Financial market 'pause party' makes Fed rate cut less likely: analysis

WASHINGTON/NEW YORK -- Risk-taking has been the rage since the Federal Reserve quit hiking interest rates at the end of last year. US stocks are back near record highs and investors are stockpiling the lowest-grade corporate bonds with only a smidgen of extra compensation for the added risk.

That rebounding mood on Wall Street may be welcomed by a president that has been demanding the Fed cut rates after markets fell sharply last year, and complaining that even pausing at the current level is the wrong call.

But if anything the "pause party" on Wall Street makes it even less likely that the US central bank will cut rates. Recent positive news on retail sales and exports, which have eased concerns of a sharply slowing economy, makes the case for a rate cut even weaker.

Investors at least have gotten the message, and shifted from projecting a rate cut later this year to now putting the odds at only 50-50 that the Fed will move lower by early 2020.

The state of financial markets, say some analysts, is evidence the Fed's rate increases last year were on point, allowing the economy to continue growing while keeping risks in check. A rate cut at this stage would only be courting problems.

"The argument for why they should keep the possibility of a rate hike on the table is because of financial stability," Citi chief economist Catherine Mann said in remarks on Wednesday to a conference on financial stability at the Levy Economics Institute of Bard College.

After a decade of near zero interest rates, "moving towards a constellation of asset prices that embodies risks is critical for getting us to a more stable financial market," she said, noting that both equity prices and low-grade bond yields show a market that remains too sanguine.

In their critiques of the Fed, US President Donald Trump, White House chief economic adviser Larry Kudlow, and possible Fed nominee Stephen Moore have argued that lower rates would allow faster growth and be in line with Trump’s economic plans. They contend that, with the risk of inflation low, the central bank does not need to maintain 'insurance' against it by keeping rates where they are.

Overlooked in that analysis are the financial stability concerns steadily integrated into Fed policymaking since the 2007 to 2009 financial crisis. Mann spoke at a conference named in honor of economist Hyman Minsky, who explored how financial excess can build during good times, and unwind in catastrophic fashion. The downturn a decade ago showed just how deeply that dynamic can scar the real economy.

Financial stability isn’t a formal mandate for the Fed, which under congressional legislation is supposed to maintain the twin goals of maximum employment and stable prices. But since the crisis the central bank has concluded that keeping financial markets on an even keel is a necessary condition for achieving the other two aims.

That doesn’t mean an end of volatility or a guarantee of profits, but rather that risks are properly priced and that the use of leverage – investments made with borrowed money – is kept within safe limits.

That's a key reason why even policymakers focused on maintaining high levels of employment, like Boston Fed president Eric Rosengren, at times have taken on a hawkish tone in favor of rate increases. The worse outcome for workers, Rosengren and others have said, would be to let markets inflate too much, and crash again, even if that means risking a bit higher unemployment in the interim.

Markets are currently "a little rich," Rosengren said in recent remarks at Davidson College in North Carolina.

Though not enough to warrant a rate increase, he said, it does argue against a rate reduction. Overall, Fed officials including Chairman Jerome Powell say they feel financial risks are within a manageable range, something policymakers feel has been helped along by the rate increases to date.

The state of financial markets is "something that the Fed has to wrestle with," Rosengren said. "It's appropriate for interest rates to be paused right now."

source: news.abs-cbn.com

World stocks surge on Fed pledge to pause, dollar slips

NEW YORK -- The dollar slid and equities surged on Wednesday, fueled by Boeing and Apple's results and extended after the Federal Reserve pledged to be patient with future interest rate hikes, a change in tone that stock investors interpreted as a buy signal.

The Fed, in its policy statement at the end of a two-day meeting, struck the language from its December policy statement that indicated further rate hikes would be appropriate in 2019. That language had roiled markets amid signs of slower global growth.

US stocks extended gains and bond yields fell as markets got what they were hoping for, said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California. "This marks a full 180 from what the Fed was signaling just a few months ago," he said.

Scott Minerd, global chief investment officer at Guggenheim Partners in Santa Monica, California, said the Fed's pause would further extend the economic expansion, allowing excesses to continue to build and increasing risks of financial instability.

"The Fed refilled the punch bowl and the party goes on. Buy risk assets," Minerd said.

The Fed's policy statement indicates the US central bank will remain on a dovish path, which is very supportive for risk assets, at least on the short term, said Putri Pascualy, managing director for PAAMCO in Irvine, California.

"The back-drop of slowing economic growth on a global basis is the 800 trillion gorilla in the room," Pascualy said.

The MSCI world equity index, which tracks share performance in 47 countries, rose 1.2 percent following gains in Asia overnight. The FTSEurofirst 300 index of leading shares in Europe closed up 0.41 percent.

The Dow Jones Industrial Average rose 434.9 points, or 1.77 percent, to 25,014.86. The S&P 500 gained 41.05 points, or 1.55 percent, to 2,681.05, and the Nasdaq Composite added 154.79 points, or 2.2 percent, to 7,183.08.

Upbeat results from Boeing and Apple late on Tuesday provided investors early relief.

Boeing shares rose 6.25 percent after the world's largest planemaker raised its profit and cash flow expectations for 2019 amid a boom in air travel. Boeing also indicated it had overcome supplier delays that snarled 737 production last year.

Apple results provided some reassurance as the iPhone maker reported sharp growth in its services business. Its shares gained 6.83 percent

Oil prices rose, paring gains of more than 1 percent, as the potential for supply disruptions following US sanctions on Venezuela's oil industry lifted prices.

Stocks listed in London jumped more than 1 percent after British lawmakers late on Tuesday rejected a proposal in Parliament that aimed to prevent a potentially chaotic "no-deal" Brexit, a vote that initially pushed sterling sharply lower.

The exporter-heavy FTSE 100 in London rose 1.45 percent as its components often are boosted by a weaker pound because its multinational companies earn a large portion of their revenue abroad in foreign currency.

Sterling rose 0.04 percent to $1.3071 after sliding about 0.7 percent against the dollar and the euro following parliamentary votes on Brexit.

"The vote is not fundamentally changing the way the market's talking about Brexit," said Hetal Mehta, Legal & General Investment Management senior European economist.

Payrolls processor ADP reported that the US private sector added 213,000 jobs in January, which beat forecasts for gains of 178,000. But the monthly total was lower than the 271,000 jobs added in December.

The dollar index fell 0.39 percent to 95.447. Against the yen, the dollar fell 0.33 percent to 109.02.

The euro gained 0.39 percent to $1.1475.

Benchmark 10-year U.S. Treasury notes rose 6/32 in price to push yields down to 2.6900 percent.

US West Texas Intermediate crude futures gained 92 cents to settle at $54.23, while international Brent crude futures rose 33 cents to settle at $61.65 per barrel.

source: news.abs-cbn.com

In a shift, Fed will be 'patient' on future US rate hikes

WASHINGTON - The US Federal Reserve on Wednesday held interest rates steady and, in a formal policy shift, vowed to be patient in further lifting borrowing costs, the clearest signal yet the tightening cycle it began in 2015 may have ended.

Citing rising uncertainty about the US economic outlook, Fed Chairman Jerome Powell said the case for raising rates had "weakened" and, in a statement, the US central bank dropped its earlier expectation for "some further" tightening.

The Fed also shifted to a more dovish stance on its ongoing shedding of assets, saying it was prepared to adjust its plans based on economic and financial developments.

Powell, speaking to reporters after the end of the Fed's latest 2-day policy meeting, said the central bank would likely stop trimming its $4.1 trillion balance sheet sooner, leaving it with more assets than previously expected.

"The situation now calls for patience," he said, referring to the prospect of further rate hikes. "I think it's the right thing. I feel strongly that it is."

Taken together, the balance sheet announcement and the shift on rate hikes was meant to convey maximum flexibility from a central bank buffeted in recent weeks by financial market volatility, signs of a global economic slowdown and a partial US government shutdown that clouds the economy.

"This marks a full 180 from what the Fed was signaling just a few months ago," said Mohamed El-Erian, chief economic adviser at Allianz, in Newport Beach, California.

After the Fed statement, US stocks added to gains with the S&P 500 index rising 1.5 percent, while the dollar and short-term yields fell as investors gauged an even lower probability of additional rate hikes any time soon.

Market expectations of future rates fell further. Contracts tied to the Fed's policy rate continued to price about a one-in-4 chance of a hike in 2019, and contracts maturing in 2020 were signaling a small but rising chance of a rate cut then.

The Fed's policy statement left its overnight benchmark lending rate in a target range of 2.25 percent to 2.50 percent.

The US central bank said continued economic and job growth was still "the most likely" outcome. But it removed language from its December policy statement that risks to the outlook were "roughly balanced."

CLOUDIER OUTLOOK

The Fed raised rates 4 times last year including in December, when it signaled it would do so twice more this year.

The economic outlook, however, has become more clouded as a result of recent volatility in financial markets and signs that growth is slowing overseas, including in China and the euro zone. There are also fears the 35-day partial shutdown of the US government may crimp consumer spending.

"In light of global economic and financial developments and muted inflation pressures, the committee will be patient" in determining future rate hikes, the Fed's rate-setting committee said in the policy statement.

The Fed made no change to the $50 billion maximum monthly runoff of Treasury bonds and mortgage-backed securities from its balance sheet. Some traders have urged it to slow or halt its pullback from the bond markets, at least for now.

In a separate statement, the Fed that it had decided to continue managing policy with a system of "ample" reserves, reinforcing the notion that the rundown may end sooner than expected.

"Overall this signals the Fed will not be on autopilot going forward," said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.

The downgrade in the Fed's language around rate increases included a change in its description of economic growth from "strong" to "solid," and it noted that market-based measures of inflation compensation have "moved lower in recent months."

The Fed's policy decision was unanimous.

source: news.abs-cbn.com

US Fed to hike again but hints at pause in 2019

WASHINGTON - The US Federal Reserve is likely to raise interest rates in the coming week but policymakers have begun to signal they may take it a bit slower in 2019.

Waning growth, a trade war, tame inflation and an increasingly scary geopolitical scene mean the central bank could make clear they plan to slow or even pause the current tightening cycle -- instead taking a wait-and-see approach until the economic picture becomes clearer.

Since October, Fed officials have watched Wall Street take a wild ride, alternately diving and rallying as public remarks from Chairman Jerome Powell and others veered between indicating gradual hikes would continue or pause.

In recent days, economists have begun to cut their forecasts for the number of rate hikes they expect next year to just one or two from as many as four.

Fed officials in September forecast three increases but that could be revised as well in the new projections to be released Wednesday.

At last month's meeting, members of the Fed's rate-setting Federal Open Market Committee argued they should signal they were close to the end of the cycle by deleting the words "further gradual increases" from post-meeting statements.

That would mark a significant shift in the Fed's messaging of the last three years that maintained a steady drumbeat telling markets to expect "gradual adjustments" to rates.

But economists say the Fed is keenly aware of the specter of slowing growth in China and Europe, a chaotic British exit from the European Union, political turmoil in France and Italy's budget woes.

In the United States, job growth has remained strong this year but inflation has settled at the Fed's two percent target, despite fears the strong economy might ignite prices.

Add to this the fading boost from recent tax cuts and government spending, and expectations US growth will slow, and the future can seem highly uncertain.

"I share the notion that things are not quite as strong as they looked a few months ago but we don't know anything very definitively," former Fed vice chair Alice Rivlin told AFP.

"I think they're saying, 'We'll be very careful and we'll play it how we see it.'"

Changing expectations allows the Fed to pause without roiling financial markets with a surprise move.

- Wall Street and the Fed -

As of Friday, futures markets put the probability of a rate hike this week at 81.8 percent -- still high but well below virtual certainty predicted by the betting money ahead of other meetings this year.

"I don't think the Fed is trying to manage that probability number," said Gary Stern, former president of the Minneapolis Federal Reserve Bank.

The Fed's mandate is not protect stock market investors but to maximize employment at sustainable levels while keeping a lid on inflation.

Nevertheless, stunning gyrations on equities markets can worry policymakers, because an outright crash can sap consumer and business confidence, making households and companies cut spending, which is never good for GDP growth.

Wall Street crumbled from record heights in early October after the Fed chairman said benchmark interest rate was "a long way" below neutral -- a rate that is neither stimulating nor restraining growth -- suggesting steady rate hikes would continue.

But Powell changed his tune just a few days later, saying the key policy rate in fact was "just below" neutral, suggesting it need not rise too much higher, and that led to a stocks rally on November 28.

"I think they'll be watching carefully what pushes the markets, not because the markets per se are important to them but because the markets are the way monetary policy is conveyed to the rest of the economy," said Donald Kohn, who was the Fed's vice chairman from 2006 to 2010.

Other signals that a pause is increasingly probable have emerged.

Amid another day of plunging stock prices, The Wall Street Journal reported December 7 that the Fed was considering whether "to signal a new wait-and-see" approach, news that helped calm jittery investors.

Other Fed officials have voiced caution, including Dallas Fed President Robert Kaplan who said the central bank should be "really patient" in raising rates.

Economist Diane Swonk of Grant Thornton says the Fed will call for "a more flexible trajectory."

"We have lowered our own forecast on rate hikes to two next year," she wrote in an analytical note, but like other economists noted that the central bank decisions will depend on the economic data.

"The Fed will pivot quickly -- if need be -- to rate cuts."

source: news.abs-cbn.com

Trump says 'foolish' for Fed to raise rates next week

WASHINGTON -- President Donald Trump said on Tuesday it would be a mistake if the Federal Reserve raises interest rates when it meets next week, as it is expected to do, continuing his criticism of the US central bank.

"I think that would be foolish, but what can I say?" Trump told Reuters in an interview.

Trump added that he needed the flexibility of lower interest rates to support the broader US economy as he fights a growing trade battle against China, and potentially other countries.

"You have to understand, we're fighting some trade battles and we're winning. But I need accommodation too," he said.

Trump named Jerome Powell as Fed chairman, but has repeatedly railed against him since he took over as head of the US central bank last February. Trump in August told Reuters that he was not "thrilled" with Powell's raising interest rates.

source: news.abs-cbn.com

Fed highlights strong economy, leaves rate untouched

WASHINGTON -- The Federal Reserve on Wednesday highlighted the strength of the US economy and labor markets, a signal confirming interest rate increases are ahead, even as it held its fire for now.

Financial markets already expect an increase in the benchmark lending rate in September but the Fed's word choices are likely to solidify expectations for a fourth hike in December.

Economists scrutinize every word of the Fed's statements for clues about the next move, so the changes could be significant, especially coming amid low unemployment, hefty monthly job gains and surging growth in the second quarter.

The signal that the Fed will continue its gradual rate increases is unlikely to please President Donald Trump, who publicly chastised the central bank last month, saying policy was undercutting his efforts to juice the economy.

The central bank's policy committee said "economic activity has been rising at a strong rate," since the last meeting in June as the job market continues to strengthen.

In the statement in June, the committee described the economy as growing at a "solid rate." 

The statement also noted household spending had "grown strongly," while it last described things as having "picked up."

The Fed once again said it expected to continue "further gradual increases" in the overnight lending rate it charges to banks.

PUTTING DOUBTS TO BED

That will remove stimulus from the economy but is consistent with continued economic growth and job gains while keeping inflation near the Fed's two percent target over the medium term, the statement said.

"If you had any doubts about a rate hike in September, you can put those to bed," economist Joel Naroff said in a note. 

And, he said, "Given the Fed's evaluation of current and future growth, rate hikes are likely in September, December and possibly as many as four more next year, unless the economy decelerates sharply."

RDQ Economics said the upgrade to the Fed's language given strong economic data recently, but said it did not change the outlook for the central bank. The key 10-year US Treasury note hit the 3 percent mark after the decision.

"With the unemployment rate low, inflation near the target, but policy still accommodative, we continue to expect the Fed to hike two more times this year."

The stock market did not like the statement, with the Dow dropping to its lowest point of the day just after the announcement but recovering some ground after, also concerned about the Trump administration to ramp up pressure on China by considering tariffs of 25 percent rather than 10 percent on the next $200 billion of goods targeted.

The Fed did not mention the trade tensions in the statement but cited it in the discussions in June as a factor that could undermine strong business confidence and investments.

The exchange of tariffs has led to rising prices for goods like steel and aluminum, and companies continue to fret about the uncertainty created by the disputes.

The vote to hold rates unchanged for now was unanimous and comes after the economy grew 4.1 percent in the April-June quarter, while inflation has crept up just above two percent and wages at long last are beginning to accelerate.

Economists do not expect the US economy to continue to expand at the same pace for the rest of the year and the outlook is clouded by Trump's trade confrontations with multiple countries.

source: news.abs-cbn.com

Fed lifts rates, signals tougher stance as economy strengthens

WASHINGTON - The US Federal Reserve raised interest rates on Wednesday and forecast at least 2 more hikes for 2018, highlighting its growing confidence that tax cuts and government spending will boost the economy and inflation and spur more aggressive future tightening.

In its first policy meeting under new Fed chief Jerome Powell, the US central bank indicated that inflation should finally move higher after years below its 2 percent target and that the economy had recently gained momentum.

The Fed also raised the estimated longer-term "neutral" rate, the level at which monetary policy neither boosts nor slows the economy, a touch, in a sign the current gradual rate hike cycle could go on longer than previously thought.

"The economic outlook has strengthened in recent months," the Fed said in a statement at the end of a two-day meeting in which it lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.50 percent to 1.75 percent.

Powell, who took over from former Fed chief Janet Yellen in early February, said the central bank was staying on a path of gradual rate increases but needed to be on guard against inflation.

"We are trying to take the middle ground here," Powell said in a press conference after the end of the policy meeting, adding that there were no signs the economy was on the cusp of accelerating inflation.

The rate hike was widely expected. All 104 economists polled by Reuters from March 5-13 said the Fed would increase borrowing costs this week.

US stocks rose after the policy statement before paring gains to close lower. US Treasury yields fell and then recovered. The dollar recorded its steepest one-day loss in nearly 2 months against a basket of currencies.

"The guidance in terms of the future rate hikes is a touch more hawkish than originally expected. 2019 looks like we're going to get a faster pace of rate hikes," said Matt Miskin, market strategist at John Hancock Investments.

"This a new Fed chairman starting with a bit of a hawkish tone as he takes leadership."

CONFIDENCE IN THE ECONOMY

The rate hike was the latest step away from years of stimulating the world's largest economy in the wake of the 2007-2009 financial crisis and recession. The Fed tightened policy 3 times last year.

The combination of $1.8 trillion in expected fiscal stimulus from the Trump administration and recent hints of price and wage pressures had prompted some Fed officials to speculate more Americans could be drawn into an already tight labor market.

Some even worried inflation could rise well above the Fed's target if the economy got too hot.

Policymakers were largely split on Wednesday as to whether a total of 3 or 4 rate hikes would be needed this year. They predicted rates would rise 3 times next year and 2 times in 2020, a further indication of their view that the economy is on solid footing.

"The Fed seems to be gaining confidence," said Brian Coulton, an economist at Fitch Rating in London.

Fed policymakers projected US economic growth of 2.7 percent in 2018, an increase from the 2.5 percent forecast in December, and also marked up growth for next year. The Fed's preferred measure of inflation was expected to end 2018 at 1.9 percent, unchanged from the previous forecast, but it is seen rising a bit above the target next year.

The US unemployment rate by the end of 2018 is expected to edge down to 3.8 percent, indicating the Fed sees more room for the labor market to run. Fed officials predicted the longer-run rate would settle at 4.5 percent, slightly lower than the forecast from December.

US joblessness stood at 4.1 percent last month.

While recent home sales and retail spending data have been on the weak side, the overall economic picture has brightened after growth accelerated to 2.3 percent last year.

Before the meeting, analysts were split over whether the Fed, which is wary of an early misstep under its new leadership, would raise policy tightening expectations until more price pressures are clearly evident. There are also looming outside risks to the economy such as a possible global trade war.

"This is a new risk (that) had been probably a low-profile risk, but which has become ... a more prominent risk to the outlook," Powell said, adding, however, that the trade tensions had not affected the Fed's expectations for the economy.

source: news.abs-cbn.com

US stocks, dollar fall as Fed lifts interest rates

NEW YORK - The dollar tumbled Wednesday while US stocks dipped after the Federal Reserve lifted interest rates but suggested it would not speed up the pace of additional hikes in 2018.

The greenback's fall suggested disappointment in the foreign exchange market that the US central bank suggested it was on pace for just 3 rate hikes in 2018 and not 4. 

Earlier, European equity markets finished little changed, while oil prices rallied on data showing a drop in US petroleum inventories.

The Fed, as expected, raised its key lending rate, citing the improved US growth and employment outlook.

Newly-installed Fed Chairman Jerome Powell pointed to factors that have boosted the economic outlook in recent months, including "more stimulative" fiscal policy, in the wake of the massive tax cuts Congress passed in December.

In addition, he said "ongoing job gains are boosting incomes and confidence (and) foreign growth is on a firm trajectory."

US stocks initially rallied on the Fed announcement.

But equities later pulled back during Powell's news conference in which he was asked repeatedly about risks to the economic outlook, including from a possible trade war between the US and China. Investors also fixated on the Fed's somewhat more aggressive plans for rate hikes after 2018, analysts said.

The Dow finished down 0.2 percent at 24,682.31 after rallying as high as 24,977.65 shortly after the Fed announcement.

DOLLAR FALLS 

The dollar's trajectory was more decisive, falling after the Fed announcement and not moving significantly after that.

"While there were some aspects of today's announcement that were perhaps more hawkish than some expected, ultimately the currency market appeared to focus on the unchanged projection of a total of three rate hikes for 2018, which perhaps disappointed some who expected policymakers to signal a more aggressive near-term rate path," said Nick Bennenbroek, head of currency strategy at Wells Fargo Securities.

Earlier, European markets avoided major swings, with Frankfurt ending flat and London and Paris both down modestly.

Brent oil prices rose three percent to $69.47 per barrel after a US petroleum inventory report showed lower commercial inventories. 

The data added to optimism about oil prices after a committee working for the Russia-OPEC group that has capped output on Tuesday said global supplies would balance with demand by the end of September, sooner than previous forecasts.

Petroleum-linked shares jumped, with Dow members Exxon Mobil and Chevron rising 1.4 percent and 2.2 percent respectively.

But packaged food companies stumbled after General Mills warned that steepening commodity costs would dent profits. General Mills tumbled 8.9 percent while Kellogg dropped 4.0 percent, Campbell Soup 2.2 percent and Mondelez International 0.8 percent.

Tesla Motors gained 1.9 percent after shareholders approved a pay package worth potentially billions of dollars for chief executive Elon Musk if the company meets its targets for operations and market capitalization.

KEY FIGURES AROUND 5 A.M. 

New York - Dow: DOWN 0.2 percent at 24,682.31 (close)

New York - S&P 500: DOWN 0.2 percent at 2,711.93 (close)

New York - Nasdaq: DOWN 0.3 percent at 7,345.28 (close)

London - FTSE 100: DOWN 0.3 percent at 7,038.97 (close)

Frankfurt - DAX 30: FLAT at 12,309.15 (close)

Paris - CAC 40: DOWN 0.2 percent at 5,239.74, (close)

EURO STOXX 50: DOWN 0.3 percent at 3,401.04 (close)

Hong Kong - Hang Seng: DOWN 0.4 percent at 31,414.52 (close)

Tokyo - Nikkei 225: Closed for public holiday

Euro/dollar: UP at $1.2343 from $1.2242 at 2100 GMT Tuesday

Pound/dollar: UP at $1.4148 from $1.3998

Dollar/yen: DOWN at 105.95 yen from 106.53 yen

Oil - Brent North Sea: UP $2.05 at $69.47 per barrel

Oil - West Texas Intermediate: UP $1.63 at $65.17

source: news.abs-cbn.com

Dollar firm, shares ease in Asia as Fed hike looms

SYDNEY - The dollar held broad gains on Friday as the risk of an imminent US interest rate hike slugged sovereign bonds and commodities, even managing to sour Wall Street's party as the reality of rising borrowing costs began to sink in.

Asian stock markets were mostly lower, with MSCI's broadest index of Asia-Pacific shares outside Japan off 0.4 percent and Australia down 1 percent.

Japan's Nikkei eased just a fraction, with a weaker yen helping limit the losses.

A chorus line of Fed officials singing of the need for higher rates has seen the implied probability of a move this month shoot to 74 percent, from just 30 percent at the start of the week.

Fed Chair Janet Yellen and Vice Chair Stanley Fischer are both due to speak later on Friday and are expected to stick to the same tune.

"The US dollar has been snapped up across the board as a March Fed hike is heavily priced in," said Sean Callow, a senior currency strategist at Westpac.

"All it took was about a hundred comments from Fed officials, but markets have finally decided that "fairly soon" means less than two weeks and that perhaps 3 hikes this year means 3 hikes this year."

That was enough to make even Wall Street pause, and the Dow fell 0.53 percent, while the S&P 500 lost 0.59 percent and the Nasdaq 0.73 percent.

Caterpillar was among the biggest casualties, shedding 4.2 percent on news that federal law enforcement officials searched its Illinois facilities.

The prospect of a Fed hike on March 15 saw yields on two-year Treasury notes shatter their recent range to reach ground last trod in mid-2009.

With the European Central Bank still acting to suppress short-term euro rates, the spread between US and German two-year yields yawned out to 214 basis points, the widest since early 2000 and up from a low of 183 in January.

That shoved the euro down to $1.0505 and set up a test of major support at the February low of $1.0492. The dollar likewise climbed to 114.37 yen and nearer to the recent peak of 114.95.

Against a basket of six major currencies, the dollar was firm at 102.130 after touching its highest since Jan. 11.

That strength was not good news for commodities priced in dollars with everything from gold to copper taking a hit.

Gold was down at $1,232.61 an ounce after suffering its biggest one-day decline since December.

Oil prices took an extra blow after Russian crude production remained unchanged in February, showing weak compliance with a global deal to curb supply to tighten the oversupplied market.

Early Friday, US crude was up 6 cents at $52.67, having shed more than 2 percent on Thursday, while Brent was yet to trade at $55.08 per barrel.

source: news.abs-cbn.com

Fed trumps Trump as dollar, US Treasury yields soar

LONDON - The dollar and U.S. Treasury yields jumped on Wednesday, while stocks were mixed, as investors focused less on U.S. President Donald Trump's first speech to Congress and more on what they see as a growing chance of a U.S. interest rate hike this month.

Trump took a measured tone in his keenly awaited speech on Tuesday, saying he was open to immigration reform, but failing again to provide much detail on his plans for tax reform and infrastructure spending.

For markets, the speech was overshadowed by comments from a handful of Federal Reserve policymakers, who suggested rate-setters are worried about waiting too long to raise interest rates in the face of pending economic stimulus from Washington.

New York Fed President William Dudley -- one of the most influential U.S. central bankers, and usually considered a dove -- said the case for tightening monetary policy had become "a lot more compelling", while San Francisco Fed President John Williams said he saw "no need to delay" raising rates.

Having priced in only around a 30 percent chance that the Fed would move this month before the Fed comments, investors moved to price in around a 68 percent probability of a March hike, according to Reuters data. By June, an 84 percent chance of at least one hike has now been priced in.

The dollar index, which measures the greenback against a basket of other major currencies, climbed as much as 0.7 percent to its highest levels in seven weeks, having also been helped by data showing robust U.S. consumer spending.

Two-year U.S. Treasury yields jumped to 1.304 percent, the highest since December, to match their highest levels since 2009. The gap between them and their German equivalents increased to its widest since 2000.

"After dominating the markets since November, President Trump could now fade into the background as the focus shifts to the Fed and the prospect of rate increases," said Kathleen Brooks, Research Director at City Index in London.

"Fed members don't just let words slip out when they speak to the press - this was a message for the markets, and the markets have duly reacted."

SHORT ON DETAIL

European shares gained, with basic resources the top-performers on Trump's promise of $1 trillion of infrastructure spending.

The pan-European STOXX 600 index rose 1 percent, with Germany's DAX and France's CAC 40 outperforming peers to climb 1.3 percent and 1.4 percent respectively, helped by strong company earnings reports.

The global MSCI ACWI index, which has risen more than 10 percent since Trump's election in November, was flat, with gains in Europe offsetting earlier falls on Asian and U.S. bourses. The MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent.

Trump pledged to overhaul the immigration system, improve jobs and wages for Americans and deliver "massive" tax relief to the middle class and tax cuts for companies, but offered few clues on how they would be achieved.

"The market has been looking for reassurance that Trump intends to follow through on his campaign promises for fiscal spending, tax cuts and deregulation," said James Woods, global investment analyst at Rivkin in Sydney.

"He mentioned these policies but did not provide any actual details or time lines, which is what investors are looking for."

U.S. stock futures still pointed to a higher open after Trump's address. E-mini S&P futures ES1 rose 0.5 percent, after the Dow Jones Industrial Average snapped a 12-day winning streak to close down 0.1 percent in the prior session.

A raft of surveys pointing to stronger factory activity in China, Japan and other parts of Asia were largely overshadowed by Trump's speech.

In commodity markets, crude oil prices lost more ground, with rising U.S. oil output adding pressure on the market, although OPEC production cuts continued to offer support.

The stronger dollar weighed on gold, which dropped 0.3 percent to 1,244.36 an ounce, extending Tuesday's decline.

source: news.abs-cbn.com

Asian stocks and dollar firmer as Yellen hints at March rate hike

TOKYO - Asian stocks rose early on Wednesday as Wall Street set record highs overnight after Federal Reserve Chair Janet Yellen spoke in support of an interest rate hike next month, while the dollar hovered near three-week highs.

Yellen said on Tuesday that the Fed will probably need to raise interest rates at an upcoming meeting in March, and that delaying rate increases could leave the Fed's policy-making committee behind the curve.

Yellen's comments boosted US bank stocks, helping push Wall Street indexes to record highs overnight.

The rise in US stocks nudged MSCI's broadest index of Asia-Pacific shares outside Japan to a 19-month high. The index was up 0.3 percent early on Wednesday.

"Fundamentally, the US banks are simply being used as a vehicle to express reflation and 'Trumponomics'," wrote Chris Weston, chief market strategist at IG in Melbourne.

"Although last night really belonged to Janet Yellen whose prepared comments that waiting too long to tighten would be 'unwise' and a further review its policy stance will take place at its upcoming meetings."

Japan's Nikkei added 1 percent and Australian stocks rose 0.9 percent.

In currencies, the dollar index against a basket of major currencies stood at 101.230, near a three-week high of 101.380 scaled overnight as investors reassessed the possibility of the Fed hiking interest three times this year following Yellen's comments.

US interest rate futures implied traders saw about a 41 percent chance of at least three rate increases in 2017, up from a 33 percent chance on Monday, CME Group's FedWatch program showed.

The greenback was a shade higher at 114.370 yen after gaining about 0.5 percent the previous day, when it rose to a two-week high of 114.500. The euro was steady at $1.0576 after slipping to a one-month trough of $1.0561 overnight.

The dollar was supported as US Treasury yields rose on the Fed Chair's comments, with the benchmark 10-year note yield climbing about four basis points to an 11-day high the previous day.

The stronger dollar, which puts non-US buyers of dollar-denominated commodities at a disadvantage, weighed on crude oil prices.

US crude was down 0.3 percent at $53.07 a barrel. Crude already came under pressure the previous day on evidence of surging US stockpiles.

Spot gold was little changed at $1,228.00 an ounce after paring its gains the previous day on a firmer dollar.

source: news.abs-cbn.com

Fed leaves interest rates steady, stays upbeat on economy

WASHINGTON - The Federal Reserve held interest rates unchanged on Wednesday in its first meeting since President Donald Trump took office, but painted a relatively upbeat picture of the US economy that suggested it was on track to tighten monetary policy this year.

The US central bank said job gains remained solid, inflation had increased and economic confidence was rising, although it gave no firm signal on the timing of its next rate move.

Fed policymakers are still awaiting clarity on the possible impact of Trump's economic policies.

"Measures of consumer and business sentiment have improved of late," the Fed said in a unanimous statement following a two-day policy meeting in which it left its benchmark interest rate in a range of 0.50 percent to 0.75 percent.

The Fed also highlighted that the unemployment rate, currently at 4.7 percent, was still hovering near its recent low.

Financial markets were little changed after the rate decision, while investors were still expecting the next rate increase to occur in June, according to Fed funds futures data compiled by the CME Group.

The Fed raised rates in December for only the second time in a decade and forecast three rate increases in 2017.

Fed Chair Janet Yellen recently underscored that, with the economy near full employment, the central bank risked a "nasty surprise" on inflation if it is too slow with rate hikes.

The Fed said in its statement that it still expects inflation to rise to its 2 percent target in the medium term, although it noted that inflation compensation was still low and long-term inflation expectations were little changed.

It did, however, indicate that the effects of weak oil prices had ended, something that will give it a "clean" read on inflation in the future. On Monday, the Commerce Department reported an uptick in inflation to 1.7 percent.

"The economy continues to chug along and sentiment has improved. The Fed does sound more confident about eventually getting to its 2 percent inflation target," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.

FISCAL POLICY UNCERTAINTY
Investors had all but ruled out a rate increase this week, given the uncertainty surrounding Trump's fiscal and trade policies and how they would affect the Fed's outlook.

Trump's promises on infrastructure spending, tax cuts, regulation rollbacks and a renegotiation of trade deals could quickly spur higher inflation, which may necessitate a faster pace of rate hikes.

The businessman-turned-politician has offered few specifics on his economic plans or a timeline for their rollout, while the announcement of policies viewed by many as protectionist and an immigration crackdown have caused market jitters in recent days.

"There is still uncertainty about fiscal policy, so the Fed is likely waiting for a bit more data and more certainty," said Tony Bedikian, head of global markets at Citizens Bank.

Earlier on Wednesday, data showed US factory activity accelerated to more than a two-year high in January while a report by a payrolls processor showed US private employers added 246,000 jobs in January, far above analysts' expectations.

The Labor Department is scheduled to release its closely-watched monthly jobs report for January on Friday. Yellen may also give a clearer signal on the Fed's thinking when she provides semi-annual testimony to Congress in mid-February.

There are seven more Fed policy meetings in 2017, with the next one scheduled for March 14-15.

source: news.abs-cbn.com

World stocks hold near 16-month highs after strong week

LONDON - World stocks were set for a weekly gain and held near 16-month highs on Friday, while the euro steadied after swings following the European Central Bank’s decision to extend its stimulus program.

The MSCI World index was up 0.1 percent, on track for a gain of 2.7 percent for the week. The index was just 0.1 percent below Thursday's peak, which was its highest level since August 2015.

European shares hit their highest level for 11 months, and were set for their best week since February, following the ECB's decision to trim the size of its asset purchase program while also extending it for longer than many analysts had expected.

The ECB said it would reduce its monthly asset buys to 60 billion euros ($63.68 billion) as of April, from the current 80 billion euros, and extend purchases to December from March - three months longer than what some analysts had forecast.

That dragged down two-year yields across Europe and sharply steepened the yield curve, a gift for banks that typically borrow short maturities and lend long.

European bank stocks pulled back on Friday, dropping 1 percent, but were still up 9.2 percent for the week, with the sector set for its biggest weekly rise since December 2011.

One month on from November's U.S. presidential election, world stocks have gained 3.8 percent, with Wall Street spurred to all time highs on hopes of higher growth and inflation as a result of President-elect Donald Trump's planned fiscal stimulus.

Analysts said that signs the ECB would continue to provide monetary support for as long as needed complemented the promise of fiscal stimulus in a welcome cocktail for investors.

"Markets already excited by the prospect of a fiscal stimulus wave via a Trump election look in-line to get more of both fiscal and monetary stimulus from next year," said Mike van Dulken, head of research at Accendo Markets.

"(That's) the best of both worlds for investors."

In all, Europe's STOXX 600 was up 0.1 percent.

The euro recovered a foothold on Friday, after an extension of the European Central Bank's program of money-printing till the end of next year drove its biggest daily loss against the dollar since Britain's vote to leave the European Union in June.

It was flat against the dollar, spiking as high $1.0875 on Thursday before tumbling as ECB President Mario Draghi said the unexpected move was not an outright winding-down of the central bank's quantitative easing (QE) program, and the central bank reserved the right to increase the size of purchases again if the euro zone economy falters.

The dovish tone of the ECB also saw a fall in euro zone borrowing costs, led by Southern Europe.

The ECB's bond purchase changes came less than a week before the Federal Reserve's policy meeting next Tuesday and Wednesday.

Interest rate futures FFZ6, FFM7 implied traders saw a 98 percent chance the U.S. central bank would raise interest rates by a quarter point next week, and about a 50 percent chance it would raise rates by at least another quarter point by June 2017, according to CME Group's FedWatch program.

The dollar index, which tracks the greenback against a basket of six major rival currencies, was steady on the day at 101.13, up 0.4 percent for the week.

The dollar was up 0.4 percent at 114.42 yen, moving back toward last week's 10-month high of 114.83 yen.

Asian shares edged down on Friday but were on track for weekly gains. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent, and was poised for a weekly gain of 2 percent.

Japan's Nikkei stock index ended 1.2 percent up at its highest closing level since December 2015. The Nikkei earlier topped the 19,000-level for the first time in a year, as investors saw both the weak yen and prospects of U.S. President-elect Donald Trump adopting reflationary policies benefiting Japan's major exporters.

"The U.S. market's strength is giving a boost to Japanese shares," said Eiji Kinouchi, chief technical analyst at Daiwa Securities.

Oil built on its gains after rebounding overnight on growing optimism that non-OPEC producers might follow the cartel's lead by agreeing to cut output.

U.S. crude added 0.9 percent to $51.31 a barrel. Brent crude rose 0.7 percent to $54.24.

Spot gold was flat at $1,170.4 an ounce and was set for a weekly decline of about 0.5 percent, pressured by the stronger U.S. dollar and expectations that the Fed will raise interest rates next week.

source: news.abs-cbn.com

Asia shares hit 1-month peak, bonds bet on ECB support

SYDNEY - Asian shares hopped higher on Thursday after Wall Street strode to new records and bonds rallied on wagers the European Central Bank would extend its asset buying campaign at a policy meeting later in the session.

Australian stocks led the way with a rise of 0.9 in early trade, while Nikkei futures pointed to an opening gain of around 1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 percent to a one-month top.

The euro seemed little troubled after Moody's changed its outlook on Italy to negative, warning it may downgrade the credit rating if the country's deteriorating economic and debt outlook was not reversed.

The common currency took the news relatively well, easing just a touch to $1.0756, from a top of $1.7068.

Markets have been surprisingly buoyant in the wake of Italy's "No" vote last weekend, in part on hopes for continued support from the ECB which may widen the type of bonds it buys.

Also helping sentiment were reports Italy would step in to rescue troubled bank Monte dei Paschi, which lifted its shares by 9 percent.

All of which helped drive down yields on European peripheral debt, with buying spilling over to German bunds and US Treasuries. Yields on the 30-year Treasury fell by almost 6 basis points in the biggest daily decline since later August.

That drop nudged the dollar down a touch to 113.63 yen while the dollar index dipped 0.3 percent.

WATCHING WALL ST

Analysts also suspect the ECB may start preparing investors for an eventual tapering of its stimulus, which could underpin the euro even as the Federal Reserve prepares to raise U.S. interest rates next week.

The prospect of higher borrowing costs has certainly not fazed Wall Street, which notched fresh records on expectations the Trump Administration will eventually deliver fiscal stimulus and deregulation.

The Dow ended Wednesday with gains of 1.55 percent, while the S&P 500 climbed 1.32 percent and the Nasdaq 1.14 percent.

Transport stocks had a barnstorming session with the sector jumping 2.5 percent to an all-time intra-day peak.

But biotechnology and pharmaceutical stocks slid after Trump promised in a Time magazine interview that "I'm going to bring down drug prices."

In commodity markets, oil slipped on bearish US petroleum inventory data and doubts that production cuts promised by OPEC and Russia would be deep enough to end a supply overhang.

Brent futures ended Wednesday down 91 cents at $53.02 a barrel. In early trade Thursday, US crude had regained 20 cents of its losses to stand at $49.97.

The story was different in bulk commodities where iron ore and coking coal surged as Chinese demand drove steel prices to their highest since April 2014.

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