Senior Fed official backs July interest rate hike

WASHINGTON -- A senior US Federal Reserve official said Thursday he supported another interest rate hike later this month, and backed a second hike before the end of the year to keep tackling inflation.

After 10 consecutive increases, the Fed in June chose not to hike its benchmark lending rate, saying policymakers would use the time to assess the impact of raised rates on the US economy.

According to meeting notes released later, most members of the Fed's rate-setting Federal Open Market Committee (FOMC) indicated they expect two additional hikes will be needed this year to help keep inflation on a downward trajectory.

On Thursday evening, Fed governor and FOMC member Christopher Waller indicated he was one of them.

"I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target," he told an audience in New York, according to prepared remarks.

Waller said he had backed last month's pause due to "lingering doubts about when or if an abrupt tightening of credit conditions would occur," following banking stresses in March.

"I felt that waiting another six weeks was prudent risk management," he added.

Waller said data published since June has made him more confident that the banking crisis will not lead to "significant" problems for the American economy.

"I see no reason why the first of those two hikes should not occur at our meeting later this month," he added.

Waller's remarks come a day after the Fed published a report indicating that "overall economic activity increased slightly since late May."

Futures traders assign a probability of more than 90 percent that the Fed will raise its benchmark lending rate by another quarter percentage-point on July 25-26.

This would bring its key lending rate to its highest level in more than two decades.

Agence France-Presse

Fed mulls bigger rate hikes to cool US economy

WASHINGTON - The United States is prepared to speed up interest rate hikes –- and could raise them higher than anticipated -- if needed to cool inflation and a strong jobs market, Federal Reserve Chair Jerome Powell said.

An "unseasonably warm" January across much of the country was likely behind the robust employment, consumer spending, manufacturing and inflation figures, which pointed to a partial reversal of earlier softening trends, Powell told the Senate Banking Committee. 

"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," he said.

He added that the "ultimate level of interest rates" is likely to be higher than previously anticipated as well.

Stocks fell sharply following Powell's comments, with the Dow Jones Industrial Average closing 1.7 percent lower.

The dollar strengthened sharply against the euro and other major currencies, while the two-year US Treasury yield surged above five percent. 

Chance of bigger hike 

The US central bank has already raised its benchmark lending rate 8 times since early last year, as it contends with inflation that remains stubbornly above its long-term target of two percent.

It raised rates last month by a quarter percentage point to 4.50-4.75 percent, its highest level since the global financial crisis.

Powell's comments raise the likelihood of the Fed lifting rates by 50 basis points at its next meeting this month, Evercore ISI economists Krishna Guha and Peter Williams wrote in a note to investors.

"We must accept that this option appears to be somewhat more live than we had previously believed," they said, though adding that a quarter-point hike was still the more likely option.

Markets are now roughly evenly split on the chances of a larger half-point rate hike, said Joe Manimbo, senior market analyst at Convera.

Despite its forceful moves, the Fed's favored inflation measure, the personal consumption expenditures (PCE) price index, rose slightly to reach an annual rate of 5.4 percent in January.

Core PCE inflation, which excludes volatile energy and food prices, also rose 4.7 percent.

At the same time, the labor market remains "extremely tight," with close to two jobs available for every one unemployed person in December, Powell said.

US job creation surged in January, with employers creating more half a million new jobs and driving the unemployment rate to its lowest level since the 1960s.

A strong labor market supports incomes and, in turn, demand.

"To restore price stability, we will need to see lower inflation in this sector, and there will very likely be some softening in labor market conditions," Powell said.

Debt ceiling pressure

At Tuesday's hearing, Powell also faced questions about ongoing negotiations between the Biden administration and Republicans in Congress over raising the debt ceiling.

"Whatever else may happen Congress really needs to raise the debt ceiling," Powell said, adding to calls for the two sides to come to an agreement.

The United States hit its $31.4 trillion borrowing cap in January, kicking off frantic talks between Congress and the White House to raise the limit and allow the US to meet pre-existing spending commitments. 

Republicans in Congress have asked for spending cuts in exchange for their support, while the Biden administration has said it wants to separate any talks over the upcoming budget from the debt limit vote.

The nonpartisan Congressional Budget Office warned last month that the country risks defaulting on its debt as soon as July if an agreement is not reached. 

Powell's appearance comes shortly after the US central bank released a semiannual report on monetary policy, which pointed to a tight labor market, robust job gains, historically low unemployment and elevated nominal wage growth.

"The process of getting inflation back down to two percent has a long way to go and is likely to be bumpy," Powell said. "We will stay the course until the job is done."

Agence France-Presse

Asian markets rise again on recovery hope as inflation data looms

HONG KONG - Asian equities pushed higher Wednesday as investors were buoyed by China's reopening and optimism that key data due this week will signal a further slowdown in US inflation.

Traders tracked a Wall Street advance as they brushed off fresh warnings that Federal Reserve rates would continue to rise and a World Bank decision to slash its global growth forecast.

After a stumble Tuesday, regional markets resumed the upward push that has characterized the start of the year thanks to China's emergence from nearly three years of zero-COVID isolation.

The reopening, easing of Beijing's tech crackdown and moves to help the property sector have raised hopes for the world's number-two economy, a crucial driver of world growth.

SPI Asset Management's Stephen Innes said: "Despite a solid start to the year, there should be a lot more upside to China's stocks, with earnings upgrades to drive further outperformance.

"Although we are not pitching a tent in that camp just yet, many investors are starting to believe China's reopening could be faster than expected on pent-up demand, a robust economic rebound and fewer supply constraints."

In early trade, Hong Kong again led the gains by piling on more than one percent, having already added about eight percent in 2023. Shanghai, Tokyo, Sydney, Seoul and Singapore were also in the ascendancy, though there were small losses in Wellington, Taipei and Manila.

Focus this week is on Thursday's US consumer price index, which is expected to show that price gains eased further in December.

But while that could possibly allow the Federal Reserve to take a lighter approach to its monetary tightening campaign, policymakers continue to push back against any pivot away from rate hikes.

Markets were battered last year by fears that almost a year of hikes will tip the economy into recession.

Bank boss Jerome Powell said that "restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy".

Meanwhile, Fed governor Michelle Bowman said that while inflation was coming down, "we have a lot more work to do" and that once rates had peaked they would have to stay there for some time. 

She added that "unemployment has remained low as we have tightened monetary policy and made progress in lowering inflation".

"I take this as a hopeful sign that we can succeed in lowering inflation without a significant economic downturn," she said.

And JP Morgan Chase CEO Jamie Dimon said borrowing costs could actually go higher than the five percent priced in by markets, suggesting they could hit six percent.

There was little reaction to the World Bank slashing its 2023 global growth forecast by about half and a warning that the economy was "perilously close" to recession owing to high inflation, rising interest rates and Russia's invasion of Ukraine.

Economists have warned of a slump in the world economy as countries battle soaring costs and central banks simultaneously hike interest rates to cool demand amid ongoing disruptions from the war in Ukraine.

The World Bank's latest forecast points to a "sharp, long-lasting slowdown", with growth pegged at 1.7 percent this year, roughly half the pace it predicted in June, according to its Global Economic Prospects report.

Key figures around 10:30 a.m. in Manila 

Tokyo - Nikkei 225: UP 1.1 percent at 26,457.56 (break)

Hong Kong - Hang Seng Index: 1.5 percent at 21,642.27

Shanghai - Composite: UP 0.3 percent at 3,177.88

Dollar/yen: UP at 132.44 yen from 132.21 yen on Tuesday

Euro/dollar: DOWN at $1.0733 from $1.0739

Pound/dollar: UP at $1.2156 from $1.2153

Euro/pound: DOWN at 88.31 pence from 88.34 pence

West Texas Intermediate: DOWN 0.8 percent at $74.54 a barrel

Brent North Sea crude: DOWN 0.7 percent at $79.51 a barrel

New York - Dow: UP 0.6 percent at 33,704.10 (close)

London - FTSE 100: DOWN 0.4 percent at 7,694.49 (close)

Agence France-Presse

Markets drop as Fed hike looms, Putin move lifts dollar and oil

HONG KONG - Stocks fell Wednesday ahead of what many expect to be a third successive jumbo rate hike by the Federal Reserve, while the dollar hit fresh multi-decade highs against the pound and euro after Russia stepped up its war in Ukraine.

Equities around the world have been clattered by fears of a recession in major economies as central banks ramp up borrowing costs to combat the highest inflation in decades, which has been compounded by the Ukraine war and supply chain snarls.

In Washington, the Fed is due to conclude its latest policy meeting, with most analysts predicting it will announce another 75 basis-point lift, though some have tipped a full percentage-point move.

However, while the hike has largely been priced into the markets, the US central bank's forecast and post-meeting comments from boss Jerome Powell are the main attraction for investors.

"Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says and where policy makers see rates going by the end of the hiking cycle," Fiona Cincotta, at City Index, said.

"This is what will drive the markets, not the rate hike... but what the Fed plans to do next."

Fed officials have for months stuck to the mantra that they will only ease up on their hawkish drive when inflation comes down and remains subdued.

This has led many to warn that rates are unlikely to come down anytime soon, possibly as late as 2024, with a recession more than likely in the United States as well as other major economies.

DOLLAR EXTENDS RALLY 

Other central banks are also meeting this week. On Tuesday, officials in Sweden surprised markets by unveiling a one percentage-point hike, while the United Kingdom and Switzerland are expected to announce more increases.

Asian markets were back in the red, reversing Tuesday's bounce.

Tokyo, Hong Kong, Sydney and Manila were all down more than one percent, while there were also losses in Shanghai, Seoul, Singapore, Wellington, Taipei, Mumbai and Jakarta.

London rose in early trade, but Paris and Frankfurt were down.

Adding to the dour mood was Vladimir Putin's announcement of a "partial mobilization" as he upped the ante in his battle against Ukraine after his forces were routed from several cities in recent weeks.

He added that he would annex the territories his forces have already occupied and backed weekend referendums in four regions in Russian-held parts of Ukraine.

"We will definitely use all means available" to protect Russian territory, he warned, adding: "That's not a bluff."

The moves mark an escalation of the seven-month war, which has roiled markets and sparked an energy crisis.

Oil prices, which have wilted in recent months owing to worries about demand caused by any recession, surged more than three percent.

And the dollar, a safe haven in times of uncertainty and turmoil and which was already elevated ahead of the rate decision, rallied further.

It hit a fresh 37-year high of $1.1305 against sterling and a new 20-year peak of $0.9885 per euro, with the eurozone already in economic trouble owing to sanctions on Russian oil and Putin's decision to cut off gas supplies to the continent.

The announcement and possible escalation in the war "raises a whole new set of uncertainties", Rabobank's Jane Foley said.

"This is set to weigh on the euro and on the currencies of eastern Europe."

Agence France-Presse

Asia tracks Wall St losses on Fed tightening concerns

HONG KONG - Asian stocks opened with losses on Monday, as unease lingered over tightening monetary policy by the Fed and investors awaited earnings reports by retailers due this week.

Wall Street stocks mostly fell Friday. Both the S&P 500 and the Nasdaq retreated as the yield on the 10-year US Treasury note climbed above 2.7 percent, a signal markets are preparing for more tightening as the Federal Reserve battles inflation.

The losses continued Monday in Tokyo, as well as in Hong Kong and Shanghai where the main indexes lost more than two percent.

Taipei and Seoul were also down, while Sydney and Jakarta posted slight gains.

"Stocks are soft at the Monday open on increasing evidence the Federal Reserve will take a more committed approach to its monetary policy inflation-fighting stance," said Stephen Innes at SPI Asset Management.

"However, markets have been surprisingly resilient as discussions under the surface debated whether this week's US March CPI data will hint at the peak of the inflation cycle and help the Fed's chance to better engineer a soft landing, however narrow that path may seem."

And Takashi Hiroki, chief strategist of Monex, added: "Focus this week is on the US and Chinese consumer price indexes for March," among other data, to glean clues on the Fed's monetary policy and that of other central banks.

The US central bank has recently taken a hawkish tone as it embarks on an aggressive tightening path, prompting traders to fret over the prospect of higher interest rates.

The euro climbed as much as 0.7 percent against the dollar before paring the gain, suggesting some relief over the French election but ongoing wariness.

Investors had fretted about the implications of a victory for President Emmanuel Macron's nationalist rival Marine Le Pen in the midst of the war in Ukraine, given her long-standing sympathies for Russia.

Macron was set to beat Le Pen in the first round of elections Sunday by a larger-than-expected margin, the two candidates advancing to a run-off later this month.

"Make no mistake: nothing is decided," Macron told supporters.

Agence France-Presse

Fed's appetite for further easing, higher inflation in focus

The U.S. Federal Reserve last month signaled that interest rates are likely to stay at zero through 2023, vowing to wait on rate hikes until inflation reaches 2 percent and is set to rise moderately above that level for a time.

How much above 2 percent, for how long, and how the central bank might speed the process forward - the new guidance doesn't say.

Minutes of the Fed's September meeting to be published Wednesday at 2 p.m. EDT (1800 GMT) should provide a window into the Fed's internal debate on those issues and, perhaps, some new answers on what it will mean in practice.

With an ongoing pandemic that's claimed more than 210,000 U.S. lives and a recession that has left millions without jobs, it's clear there is a lot at stake.

Fed Chair Jerome Powell warned Tuesday that the outlook for the U.S. economy is "highly uncertain," and that too little policy support could lead to more household and business insolvencies and "recessionary dynamics" where a weak recovery feeds on itself.

The minutes may show how widely shared that concern is.

In remarks since the September meeting, St. Louis Fed President James Bullard for one has said he expects the U.S. economy to notch a near-full recovery from the coronavirus recession by year's end.

On the other end of the spectrum is Boston Fed President Eric Rosengren, who has warned that a second wave of Covid-19 this fall and winter could set the recovery back and create a credit crunch.

With just a few weeks until Nov. 3 when Americans pick their next president, which way the economy develops could spell a very different policy environment for whoever wins at the ballot box.

The Fed's September decision drew two dissents. Dallas Fed President Robert Kaplan thought it tied the Fed's hands unnecessarily. Minneapolis Fed President Neel Kashkari wanted an even higher bar for future rate hikes.

But even among those who supported the decision, the minutes may show a range of views on how it should be carried out. Of particular interest will be any evidence of appetite for adding to the Fed's $7.1 trillion stash of bonds and other assets to ease policy further, either soon or once the recovery is further along.

Fed policymakers appear divided on how high the Fed should try to push inflation, which for years has failed to meet the Fed's 2 percent target and is expected to end this year well below that level.

Chicago Fed President Charles Evans wants to get core inflation up to 2.5 percent, and for it to stay there for a while. Kaplan, by contrast, said last week he would be uncomfortable with 2.5 percent inflation, and worries about excess risk-taking with rates at zero for too long

-reuters-

Federal Reserve ramps up help to US economy on life support

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

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

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

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

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

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

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

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

EXISTENTIAL THREAT

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

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

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

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

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

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

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

CONGRESSIONAL INTERVENTION

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

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

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

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

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

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

Agence France-Presse

US Fed calls for Facebook to halt Libra project until concerns addressed

WASHINGTON - US Federal Reserve Chairman Jerome Powell said on Wednesday that Facebook's plan to build a digital currency called Libra "cannot go forward" until serious concerns are addressed, comments that pressured the project and dented the price of the original cryptocurrency bitcoin.

The strong comments from the most powerful U.S. financial regulator underscored the growing regulatory hurdles facing the proposed cryptocurrency, which has drawn scrutiny from policymakers globally.

"Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability," Powell said during his semi-annual testimony on monetary policy before the U.S. House of Representatives Financial Services Committee.

"I don't think the project can go forward" without addressing those concerns, he added later.

Powell said any regulatory review of the project should be "patient and careful." He noted that existing rules do not fit digital currencies.

"It's something that doesn't fit neatly or easily within our regulatory scheme but it does have potentially systemic scale," he said. "It needs a careful look, so I strongly believe we all need to be taking our time with this."

"We are very much aligned with the Chairman around the need for public discourse on this," Facebook spokeswoman Elka Looks said in an email. "This is why we along with the 27 other Founding Members of the Libra Association made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback."

Powell's comments about Libra hit the price of bitcoin, which fell as much as 7% during his three hours of testimony.

Late last month, bitcoin climbed back to near $14,000 and has rallied by more than 30% since June 18, when Facebook announced plans to launch Libra. By mid-afternoon on Wednesday bitcoin was trading at $12,268.99, down 2.4% on the day.

Facebook shares, too, took a hit during Powell’s appearance before the committee, although they largely recovered that lost ground and were trading 1.3% higher at $201.89 a share.

WORKING GROUP

It was unclear exactly how the Fed could slow the project if it wanted, given the murky regulatory treatment of digital currencies, but Powell's perspective looms large. Facebook officials are scheduled to testify about the project later this month in Congress, where senior lawmakers have raised data privacy and other concerns.

"What Facebook is planning raises serious privacy, trading, national security, and monetary policy concerns for consumers, investors, the U.S. economy and the global economy," said Representative Maxine Waters, who chairs the House banking panel.

Powell said the Fed has established a working group to follow the project and is coordinating with other central banks across the globe. He also expects a review from the U.S. Financial Stability Oversight Council, a panel of regulators charged with identifying broad risks to the financial system.

Powell noted that he supports financial innovation as long as appropriate risks are identified, but he said the massive platform enjoyed by Facebook immediately sets Libra apart from other digital currency projects.

"Facebook has a couple billion-plus users, so I think you have for the first time the possibility of very broad adoption," he said.

Any problems that could emerge through Libra "would arise to systemically important levels just because of the mere size of Facebook." 

source: news.abs-cbn.com

As US raises interest rates, Fed may turn more hawkish

WASHINGTON - Under the cloud of an escalating trade war, the US Federal Reserve this week will raise the benchmark lending rate for the third time this year, moving to prevent inflation from mounting too quickly as the world's largest economy continues brisk growth.

The Fed's two-day policy meeting will begin Tuesday -- barely 24 hours after President Donald Trump is due to target another $200 billion in Chinese imports with punitive tariffs, bringing the total to over $250 billion.

That will deliver a blow to trade relations between the world's top two economies and cast a pall of uncertainty over the global economic outlook. 

But analysts say, so far at least, that the trade war has yet to make much of a dent in the US economic data that central bankers watch so closely.

Since the Fed's last meeting, job creation and GDP numbers have shown robust health, wages have risen and inflation has firmed, while measures of industrial activity and the housing market are among the few that have softened.

Among those sounding a warning, the International Monetary Fund has warned the escalating trade war could come at "significant economic cost," hitting US and China's growth.

But with the US economy robust, the Fed has repeatedly signaled it expects to continue "gradual" increases in the rate used to set everything from car loans to mortgages. By year end, the central bank is likely to have raised the key interest rate a total of four times and three more increases are expected in 2019.

This will mean the target rate will reach a range of 3.0-3.25 percent by December 2019 -- a notch above what policymakers currently view as "neutral," meaning it neither stimulates nor restrains the economy, which is the goal.

But will the Fed stop there? 

MOVING TO STAY NEUTRAL 


If there are signs inflation is accelerating, the Fed would certainly move to tighten policy to dampen prices. But even staying at neutral may be a moving target.

Fed Governor Lael Brainard, an intellectual center of gravity at the central bank who had long called for the Fed to proceed slowly with rate hikes, described an important change in her thinking in a speech earlier this month.

"With government stimulus in the pipeline providing tailwinds to demand over the next two years, it appears reasonable to expect the shorter-run neutral rate to rise somewhat," Brainard said.

This suggests she may not want the Fed to stop at 3.0-3.25 percent, but continue nudging the rate higher.

"It was a very important shift," Diane Swonk, chief economist at Grant Thornton, told AFP.

But Swonk said it remains unclear whether the Fed will move more aggressively next year, raising rates faster, or continue the gradual increases for longer.

"We don't yet know. I know it won't be resolved at this meeting," she said.

NEW HAWKS 

Meanwhile, some policymakers who in January will take a turn as voting members of the rate-setting Federal Open Market Committee also have begun to send more hawkish signals.

Boston Fed President Eric Rosengren, who favored the Fed's near-zero rate policy of in the years after the financial crisis, like Brainard has said in recent interviews FOMC estimates of neutral could go up.

He also noted that very low unemployment rates of the kind the United States is currently experiencing are historical harbingers of recession.

And even the Chicago Fed's Charles Evans, a longtime dove who will rotate onto the FOMC in 2019, has suggested monetary policy may need to become "restrictive."

Joseph Gagnon, senior fellow at the Peterson Institute for International Economics, said the pace of Fed action is unlikely to change near term.

"I don't think there'll be an acceleration for at least the next six months," he told AFP, but that will change once inflation picks up.

The Fed's preferred measure of inflation is currently hovering at the two percent annual target, a level it has not exceeded in six years.

But Gagnon said: "I think by June the overshoot of inflation will be impossible to deny."

Joining the central bank deliberations for the first time will be Columbia University professor Richard Clarida, recently confirmed by the Senate as the Fed's new vice chairman, whose views may be hard to pin down but have been seen as dovish in the past.

But Swonk cautioned against easy dove/hawk labels.

"These are economists that move with the times and move with the economy," she said. "For the most part, you don't see a lot of ideologues in the Fed, you see people who are weighing the evidence."

source: news.abs-cbn.com

PSEi climbs back above 6300

MANILA, Philippines - The Philippine Stock Exchange index (PSEi) was the best performer in the region on Monday, as investor jitters over a Syria strike and a possible cut in the US Federal Reserve's economic stimulus eased.

The PSEi settled at 6,302.71, up 2.76%.

SM Investments surged 8.27% to P805, while PLDT was up 2.18% to P2,910. GT Capital and LT Group, which replaced Meralco and Belle in the 30-member index, also rose.

Airlines got a boost from lower oil prices. PAL Holdings jumped 4.91% to P5.77, while Cebu Pacific rose 5.71% to P55.50.

At the foreign exchange market, the peso strengthened at 43.61 against the US dollar.

Meanwhile, most Southeast Asian stocks climbed to a one-month high on Monday, tracking a rally in Asian stocks, as hopes about the U.S. Federal Reserves monetary stimulus boosted buying interest in large caps with low valuations such as banks.

Thai SET index topped among outperformers, gaining almost 3 percent at one point to 1,441.89, the highest since Aug. 16. Investors bought back recently-battered shares such as Kasikornbank and Siam Commercial Bank.

The benchmark broke above a key resistance at the 1,430 level expected earlier by local brokers.

"We saw good inflows continued from last week and boosted banking shares this morning and should set the index rise to a next resistance at 1,450," said Phillip Securities strategist Teerada Charnyingyong.

Jakarta's Composite Index rose 1.7 percent by midday, extending last week's 7.4 percent gain.

Bank Indonesia's unexpected announcement of a 25 basis points rate hike late last week further lifted shares in banks and underpinned sentiment in the Indonesian rupiah.

"The foreign exchange rate appears to have a ricochet effect on the stock market, as investors continue to buy Indonesian stocks, speeding up index recovery," strategists at broker Bahana Securities in Jakarta wrote in a report.

Shares rallied in Asia on Monday after news Lawrence Summers had dropped from the race to head the Federal Reserve promised to prolong the lifetime of super-easy money. - With ANC and Reuters

source: www.abs-cbnnews.com

PSEi pulled down by Manila Water, MPIC, Bloomberry

MANILA, Philippines - The Philippine Stock Exchange index (PSEi) is down for a second straight day, dragged down by Manila Water, Metro Pacific and Bloomberry.

The main index dropped 1% to 6,133.24.

The day's biggest loses include Manila Water, which plunged to the most in four years, at 14.5% to P26.50. Investors expressed disappointment over the MWSS order for water firms to cut rates.

Metro Pacific, one of the owners of Maynilad, slipped 6.3% to P4.40.

Enrique Razon's Bloomberry also fell 1.8% to P12.08. The company is in a dispute with its management service provider Global Gaming Asset Management.


At the foreign exchange market, the peso is little changed, closing at 43.86 against the dollar.

Asian stocks mostly lower ahead of Fed meeting

Asian markets were mostly lower in quiet trade on Friday, at the end of a positive week for investors, as attention turns to next week's US Federal Reserve meeting.

Wall Street provided a soft lead, with no fresh cues to spur buying, as dealers await the Fed's plans for its huge stimulus programme.

Tokyo rose 0.12 percent, or 17.40 points, to 14,404.67 thanks to a pick-up in the dollar against the yen, but Sydney drifted 0.44 percent, or 22.9 points, lower to 5,219.6 after almost ending at a five-year high on Thursday.

Seoul finished 0.49 percent, or 9.74 points, down at 1,994.32 while Shanghai shed 0.86 percent, or 19.39 points, to 2,236.22. Hong Kong slipped 0.17 percent, or 38.44 points, to 22,915.28.

Global markets have enjoyed a bright week following a string of upbeat Chinese data -- including on trade and factory output -- indicating the world's number two economy may have turned a corner after suffering a slowdown in the first half of the year.

Figures showed Japan's economy grew faster than initially thought in the April-June quarter while concerns over a possible US-led strike on Syria also abated.

Eyes are now on Washington, where the Fed will hold a two-day policy meeting to decide on its next move for its $85 billion-a-month bond-buying scheme.

Most analysts expect the bank to begin winding it down this month as the US economy strengthens, although last week's below-forecast jobs figures suggest it will only reduce its bond purchases by a small amount.

"A relatively large cutback in purchases of $20 billion or more would suggest the Fed is likely to unwind the programme fairly quickly unless economic conditions deteriorate," CMC Markets' chief market analyst Ric Spooner said in a note, according to Dow Jones Newswires.

On Wall Street, the Dow fell 0.17 percent and the Nasdaq lost 0.24 percent while the S&P 500 slipped 0.34 percent, bringing an end to its seven-session winning streak.

In late Tokyo currency trade the dollar rose to 99.72 yen, compared with 99.47 yen in New York.

The euro was at $1.3289 and 132.53 yen against $1.3298 and 132.33 yen.

The European unit suffered some selling pressure after data showed eurozone industrial output fell 1.5 percent in July compared with June.

European Central Bank president Mario Draghi also gave a cautious outlook on the European economy, calling the recent signs of recovery "still very, very green".

Worries about Syria have abated as US Secretary of State John Kerry and his Russian counterpart hold talks aimed at getting the Assad regime to give up its chemical weapons, and so avoid an American military strike.

Damascus on Thursday said it would sign up to the global convention banning chemical weapons after Russia proposed a plan to put its toxic arsenal under international control.

Global markets dived at the end of last month on expectations of a US attack, which analysts had feared would lead to a wider Middle East conflict.

On oil markets, New York's main contract, West Texas Intermediate for delivery in October, eased 47 cents to $108.13 a barrel and Brent North Sea crude for October $1.35 to 111.28.

Gold cost $1,315.30 an ounce at 0805 GMT compared with $1,341.30 late Thursday. - With ANC and Agence France-Presse

source: www.abs-cbnnews.com

Why are investors pulling money out of emerging markets like PH?

PARIS - Investors have begun pulling money out of emerging economies mainly because they think that the US Federal Reserve central bank may be about to wind down its easy-money policy which has supported the economy and pushed funds into the financial system.

This prospect has reduced the willingness of fund managers to take risks even though only a few months ago their focus was more on a rapid rise of stock markets and signs that maybe assets prices were overheating.

At HSBC Global Asset Management France, the head of personal portfolio investment Olivier Gayno said that stock markets in emerging economies had fallen "by more than five percent in a month."

On Thursday, stock markets in Asia fell heavily, with prices in Manilla, Bangkok and Jakarta following a plunge of 6.35 percent on the Tokyo market. European stocks opened with falls of 1.0-1.5 percent.

The main cause is in the form of signals from the US central bank that it is likely to begin turning off the tap which has kept huge amounts of new money flowing into the US financial system each month as part of exceptional measures to help the economy to pull away from five years of crisis and weak growth.

This policy bolstered confidence which in turn reversed a reluctance of investors to take risk: instead they began switching funds into assets offering higher returns than government bonds, and in particular to emerging markets which have been achieving relatively strong growth.

This trend was so strong that the International Monetary Fund warned that the inflow of funds could cause overheating of in emerging economies.

But now investors are on the retreat and some of their investment funding is flowing out of these regions.

Indonesian Finance Minister Chatib Basri explained that three factors lay behind this "global phenomenon": the progressive reduction of Federal Reserve's programme to buy assets thereby injecting cash, a decision by the Bank of Japan at the beginning of the week not to ramp up its easy-money policy, and the attitude of the European Central Bank which reduced its key rates in May but not in June.

The retreat from risk is affecting a range of assets in addition to stocks.

"All asset classes in emerging countries have suffered,", commented AXA IM strategist Mathieu L'Hoir.

The biggest effect has been on government debt markets: bonds priced in terms of local currency had fallen by 8.0 percent in value in a month, he said.

The consequence of this is that the interest rate which some emerging countries must pay to borrow on the bond market has risen sharply.

This is because bonds are issued with a fixed interest rate for the life of the loan. If perceived risk rises, and investors sell bonds, the price of the bonds falls, and the fixed interest rises automatically relative to the new price. This sets the interest rate which investors will demand at the next bond auction.

Among countries caught by rising bond rates are Brazil, South Africa and Turkey, although Turkey is also under pressure from civil unrest.

At Capital Economics in London, analyst William Jackson said: "Turkey's dependence on foreign capital makes it one of the most vulnerable emerging markets to a deterioration in investor sentiment."

-- Forex pressures --

L'Hoir said that the flow of funds in search of higher returns from assets had "had the effect of creating bubbles", meaning that the price of bonds issued by states had been too high and the fixed interest attached to them had been too low.

The fall of bond prices now was therefore a process of "normalisation", he said, but this was generating some "turbulence."

The trend for some investment funding to flow out of emerging economies is affecting foreign exchange rates.

The South African rand has fallen by 7.0 percent in a month and the Brazilian real by 10.0 percent, AXA IM said.

The Bank of Indonesia has had to support its currency when it fell to the lowest level for four years. The authorities in Brazil and India have also taken steps to support their local money.

These price changes could eventually have an effect on economic activity in some countries which depend heavily on inflows of capital to finance investment and business.

But some experts hold that the change of direction of the investment flows could have a positive side. Thai Finance Minister Kittiratt Na-Ranong said that it was good to move away from overheating and allow the economy to find its balance.

His government did not intend to take immediate measures to slow down the outflow of capital or to support share prices, he said.

Capital Economics analyst Michael Henderson said: "Most emerging markets are likely to tolerate the recent sell-off in their currencies. But there are a few exceptions.

"Inflation concerns mean that currency weakness will put policymakers under pressure in Brazil and India, while heavy foreign exchange burdens imply that policymakers in emerging Europe could be forced to take additional steps to support their currencies."

source: www.abs-cbnnews.com