nov. 8 victory will push the Fed to an inflection point of its own and a higher projected pace of rate increases for 2017 and beyond.

The Republican businessman is inheriting a good economy, one that grew by 3.2 percent in the third quarter, the fastest pace in two years. There are, however, concerns that his plan to reduce taxes, cut regulation and increase infrastructure spending could not just boost the economy but also fuel higher inflation.

Since first published in 2012, the Fed's quarterly "dot plot" of projected interest rates has generally moved in one direction – down – and any post-election change will show whether policymakers expect Trump's policies to shake things up.

As of September, Fed officials' median projection was for two rate increases next year and a long run "neutral" level of 2.6 percent. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.

"Their path is going to move up faster and a little sooner," said Steve Rick, chief economist for CUNA Mutual Group. He said the economy was running at its potential, and that was the Fed's cue to "exit stage right" and steadily move rates to normal.

Fed officials have long hoped that other government policies would take the place of monetary engineering, which some believe may have lost its effectiveness in lifting economic growth.

They have warned in recent weeks that any new government spending should specifically be designed to boost productivity in an economy that is already near full employment and facing a high public debt burden.

The Fed's new forecasts will indicate if policymakers feel that the monetary-to-fiscal handover is on the horizon, or need more time for the Trump administration's plans to become more detailed and move through Congress.

Fed Chair Janet Yellen is scheduled to hold a press conference at 2:30 p.m. (1930 GMT) on Wednesday to elaborate on the economic outlook and policy statement.

She'll have a broad set of issues to cover since her last press conference in September - from the Federal Open Market Committee meeting itself, to the likelihood she will be replaced in early 2018 and the risks she foresees from the Trump agenda.

Trump repeatedly attacked Yellen during the election campaign, accusing her of holding down rates to help his Democratic rival. Since the election, he has expressed his disapproval of corporate America, criticizing Boeing, and took credit for a deal to keep hundreds of jobs at an Indiana plant from being moved to Mexico.

The president-elect also will be under scrutiny after this week's Fed meeting for clues about how he plans to handle his relationship with the central bank.

"There is a real risk that he could be openly critical of the decision to raise rates next week," Paul Ashworth, an economist with Capital Economics, said in a note last week.

That could upset markets and raise serious issues about whether Trump intends to leave the Fed alone or try to influence its decisions. Top U.S. elected officials, in particular the president, typically avoid criticizing the Fed's short-term rate decisions, emphasizing instead the need for monetary policy to be set independently.

"If he remains silent after the announcement to raise interest rates next Wednesday, then we can begin to assume that it will be business as usual for the Fed," Ashworth wrote.

WATCHING THE MARKETS

Trump's plan to cut taxes and regulation and funnel fresh billions into capital projects must pass Congress, and it may be well after that before any new programs meaningfully effect economic forecasts.

But policymakers also watch the markets closely. It may be hard for the Fed to stick with its ultra-slow pace of rate hikes if a major tax overhaul and fiscal spending plan are unleashed.

TD Securities analysts said that fiscal policy at this point in the economic recovery could prompt "an inflationary demand shock" that adds nearly a percentage point to economic growth, but spurs the Fed to raise rates much quicker than expected - by nearly an extra percentage point per year.

That scenario of a central bank caught behind the curve and forced to act faster is one that Yellen and other policymakers have said they hope to avoid out of fear it could prompt a recession.

Fed officials in recent days have acknowledged the Trump agenda may cause them to switch gears, though it is not clear how soon.

"At this juncture, it is premature to reach firm conclusions," New York Fed President William Dudley said last week.

But, since Trump won the election, Dudley added, "the stock market has firmed, bond yields have risen and the dollar has appreciated ... Market participants now anticipate that fiscal policy will turn more expansionary and that the (FOMC) will likely respond by tightening monetary policy a bit more quickly than previously anticipated."

source: news.abs-cbn.com

China data point to steadier economy for now, but Trump victory adds to risks

BEIJING - China's economy largely showed further signs of steadying in October as expected, but disappointing retail sales growth and fears of US trade frictions under incoming President Donald Trump are increasingly clouding the outlook.

Fixed-asset investment quickened slightly and beat expectations in January-October as the government stepped up infrastructure spending to support growth, official data showed on Monday.

But a number of other indicators released over the past week from exports to bank lending, as well as expectations of a slowdown in the heated property market, suggest economic momentum may falter in the months ahead.

"On balance, today's data suggest that the recent recovery in economic activity continued into the fourth quarter," Capital Economics said in a note.

"We expect growth to hold up well for another quarter or two. However, with credit growth now slowing and the property market beginning to cool the drivers of the recent recovery look set to fizzle out early next year."

China's leaders have depended on a surging real estate market and government infrastructure spending to drive activity this year and look set to meet their growth target of 6.5 to 7 percent. The construction boom in turn has helped perk up the ailing industrial sector, spurring demand for cement to steel.

But top policymakers and investors are also clearly growing more concerned about the risks of prolonged debt-fueled stimulus.

China's overall debt has jumped to more than 250 percent of GDP from 150 percent at the end of 2006, the kind of surge that in other countries has resulted in a financial bust or sharp economic slowdown, analysts say.

"I believe the overall policy tone has turned to risk management as the authorities are concerned about asset bubbles," said Singapore-based economist Zhou Hao at Commerzbank, predicting that the government will throttle back its aggressive stimulus before the end of the year.

INVESTMENT STILL HEAVILY RELIANT ON GOVERNMENT

Fixed-asset investment expanded 8.3 percent in the first 10 months from a year earlier, slightly ahead of market expectations and supported largely by government spending.

Investment by state firms surged 20.5 percent, though the pace cooled slightly from the first nine months.

In an encouraging sign, growth of private investment picked up to 2.9 percent from 2.5 percent in January-September, though it remained sluggish after hitting a record low of 2.1 percent in the first eight months of the year.

Private investment accounts for about 60 percent of overall investment in China.

Chinese policymakers have been trying to lure private investors into big infrastructure projects through public-private partnerships, but many lucrative sectors are still dominated by less efficient state firms.

UNCERTAINTIES
The most surprising miss for October was found in retail sales, though analysts were quick to note it was too early to tell if slowing consumption would turn into a trend.

Retail sales growth cooled to a five-month low of 10.0 percent from 10.7 percent in September. Analysts had forecast they would hold steady.

On Friday, Alibaba Group Holding Ltd.'s Singles' Day festival posted a record 120.7 billion yuan ($17.73 billion) worth of sales, though the gala shopping day saw growth slow as Chinese shoppers searched for deeper discounts and lower price tags.

Statistics bureau spokesman Mao Shengyong blamed the sales slowdown on a high level of comparison with last year.

"Consumption can maintain stable growth. There should not be a problem achieving this year's GDP growth targets," he told a news briefing.

October industrial output also missed expectations but to a much smaller degree, rising 6.1 percent, the same pace as in September but marginally less than forecast.

Stronger factory prices have helped boost industrial profits, relieving some pressure on companies squeezed by higher costs and weak demand, though there are concerns some of the gains are due to speculation and are not sustainable.

Data last week showed a sharp slowdown in bank lending last month, suggesting demand for mortgages is cooling after a spate of steps by local governments last month to restrict home purchases to cool soaring prices.

While property investment growth quickened in October to its highest since April 2014, some analysts suggested it could be due to a last-minute push by developers to complete construction projects as home sales and surging prices start to slow.

October exports and imports also fell more than expected, adding to doubts that the pick-up in economic activity in the world's largest trading nation can be sustained even if a trade war with the US does not materialize.

Trump had lambasted China throughout the campaign, drumming up headlines with his pledges to slap 45 percent tariffs on imported Chinese goods and label the country a currency manipulator his first day in office.

China's top leaders are due to map out economic and reform plans for 2017 at the annual Central Economic Work Conference expected in December.

Analysts believe it's too early for the government to start withdrawing policy support now due to rising domestic and global uncertainties, despite the risk of added debt.

source: www.abs-cbnnews.com

China's forex reserves fall to 5-year low in September

BEIJING - China's mountain of foreign exchange reserves dropped around $19 billion in September to a five-year low, government data showed, with the central bank spending heavily to defend its currency against capital outflows.

The world's largest currency hoard fell to under $3.17 trillion, the People's Bank of China (PBOC) said on its website Friday, below median analyst forecasts of $3.18 trillion in a Bloomberg News survey.

It was the third straight month of declines and brought China's reserves to their lowest level since April 2011, Bloomberg said.

Analysts said the decline indicated China was selling foreign exchange to buy its yuan currency amid capital flight spurred by slowing growth in the world's second largest economy.

The data came days after the yuan's official entry into the International Monetary Fund's elite SDR basket of currencies, a symbolic coup for Beijing policymakers who are seeking to expand international use of the currency.

In the months preceding the currency's formal inclusion, China's central bank spent "heavily" to keep the yuan's value stable, roughly $27 billion last month, said Julian Evans-Pritchard of Capital Economics.

But "with the inclusion of the renminbi in the SDR basket now complete, the PBOC may no longer feel the need to intervene as heavily to counter capital outflows", he said, adding that US Federal Reserve rate hikes could increase depreciation pressure on the yuan in coming months.

source: www.abs-cbnnews.com

Tianjin blasts echo across economy

TIANJIN - With a swathe of one of the world's busiest ports in ruins, more than a billion dollars in losses, and some major multinational firms still unable to access their premises, the economic impact of the Tianjin explosions could reverberate for months.

Last week's blasts triggered a giant fireball and killed 114 people, sparking fears over toxic pollutants in the city's air and water, though authorities have insisted both are safe.

They also devastated a large area of the port of Tianjin, a key gateway to the world's second-largest economy and its biggest trader in goods.

Among the most striking images of the disaster have been those showing countless lines of imported cars burned to a crisp, with about 10,000 new vehicles near the blast site reportedly destroyed.

More than 150 companies in the Fortune 500 -- the US magazine's listing of the world's biggest firms -- have operations in the city, and its port is one of the 10 busiest globally.

The city has a population of 15 million people, almost twice that of London, and an economy roughly the size of the Czech Republic.

"Economic activity in Tianjin has yet to return to normal several days after the devastating explosions there," Capital Economics, a research firm, said in a note to clients.

"While most of the port has remained in operation, damage to warehousing and factory facilities has been severe," it added, warning that "disruption is likely to spread along supply chains".

No access

Some of the world's biggest companies have had their operations in the area affected, including Japan's Toyota, the number two global automaker.

Production at its plant in the area remained suspended Wednesday. Some 67 out of 12,000 employees at the factory, which produces models including the Corolla sedan, were injured.

A Toyota spokesman said production lines would stay closed through Saturday.

Pharmaceutical giant GlaxoSmithKline also has a plant in the area around the blast site, and a spokeswoman told AFP that it had been unable to access it to assess the damage.

US agricultural machinery manufacturer John Deere said its factory was damaged, Bloomberg News reported.

French carmaker Renault said Wednesday it was diverting its imports to Shanghai.

European aircraft manufacturer Airbus has a giant assembly plant in Tianjin, its only such facility in Asia and crucial to one of its most important markets.

Its staff were safe, it said, but it has offered to move employees to downtown Tianjin, away from the port area, and was analysing "the logistics situation".

"We are trying to find solutions," a spokesman added.

Soft drinks giant Coca-Cola and Japanese automaker Honda both told AFP they were evaluating the impact of the blasts.

Shares plunge
In a statement, the American Chamber of Commerce in China said it anticipate that Tianjin authorities would "rapidly and transparently complete their assessments and investigations, rebuild the Tianjin port and brand, and restore trust in the city".

According to the American Association of Port Authorities’ 2013 world ports rankings, the most recent available on its website, Tianjin ranked third globally for cargo volume on 477 million tonnes, and 10th for container traffic, with nearly 13 million twenty foot equivalent units.

Tianjin Port itself says that operations have returned to normal "except for those at the site or surrounding areas" -- which could cover a significant section of the facilities. It did not respond to requests for details from AFP.

Shares in Tianjin Port Development Holdings tumbled more than 13 percent in Hong Kong on Monday -- their biggest loss since 2009 -- and were down 2.9 percent to HK$1.36 on Wednesday.

Losses in the auto sector alone were estimated at $310 million, according to the People's Daily, the official mouthpiece of China's ruling Communist Party, and the Fitch ratings agency has warned that insurance claims resulting from the explosions could amount to $1.5 billion.

Analysts say the long-term effect will depend on how long port operations are disrupted, with investment bank Nomura saying in a note that while it did not expect a "significant" impact on the economy, "The key issue is whether this area will be affected permanently or temporarily."

Northern China faces "an immediate interruption in chemical and plastic supply" for up to a month, research firm IHS said.

"The port is responsible for the area covering Beijing and the surrounding area, so it's very important," said Tse Leung Yip, an associate professor at the International Centre for Maritime Studies at Hong Kong's Polytechnic University.

"Ships could berth nearby, but it's not very convenient, especially because Beijing really relies on Tianjin's port."

source: www.abs-cbnnews.com