US Fed lowers key interest rate as 'insurance' against economic risks

WASHINGTON — The US Federal Reserve cut its benchmark interest rate for the third straight time on Wednesday but is likely to hold off before providing more stimulus as it gauges economic risks.

Though President Donald Trump's trade war with China and Brexit concerns have created uncertainties that have crimped business investment and undermined manufacturing, the American economy has remained "resilient," and monetary policy is now "in a good place," Fed Chairman Jerome Powell said.

The Fed's policy-setting Federal Open Market Committee lowered the policy interest rate by 25 basis points to a target range of 1.5-1.75 percent, as expected, pulling back another of the four interest rate increases it implemented in 2018.

"We took this step to help keep the US economy strong in the face of global developments, and to provide some insurance against ongoing risks," Powell told reporters.

Added to a key change in the language of the statement issued by the policy-setting Federal Open Market Committee, the comments cement the view the Fed is for now unlikely to cut rates again in the final meeting of the year.

Pressed to explain under what conditions policymakers would consider another dose of stimulus as appropriate, Powell said, "if developments emerge that cause a material reassessment of our outlook, we would respond accordingly."

He pointed to trade tensions and Brexit as factors crimping business investment and manufacturing but "overall we see the economy as having been resilient to the winds that have been blowing this year."

Given signs of a possible "phase one" trade deal with China and the diminished risk of a no-deal Brexit, "there is plenty of risk left but I would have to say the risks seem to have subsided."

KEY CHANGE IN WORDING

In a key edit to the prior statement, the Fed removed the pledge to "act as appropriate to sustain the expansion."

Analysts who scrutinize every phrase the Fed utters read that as a leaving the door open to a pause in the easing cycle.

"In other words, they think they have done enough for now and that further easings will be contingent on a material weakening in growth and/or inflation," said Ian Shepherdson of Pantheon Macroeconomics.

As President Donald Trump's trade war with China has hit manufacturing and created uncertainty that, together with concerns about Brexit, have slammed the brakes on investment, economists expected this move to help bolster a softening American economy.

But GDP in the July-September quarter was surprisingly solid, growing 1.9 percent, boosted by a strong housing sector and healthy consumer spending, according to data released earlier Wednesday.

US hiring continues and unemployment is low, while inflation is creeping up to the Fed's 2.0 percent target.

However, the trade war uncertainty also has hit the global economy, and the US data contained concerning signs as well, even as American consumers continue to carry the weight of the expansion on their backs.

Several recent surveys show about a third of economists believe the US economy could slip into recession in the next 12 months. All show the number has increased in recent weeks.

Esther George, head of the Kansas City Federal Reserve Bank, and Boston's Eric Rosengren both opposed the latest move, just as they voted against the previous two rate cuts.

Wall Street was cheered by Powell's remarks, with the S&P 500 swinging to a record close. Analysts said the Fed's messaging matched investor expectations.

source: news.abs-cbn.com

US Fed cuts key interest rate a quarter point, citing 'uncertainties'

The US Federal Reserve cut its benchmark interest rate for the second time this year on Wednesday but its policy committee is divided, with three of 10 voting members dissenting.

The central bank also moved to ease concerns about a cash crunch on financial markets by adjusting its key policy tool to help pump more funds through the financial plumbing.

The Fed's policy-setting Federal Open Market Committee lowered the policy interest rate by 25 basis points to a target range of 1.75 to 2.0 percent, as expected, and has now pulled back on half of the four interest rate increases it adopted in 2018.

"Although household spending has been rising at a strong pace business fixed investment and exports have weakened," the FOMC said in a statement.

And while officials continue to believe the most likely outcome is for the economy to continue to grow and inflation to gradually increase, "uncertainties about this outlook remain."

Powell and other Fed officials frequently have cited the uncertainty generated by President Donald Trump's trade war with China which is hanging over the economy.

Trump wasted no time in slamming the Fed on Twitter -- continuing his relentless campaign to pressure the central bank to provide additional stimulus to the economy.

"Jay Powell and the Federal Reserve Fail Again. No 'guts,' no sense, no vision! A terrible communicator!"

Downplaying concerns
Powell also downplayed concerns over a surge in funding pressures in money markets this week, noting the demand for cash to pay quarterly tax payments was a factor.

A cash shortage in recent days prompted the New York Fed on Tuesday and Wednesday to pump $128 billion into the short-term market as interest rates soared and threatened to break out of the Fed's target range.

"While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy," Powell told reporters. 

The Fed also cut the interest it pays to banks on cash reserves above the required level by 30 basis points to 1.8 percent, in a bid to push more cash into markets. 

Divided committee
Powell's position is complicated by the clear division on the committee: one member wanted an even steeper rate cut while two others opposed cutting rates at all.

The Fed's quarterly economic forecast also reflects the division among central bankers, as the median forecast calls for no further rate increases through the end of 2020 -- holding at 1.9 percent down from 2.4 percent in the June forecasts.

That contradicts most private economists who expect the central bank will feel the need to provide at least one more reduction in interest rates in 2019.

But it reflects the fact that five members expect or prefer a rate hike, five see no change, and seven forecast or want to see another rate cut.

And that division comes even as the median forecasts for growth an unemployment are about steady, with inflation gradually rising to the Fed's target of two percent.

source: news.abs-cbn.com

Asia stocks capped ahead of Fed, oil on defensive

TOKYO -- Investor caution ahead of the Federal Reserve's interest rate meeting capped Asian stocks on Tuesday, while crude oil prices retreated as global growth worries overshadowed supply concerns stemming from recent Middle East tensions.

MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.05 percent.

Australian stocks added 0.1 percent while Japan's Nikkei dipped 0.05 percent.

The Fed, facing fresh demands by US President Donald Trump to cut interest rates, begins a two-day meeting later on Tuesday. The central bank is expected to leave borrowing costs unchanged this time but possibly lay the groundwork for a rate cut later this year.

Fresh hopes for looser US monetary policy have been a tonic for risk assets markets, which were buffeted last month by an escalation in the trade conflict between Washington and Beijing. The S&P 500 has gained 5 percent this month after sliding in May on trade war fears.

Focus is now on how close the Fed could be to cutting interest rates amid the raging US-China trade war, signs of the economy losing steam and pressure by President Trump to ease policy.

"The FOMC (Federal Open Market Committee) meeting is the week's biggest event so there will be a degree of caution prevailing in the markets," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

"Expectations for a rate cut in July have increased significantly, so the markets could experience disappointment if the Fed does not send strong signals of impending easing."

US Treasury yields dipped on Monday after the New York Fed's "Empire" gauge of business growth in the state showed a fall this month to its weakest in more than 2-1/2-years, fanning rate cut expectations.

The dollar index against a basket of six major currencies stood little changed at 97.507 after pulling back from a two-week high on the decline in Treasury yields.

The pound traded at $1.2542 after retreating overnight to a six-month low of $1.2532 on Monday on concerns that arch-Brexiteer Boris Johnson will replace Theresa May as prime minister.

The euro was a shade higher at $1.1224 after spending the previous day confined to a narrow range.

US crude oil futures shed 0.08 percent to $51.89 per barrel after retreating 1.1 percent the previous day.

Oil prices had slipped on Monday as weak Chinese economic data released at the end of last week led to fears of lower global demand for the commodity.

Concerns over weakening demand overshadowed tensions in the Middle East, which remained high following last week's attacks on two oil tankers in the Gulf of Oman.

source: news.abs-cbn.com

Asian shares edge up, trade, geopolitical tensions cap gains

TOKYO -- Asian stocks inched higher on Monday, with a rebound in the Hong Kong market helping the mood, as investors remained cautious ahead of a closely-watched Federal Reserve meeting.

But the simmering trade dispute between the United States and China as well as political tensions in the Middle East kept risk-appetite in check.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent, after opening slightly weaker. Japan's Nikkei average ticked up by a similar amount.

Asian markets got a quick boost after Hong Kong's Hang Seng Index jumped as much as 1.4 percent. At the weekend, the territory's leader Carrie Lam climbed down on a bill that would have allowed extradition to China.

The Hang Seng fell for three sessions in a row through Friday, after the extradition bill triggered mass protests and some of the worst unrest seen in the territory since Britain handed it back to Chinese rule in 1997.

"Last week the issue looked as if it would become another thorny point between the United States and China. As the bill is now being postponed indefinitely, things will likely calm down, which is good for markets," said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

Mainland Chinese shares also firmed, with the benchmark Shanghai Composite up 0.2 percent and the blue-chip CSI 300 rising 0.2 percent.

US Secretary of State Mike Pompeo told Fox News on Sunday that President Donald Trump would raise the issue of Hong Kong's human rights with China's President Xi Jinping at a potential meeting of the two leaders at the G20 summit in Japan later this month.

Wall Street stocks ended lower on Friday as investors turned cautious before this week's Fed meeting, while a warning from Broadcom on slowing demand weighed on chipmakers and added to US-China trade worries.

Investors are waiting for more clues from the Fed after policymakers raised expectations for a rate cut in recent weeks.

Strong US retail sales data on Friday rolled back expectations of a Fed rate cut at this week's meeting to 21.7 percent, from 28.3 percent on Thursday, according to CME Group's FedWatch tool. But bets of an easing at the July meeting remain high at 85 percent.

"The week ahead is likely to provide some clarification for investors on three fronts that have been a source of uncertainty. The FOMC meeting, with updated forecasts, is center stage," said Marc Chandler, chief market strategist at Bannockburn Global Forex.

A private gauge on eurozone's manufacturing sector as well as US-China trade frictions will also be watched closely, Chandler said.

Financial markets were sideswiped by a sudden escalation in Sino-US trade tensions in early May, with growing anxiety among investors that a protracted standoff could tip the global economy into recession.

Geopolitical tensions in the Middle East added another layer of uncertainty after the United States blamed Iran for attacks on two oil tankers in the Gulf of Oman last week.

Hopes that global central banks will keep the money spigots open have helped to temper some of the fears, and all eyes are on the Fed's two-day meeting starting on Tuesday.

The Bank of Japan also meets this week and is widely expected to reinforce its commitment to retain a massive stimulus program for some time to come.

The retail sales report also sent short-dated US Treasury yields higher, flattening the yield curve.

Benchmark 10-year notes was last at 2.091 percent, while two-year bond yield edged up, shrinking the spread between two- and 10-year yields to 23.6 basis points compared to more than 30 earlier this month.

A Reuters poll showed a growing number of economists expect the Fed policymakers to cut interest rates this year, although the majority still see it holding steady.

In currency markets, the dollar index against a basket of six major currencies climbed to 97.583 on Friday, its highest level in almost two weeks, after the US retail sales data eased fears that the world's largest economy is slowing sharply.

The index last stood at 97.488, while the euro fetched $1.1222, near the lower end of its weekly trading range.

Oil prices rose on Monday after US Secretary of State Pompeo said Washington will take all actions necessary to guarantee safe navigation in the Middle East, as tensions mounted following attacks on tankers last week.

Brent futures rose 0.4 percent to $62.24 a barrel, while US West Texas Intermediate (WTI) crude futures gained 0.3 percent to $52.66.

Spot gold was little changed at $1,341.48 an ounce after hitting a 14-month peak on Friday.

Bitcoin jumped overnight to $9,391.85, its highest level in 13 months. It was last quoted at $9,104.64.

source: news.abs-cbn.com

Fed sees no strong case for hiking or cutting rates

WASHINGTON -- The US Federal Reserve on Wednesday held interest rates steady and signaled little appetite to adjust them any time soon, taking heart in continued job gains and economic growth and the likelihood that weak inflation will edge higher.

"We think our policy stance is appropriate at the moment; we don’t see a strong case for moving it in either direction," Fed Chairman Jerome Powell said in a press conference following the end of the central bank's latest two-day policy meeting.

Overall, he said, "I see us on a good path for this year."

Fed policymakers said ongoing economic growth, a strong labor market and an eventual rise in inflation were still "the most likely outcomes" as the US expansion nears its 10-year mark.

"The labor market remains strong ... economic activity rose at a solid rate" in recent weeks, the Fed said in a policy statement a day after President Donald Trump called on it to cut rates by a full percentage point and take other steps to stimulate the economy.

The policy statement, and particularly Powell's insistence the Fed saw no compelling reason to consider a rate cut in response to weak inflation, prompted a modest selloff in stock markets and pushed bond yields higher. The S&P 500 index fell 0.75 percent, its largest daily decline since mid-March.

Interest rate futures also reversed direction, signaling a lower degree of confidence the next Fed move would be a rate cut, exactly the point Powell was driving at in a "stay-the-course" message, said analysts at Cornerstone Macro.

"Nothing of what the (Federal Open Market Committee) did today ... should be read as a signal that a future change in policy is coming."

The Fed also trimmed the amount of interest it pays banks on excess reserves to 2.35 percent from 2.4 percent in an effort to ensure its key overnight lending rate, the federal funds rate, remains within the current target band.

INFLATION FOCUS

The chief concern flagged in the policy statement was the currently "muted" level of inflation, which continues to fall short of the Fed's 2 percent target. The statement suggested a recent decline in inflation may be more persistent than expected, and was no longer to be blamed simply on falling energy prices.

The most recent data showed a measure of underlying inflation running at 1.6 percent, which would be a problem if it meant households and businesses had doubts about the economy's strength and were less willing to spend and invest.

Powell told reporters the decline in so-called core inflation was likely mostly due to transient factors, and he predicted it would rise back to the 2 percent target.

"If we did see inflation running persistently below (the target), that is something that we would be concerned about and something that we would take into account in setting policy," he said.

But for now, the Fed chief said, low inflation allows the central bank to be "patient" in deciding on any further changes to its overnight benchmark lending rate, which it left in a range of 2.25 percent to 2.50 percent on Wednesday.

"He is making the case that a rate increase is possible, not a foregone conclusion it's a cut only," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.

The Fed raised rates four times in 2018 and, as late as December, had anticipated further rises in borrowing costs this year. Early this year it halted its tightening campaign on concerns about weak data in the United States and abroad.

The federal funds rate is the amount banks charge each other for overnight loans, and is the rate the Fed targets as its main way of controlling other borrowing costs in the economy. It neared the upper end of the target range last week, prompting the change in the interest paid on excess reserves.

Wednesday's policy decision was unanimous, a sign that the Fed remains steady in its pledge to keep interest rates unchanged until incoming economic data provide a compelling reason to do otherwise.

source: news.abs-cbn.com

US wages gains will get Fed's attention; no rate hike yet

WASHINGTON - Wage gains at long last have made an appearance in the US economy after a baffling absence amid robust job growth but the Federal Reserve is expected to hold its fire next week.

Central bankers certainly will take notice of the recent data, with especial focus on everything contributing to inflation, but have made it clear they are committed to a gradual pace of increases in the benchmark lending rate, meaning the fourth hike of the year will not come until December.

The Fed's rate-setting Federal Open Market (FOMC) meets Wednesday and Thursday but, in keeping with recent custom, economists do not expect any moves to be made since this meeting is not one that will be followed by a press conference with Fed Chairman Jerome Powell.

That dynamic will change next year when Powell will hold a briefing after every policy meeting, making economists' forecasts a bit more lively.

Fed officials have made it clear the economy can continue to perform well for some time with the current course of rate increases. 

Three more are expected next year as the central bank removes stimulus from the economy to prevent price pressures from accelerating.

The meeting takes place against the backdrop of President Donald Trump's repeated attacks on Powell for raising rates, which has injected an unwelcome political element into the deliberations.

Trump said the Fed has gone "crazy" and posed the greatest threat to his economic policies by moving too fast.

"He was supposed to be a low-interest-rate guy. It's turned out that he's not," Trump said.

But the Fed has made it clear more rate hikes will be needed, since as companies increasingly are having difficulty finding and keeping workers, which likely means wages will rise faster.

And firms also are facing price increases due to Trump's aggressive trade policies that have imposed steep tariffs on steel, aluminum and thousands of needed inputs.

DON'T KILL THE RECOVERY 

Diane Swonk of Grant Thornton said the central bank was trying to fine tune the economy so that it can continue to grow without igniting inflation.

"The Fed is not trying to kill the economy," she said in a research note.

Instead, the FOMC members "are trying to pace us so that we can extend the length of this marathon we are now running." 

The recovery from the 2008 global financial crisis is now in its 10th year, making it the second-longest of the post-World War II era. "The FOMC would like it to exceed the 1990s in length," Swonk said.

Able to declare victory with half of its dual mandate achieved -- full employment, as seen by the 48-year low in the jobless rate of 3.7 percent -- central bankers are watching closely for any buildup of inflation.

The Fed's preferred measure of inflation is right on target at two percent a year but policymakers will scrutinize the continued job creation, the 3.1 percent gain in average hourly wages and a 2.8 percent quarterly gain in total compensation.

Mickey Levy of Berenberg Capital Markets, said, "The moderate improvement in wage growth keeps the Fed on track to hike again in December and enables them to transition to a slower pace of rate increases next year."

Economist Joel Naroff notes that the pace of job creation "seems to be unsustainable."

But he cautioned that the 3.1 percent wage gain "will be the data point that catches the attention of the Fed members the most. And they will not be happy about it."

source: news.abs-cbn.com

Wall Street frets over Fed under new chair Powell: outlook

NEW YORK - Investors are starting to doubt whether they can count on the protective embrace of an accommodative US central bank when markets go haywire.

Federal Reserve chair Jerome Powell has said little about the sharp fall in Wall Street stocks this month, besides offering the platitude at his swearing-in ceremony last week that "we will remain alert to any developing risks to financial stability."

But the spotlight will be on the new Fed chair next week when he faces questions from both houses of the U.S. Congress in semi-annual testimony starting on Tuesday, and his audience will include investors who unceremoniously greeted his early tenure with one of the fastest 10.0 percent falls in Wall Street stocks in history earlier this month.

"I don't think it is a coincidence that this occurred at the same time as we saw the passing of the baton between two different Fed chairs," said Kristina Hooper, global market strategist at Invesco Ltd, an asset management company, adding that former Fed chair Janet Yellen had "lulled" markets into complacency. Powell could be very different from Yellen, she said.

The notion that the Fed would always be there to prop up shell-shocked markets prompted the notion of a Fed "put" option under three prior Fed leaders - Janet Yellen, Ben Bernanke and Alan Greenspan. The term is a reference to the hedging strategy of using a put option to guarantee an investor a sale at a preset price to limit losses.

While the Fed did not buy stocks or sell options in response to the 2007-2009 financial crisis, it did push short-term interest rates to historic lows and bought bonds, driving down yields. Starved for yield in recent years, investors were forced into the stock market, driving up equity valuations, thanks to the Fed's policies.

"There was definitely a Yellen put, and it remains to be seen whether there will be a Powell put," said Hooper.

Yellen's Fed did later raise interest rates though, starting in late 2015, but it did so more slowly than in earlier cycles and it backed off when markets were stressed. In 2015 and 2016, the rate-setting Federal Open Market Committee (FOMC) delivered just one rate hike per year.

The Fed now faces pressure to move more quickly to guard against a possible overheating of the economy, as the Fed's balance sheet and global interest rates still bear the tidemarks of emergency policies.

The minutes of the Fed's FOMC meeting on Jan. 30-31, published on Wednesday, showed policymakers expressing the need to keep raising interest rates, with most believing that inflation will rise further.

On Friday, the Fed's semi-annual monetary policy report to Congress, its first under Powell, said the Fed sees steady growth continuing and no serious risks on the horizon that might make the central bank pause its planned pace of rate hikes.

"The economic expansion continues to be supported by steady job gains, rising household wealth, favorable consumer sentiment, strong economic growth abroad, and accommodative financial conditions," the report said.

"This will be one of the more hawkish Feds we have experienced in 20 years," said Andrew Brenner, head of international fixed income at NatAlliance Securities LLC, a broker-dealer, in a note on Wednesday. A "hawkish" monetary policymaker is more aggressive in warding off inflation.

Higher interest rates could lure cash out of the stock market and into bonds as yields rise. Higher rates could also tighten credit for consumers as well as companies that have struggled to grow their sales as quickly as their profits during this economic recovery.

Some investors have even argued that the Fed's desire to avoid tripping up markets risks the central bank moving too late to prevent a rise in inflation and a market bubble. The argue that an economy that is overheating would require potentially destabilizing interest rate hikes later.

The Fed needs to slow the economy down a bit for its own good, as so far the Fed's efforts at tightening financial conditions have not been successful, said Tony Crescenzi, market strategist and portfolio manager at Pacific Investment Management Co.

Striking the right balance is not always easy though. In 2008 the Fed was preoccupied with inflation, while subprime mortgage products built up excessive leverage in bank balance sheets, provoking systemic problems in markets that lead to the worst global recession since the 1930s.

In his first months as a Fed governor back in 2012, Powell was among those who pressured then-chair Bernanke for more clarity on his plan to "taper" the central bank's bond buying. When Bernanke made the plan public, it triggered the so-called "taper tantrum" sell-off in the bond market in the summer of 2013.

Powell appeared to side with the "hawks" again in the summer of 2015 when he argued two interest rate rises might be needed, but the meltdown in the Chinese stock market that year meant he later backtracked and the Fed eventually raised rates only once that year in December.

Over time Powell's speeches have come to emphasize how the long spell of loose US monetary policy has given the labor market time to recover, allowing the unemployment rate to fall from a high of 10 percent in 2009 to a 17-year low of 4.1 percent in January this year.

"Market participants would rather see the Fed take actions that sustain the expansion, and that means more rate hikes," said Crescenzi.

It is unlikely the Fed would "view a dip in the stock market - especially the one that was seen recently - as a reason to come to its rescue," he said.

source: news.abs-cbn.com

Dow at record, European stocks up as Yellen pledges gradual rate hikes

NEW YORK - European and US stocks scored solid gains Wednesday, with the Dow ending at a fresh record, as investors welcomed congressional testimony by Federal Reserve Chair Janet Yellen reiterating the pledge to gradual interest rate increases.

Sentiment also got a boost from higher oil prices following US inventory data showing a big drop in petroleum supplies.

Yellen, appearing in a twice-annual hearing on Capitol Hill, reaffirmed the US central bank's plan for gradual rate hikes, as long as the economic data remains solid.

But Yellen noted that inflation lags the Fed's 2 percent target.

The overall impression "eased some of the rate-hike concerns that surfaced last week following the release of the FOMC minutes from the June meeting, which initially left the impression that the Fed plans to press on with a tightening of policy despite the persistence of below-target inflation data," said Briefing.com.

The Dow rose 0.6 percent to finish at its first record since June 19.

European equities also closed strong, with Paris, London and Frankfurt all winning at least one percent.

But the dollar retreated against the pound and yen after Yellen adopted a more dovish line than some expected.

"At the end of the day, the Fed is still telling us rates will rise again but September is off the table," said Kathy Lien, managing director of BK Asset Management.

Oil prices pushed higher after US inventory data showed a 7.6 million barrel decline in petroleum inventories.

That lifted shares of BP rose 1.9 percent, Italian oil giant Eni added 1.7 percent and Dow-member Chevron was up 0.8 percent.

Technology shares were also were strong, with Facebook jumping 2.3 percent, Google-parent Alphabet 1.5 percent and Microsoft 1.7 percent.

Amazon gained 1.3 percent as it hailed a successful Amazon Prime shopping day on Wednesday, saying it attracted more new members to the subscription service than on any previous day.

Airline shares were lifted after American Airlines said second-quarter revenue per seat mile had risen 5 to 6 percent from the year-ago period, a better range than previously.

American Airlines rose 4.2 percent, Delta Air Lines gained 2.2 percent and United Continental 4.7 percent.

KEY FIGURES AROUND 2045 GMT (4:45 a.m. Thursday in Manila)

New York - DOW: UP 0.6 percent at 21,532.14 (close)

New York - S&P 500: UP 0.7 percent at 2,443.25 (close)

New York - Nasdaq: UP 1.1 percent at 6,261.17 (close)

London - FTSE 100: UP 1.2 percent at 7,416.93 (close)

Frankfurt - DAX 30: UP 1.5 percent at 12,626.58 (close)

Paris - CAC 40: UP 1.6 percent at 5,222.13 (close)

Tokyo - Nikkei 225: DOWN 0.5 percent at 20,098.38 (close)

Hong Kong - Hang Seng: UP 0.6 percent at 26,043.64 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,197.54 (close)

Euro/dollar: DOWN at $1.1415 from 1.1463

Pound/dollar: UP at $1.2885 from $1.2844

Dollar/yen: DOWN at 113.17 yen from 113.89

Oil - Brent North Sea: UP 22 cents at $47.74 per barrel

Oil - West Texas Intermediate: UP 45 cents at $45.49 per barrel

source: news.abs-cbn.com

Asian stocks edge higher on Wall Street cues; oil up

HONG KONG - Asian stocks edged higher on Thursday, underpinned by a firm Wall Street after minutes from the Federal Reserve's December meeting suggested a less hawkish stance from policymakers.

Oil prices rose on expectations of drops in US inventories.

MSCI's broadest index of Asia-Pacific stocks outside Japan gained 0.2 percent, on track for a eighth consecutive session of gains. Early Asian markets such as Australia rose 0.4 percent.

"The FOMC dot plots project three interest rate hikes in 2017 however the market is less optimistic with Fed Fund futures pricing in two hikes," said James Woods, global investment strategist at Rivkin Securities in Sydney.

"The market will now focus on Trump's first 100 days where he sets the tone for his presidency and whether or not he will be able to implement his policies."

The Dow Jones Industrial Average rose 0.3 percent to end at 19,942.16 and the S&P 500 gained 0.57 percent to 2,270.75 after minutes showed most Federal Reserve policymakers thought the economy could grow more quickly because of fiscal stimulus under the Trump administration.

The FOMC minutes noted upside risk to growth forecasts and uncertainty over the level of fiscal stimulus, while some members warned that the tighter labor market could signal a more aggressive path of rate increases.

In currencies, the dollar briefly stumbled after policymakers noted extended gains in the greenback would weigh on inflation though it managed to pare losses by the end of a choppy US session.

The dollar was trading around the 117 handle against the Japanese yen while it edged lower against the euro .

China's offshore yuan was the only notable exception with the currency posting its biggest daily gain against the dollar in a year.

Oil managed to hold on to Wednesday's chunky gains on expectations US oil inventories have dropped and on signs that the world's top oil exporters will stick to agreed output cuts that took effect this week. Crude futures rose 0.2 percent.

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

US economy growing, price gains slight: Fed survey

WASHINGTON - The US economy continues to expand nationwide with only slight upward price pressures despite reports of tightening labor markets and higher wages, the Federal Reserve's Beige Book survey said Wednesday.

All but two of the 12 Fed districts reported at least a slight increase in economic activity, with only New York seeing no expansion at all, and six reporting "moderate" growth and four describing it as "modest." But the strong dollar is weighing on manufacturing in some districts.

The report, which collects views of economists, business contacts and others in the 12 Federal Reserve districts in preparation for the monetary policy meeting next month, noted improved retail sales and home construction in most regions.

However, the manufacturing situation was mixed "with the strong dollar being cited as a headwind to more robust demand in a few Districts," the report said.

In addition, vehicle sales fell in most regions, which some said "might be attributed to uncertainty surrounding the presidential election" that took place November 8.

Analysts are nearly unanimous in expecting the policy-setting Federal Open Market Committee to raise the key benchmark interest rate when it next meets December 13-14, which would be the first hike in a year and only the second since rates were lowered to near zero in December 2008.

A key factor policymakers are watching are signs of inflation, including rising wages.

The Fed report noted that employment had continued to expand and seven districts saw signs of tighter labor conditions, including reports from staffing agencies of rising wages and difficulty filling positions.

Even so, it said, "As in the past four Beige Books, wage growth was characterized generally as modest."

In addition, there was only "slight price growth" reported, as three districts saw modest prices increases, while in the others the rise was described as slight or limited.

Residential real-estate activity improved nationwide, with home construction and prices up in most districts. However, the declining supply of homes for sale in most areas is said to be restraining sales.

The energy sector continued to improve, albeit slowly, in most areas, with four districts reporting slight increases in oil and gas drilling.

Contacts in Dallas continue to expect a gradual pickup in activity next year, but the outlook has moderated.

source: news.abs-cbn.com