Dollar resumes ascent, Asia keeps wary eye on yuan

SYDNEY - The US dollar held on to broad gains on Tuesday, resuming its ascent after last week's brief wobble as the prospect of rising US interest rates this year kept sentiment bullish on the long-run.

A holiday in Japan made for quiet early trade, leaving the dollar steady at 117.36 yen but well up on Friday's trough of 116.05.

Against a basket of currencies, the dollar was firm at 102.800 having climbed 0.6 percent overnight.

The euro was sulking at $1.0461 despite strong manufacturing data for the currency bloc, having surrendered all of Friday's brief spike to $1.0700.

A dearth of liquidity was largely behind the wild swings, though the market is now so long dollars that it is vulnerable to sudden corrections.

Data released on Friday showed speculators increasing their bets on the dollar in the week up to last Tuesday after cutting positions for the first time since October in the previous week.

The greenback had soared to 14-year highs in December on speculation the US Federal Reserve will hike rates as many as three times this year, and that President-elect Donald Trump will stoke growth and inflation with debt-funded tax cuts.

Treasury yields have jumped in anticipation while central banks in the euro zone and Japan are still working to keep their short-term yields deep in negative territory.

As a result, US two-year debt pays 200 basis points more than German debt and 138 basis points more than Japanese paper.

"Following a period of consolidation between now and late January, we believe the USD will put on another 10 percent of gains over the next eighteen months," said Richard Grace, chief currency strategist at CBA.

Grace argued Trump's proposed plans for a US company tax cut could be particularly bullish for the dollar since it would likely encourage a wave of repatriation by domestic firms and demand for US equities by foreign investors.

"We anticipate some twelve-to-eighteen months of USD strength, beginning when the Trump Administration gets its tax cuts through the Congress," he added, citing late March as likely timing for passage.

Dealers are also keeping a wary eye on the yuan as annual quotas covering how much foreign currency Chinese individuals can buy are reset this week.


China's foreign exchange regulator said on Saturday that the $50,000 annual individual quota will remain unchanged, but some banks have told customers that purchases of foreign currency for buying property, securities and life insurance were not allowed.

The new rules on overseas currency transfers are not capital controls, the official Xinhua news agency reported,

There has been talk investors could rush to sell the yuan fearing further depreciation in the currency, forcing the country's central bank to run down its reserves to head off a self-fulfilling spiral.

Some in the market have hedged that risk by shorting the Australian dollar, typically used as a liquid proxy for the yuan. The Aussie was stuck at $0.7179 on Tuesday, just above the recent seven-month trough of $0.7160.

source: news.abs-cbn.com

Fed set to hike rates, policy outlook now hinges on Trump presidency

WASHINGTON - The Federal Reserve will conclude its two-day policy meeting on Wednesday afternoon with an interest rate increase all but assured and will issue new forecasts assessing whether the economic outlook has changed since the U.S. election.

The latest policy statement and projections are to be released at 2 p.m. EST (1900 GMT) with a press conference by Fed Chair Janet Yellen following at 2:30 p.m.

Markets are poised for the federal funds rate to rise to a target range of between 0.5 and 0.75 percent from the current range of 0.25-0.5 percent, where they have rested since the Fed approved its last rate increase a year ago.

Of more significance is the backdrop of the meeting. After years of the Fed fretting about low interest rates and weak inflation, the weeks since Donald Trump's victory have seen both bond yields and inflation expectations start to rise. The Dow Jones industrial average is up more than 11 percent since the vote.

Details of policymakers' new economic assessments, the first since the election, will be dissected closely to see if policymakers yet feel the arrival of the Trump administration has shifted the economic outlook or poses a risk of greater inflation. The president-elect has said he wants a major tax cut and infrastructure spending program, even as the economy approaches full employment and wages are rising.

"Inflation risks are more significant than they were three months ago," when the policymakers issued their last forecasts, sad Northern Trust chief economist Carl Tannenbaum. "Rates could well rise more than anticipated."

Despite the changed circumstances, it is not certain the Fed will budge on its assessments. The median forecast of policymakers as of September was for two interest rate increases in 2017, an outlook Tannenbaum and many analysts feel may remain the case.

Trump has not yet taken office, and any proposals would have to clear a Republican-controlled Congress that may be stricter about increasing public debt than Trump. In recent public appearances some Fed officials have said they see a chance Trump's policies may force them to speed the pace of rate increases, yet also said they are hesitant to change their outlook before he shares more details.

"Investors who are looking for clarity may be disappointed," said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.

source: news.abs-cbn.com

Strong US retail sales reinforce December interest rate hike

WASHINGTON - US retail sales rose more than expected in October as households bought motor vehicles and a range of other goods, pointing to sustained economic strength that could allow the Federal Reserve to raise interest rates next month.

The Commerce Department said on Tuesday retail sales increased 0.8 percent last month, also boosted by demand for building materials, likely as households cleaned up and made repairs in the wake of Hurricane Matthew.

"This is just the kind of data the Fed doves need to see to convince them to hike rates in December. The economy is doing pretty well, this data is bullish for the economic outlook in the months ahead," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

Adding to the report's strong tone, September retail sales were revised up to show a 1.0 percent increase instead of the previously reported 0.6 percent rise. The combined September and October sales gain was the largest two-month rise since early 2014. Sales were up 4.3 percent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.8 percent last month after an upwardly revised 0.3 percent gain in September.

These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have risen 0.1 percent in September.

Economists had forecast overall retail sales increasing 0.6 percent and core sales advancing 0.3 percent last month.

The strong sales report is a good omen heading into the holiday shopping season. Last week, Macy's and Kohl's Corp. expressed optimism about the holiday shopping season, despite reporting a decline in sales in the third quarter.

US stocks were trading mostly higher, while the dollar was little changed against a basket of currencies. US Treasuries rose after declining for five straight trading sessions.

SUSTAINED STRENGTH

September's upward revision to core retail sales suggests that the economy's 2.9 percent annualized growth rate in the third quarter could be raised when the government publishes its second GDP estimate later this month.

Coming on the heels of data this month showing a rapidly tightening labor market and signs of a turnaround in the manufacturing sector, the upbeat retail sales report implied a pickup in economic activity early in the fourth quarter.

The Atlanta Fed lifted its fourth-quarter GDP growth estimate by two-tenths of a percentage point to a 3.3 percent rate after Tuesday's data.

The report also reinforced views that the Fed will raise interest rates at its Dec. 13-14 policy meeting.

Rate hike prospects have also been boosted by a rally in US stocks in the wake of the last week's election of Republican candidate Donald Trump as the next president, despite a lot of hand-wringing over his proposed policies.

The Fed this month left interest rates unchanged but said its monetary policy-setting committee "judges that the case for an increase in the federal funds rate has continued to strengthen." The US central bank raised its benchmark overnight interest rate last December and has held it steady since, largely because of concerns over low inflation.

But inflation is creeping higher. A separate report on Tuesday from the Labor Department showed import prices increased 0.5 percent in October after gaining 0.2 percent in September.

In the 12 months through October, import prices fell 0.2 percent, the smallest decrease since July 2014, after declining 1.0 percent in September.

Retail sales last month were driven by a 1.1 percent increase in auto sales and a 1.5 percent surge in receipts at online retailers. Online retailers like Amazon have been grabbing market share from traditional department chains like Macy's and Kohl's.

Sales at building material stores increased 1.1 percent following a 1.8 percent rise in September. The strength in this category was reflected in Home Depot's robust third-quarter profit and sales reported on Tuesday.

Receipts at sporting goods and hobby stores rose 1.3 percent. Sales at restaurants and bars, however, fell 0.7 percent, likely as the stormy weather kept people at home.

Households also spent more on clothing, groceries and grooming last month, but cut back on furniture. Receipts at service stations advanced 2.2 percent on rising gasoline prices.

"As uncertainty over the election outcome remains elevated, October's retail sales performance provides some comfort that the primary driver of US GDP growth remains on solid footing," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

source: www.abs-cbnnews.com

Rate hike case 'less compelling': Fed governor

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

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

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

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

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

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

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

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

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

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

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

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

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

source: www.abs-cbnnews.com

Expert reveals biggest concerns of world's top CEOs

Marios Maratheftis, the Global Chief Economist of Standard Chartered Bank, is the person sought by top-level CEOs for advice on big industrial leaps.

Nowadays, he says, three of the biggest concerns for them are the Fed’s interest rate hikes, the deceleration of the Chinese economy, and the big drop of oil prices.

The 25 basis points that the U.S. Federal Reserve has hiked may seem a small movement, but Maratheftis notes that after nine and a half years of cutting rates, the first hike in December 2015 indicates that there's more to come.

“It signals a change in the regime and in the world order. And it has been significant. We’ve seen a lot of currencies, especially in emerging markets, moving quite rapidly in anticipation of a hike,” he tells Cathy Yang on The Boss.

He also says the U.S. economy will probably slow down this year and could see a shallow, short-term recession in 2017.

He predicts, however, that after one more hike this month, the Fed’s next move will be a cut. While this decline is always a bad thing, the interest cuts mean more capital flow into emerging markets.

The second biggest economy in the world has also seen a slowdown the previous year. The Chinese economy, however, is slowing down by design, with their policy-makers opting to shift their economic model from manufacturing and construction to a more sustainable model of services and construction.

Maratheftis says it is inevitable that there will be a slowdown, but the market’s reaction to it is much ado about nothing.

“The Chinese have the tools to maintain growth of up to 7%. They can cut interest rates, they can cut their reserve requirement ratio if they want to, and they can use fiscal policy and spend more in their economy. They’ve implemented these measures already.”

Problems in the petroleum industry, Maratheftis maintains, is rooted on the huge drop in prices over very little surplus in oil. With only a million barrels in excess per day, the supply can deplete quickly.

Standard Chartered estimates the price of oil to rise from $30 per barrel to $60-$70 per barrel should this continue. He adds that “the question isn’t the demand, because people are still buying; but are there going to be enough sellers or suppliers to satisfy that demand? Our answer is no.”

Considering all of the aforementioned, his recommendation to the captains of industry for years 2016 and 2017 is to "retreat, regroup, rebound."

Although financial markets are in the retreat phase, the fundamentals indicate, according to Maratheftis, that the current situation is not as bad as the markets have expected.

source: www.abs-cbnnews.com