Date: November 28, 2018
Fed Officials Acknowledge Economic Weaknesses Yet Remain Upbeat
Federal Reserve officials on Tuesday sprinkled small doses of concern into otherwise upbeat assessments of the U.S. economy. Chicago Fed President Charles Evans, appearing on a panel discussion with two other regional bank chiefs, pointed to growing skilled-labor shortages. Kansas City’s Esther George said pain in the agriculture sector has been exacerbated by the trade dispute with China. Atlanta Fed President Raphael Bostic called his district a “microcosm of the U.S. economy,” with many cities booming, but with many other “pockets of distress” being left behind by the economic expansion. None signaled a desire to halt gradual interest-rate increases and Evans repeated his desire to see monetary policy return to “something that’s more neutral.” Earlier Tuesday at the same event, Fed Vice Chairman Richard Clarida restated his support for continued gradual interest-rate increases as U.S. monetary policy gets closer to its optimal longer-run setting. “As the economy has moved to a neighborhood consistent with the Fed’s dual-mandate objectives, risks have become more symmetric and less skewed to the downside than when the current rate cycle began three years ago,’’ Clarida said in a speech at The Clearing House and Bank Policy Institute conference in New York. The remarks from Fed officials will keep expectations high among investors that the Fed will raise rates by a quarter-percentage point in December for their fourth such move this year.
U.K. GDP Would Suffer 10.7% Hit in Worst Case No-Deal Brexit
The U.K. will suffer a major economic hit over 15 years if Parliament rejects Theresa May’s Brexit deal and the country crashes out of the European Union with no new trade arrangements in place, according to official analysis. A government report on Wednesday said GDP will be as much as 10.7 percent lower by 2034 if there’s no orderly exit and the supply of workers from the bloc dries up. The new analysis paints a dire picture of the worst-case scenario but does not provide a clear picture of the economic impact of the deal May finalized with the EU last week. Instead it provides an analysis based loosely on a plan that’s already been rejected by the bloc. The omission of May’s agreement is likely to be politically awkward for the government, because the numbers are intended to help inform politicians before they vote on whether to accept or reject the deal May has negotiated. The Bank of England will publish its own analysis later Wednesday. If Parliament rejects May’s deal, the U.K. will be on course to crash out of the EU on March 29 into a legal limbo, with no special rules in place to regulate trade with the bloc. Backers of May’s deal hope the findings in the analysis will bring wavering politicians — especial Conservative rebels — into line. The government analyzed various Brexit scenarios. The report said: May’s “Chequers” plan for close ties to the bloc, which the EU rejected, is the best scenario. GDP would be 0.6 percent lower over 15 years, or 2.5 percent if EU migration fell to zero.
Indonesian Bonds Back on Menu as Asia High-Yielders Lure Inflows
Indonesian debt is closing in on its best month in three years as Asia’s high-yielders move back onto investors’ radar. Rupiah bonds are among the region’s best performers in November as global funds resume their search for yield in a buying spree that’s also lifted Indian and Philippine securities. A slew of measures from Indonesian policy makers and stabilization in emerging-market sentiment have helped fuel the gains. “We are probably past the peak pain for Indonesian government bonds,” said Eugene Leow, a fixed-income strategist at DBS Group Holdings Ltd. in Singapore. “There are still headwinds rising from trade tensions and Fed hikes, but with real rates high and nothing fundamentally wrong with the economy, inflows have returned.” Demand for high-yielding Asian currencies is reviving after a tumultuous year as money managers get used to an environment of a stronger dollar and an ongoing trade war. The recent collapse in oil prices has burnished the appeal of assets in nations with budget deficits, with foreigners buying almost $3 billion worth of Indonesian and Indian bonds in November. “Investors are comforted by the prudent measures and fiscal sustainability of Indonesia,” said Trinh Nguyen, a senior economist at Natixis Asia Ltd. in Hong Kong. “The government was very clear that it prioritizes rupiah stability and matched words with actions. Investors will be comforted by that.” Indonesia’s 10-year yield dropped almost 70 basis points this month to 7.88 percent, with Goldman Sachs Group Inc. recommending that investors buy the debt. The currency has advanced more than 4 percent.