April 9, 2018
Powell, Williams See More Gradual Fed Hikes Despite Trade Uproar
Federal Reserve Chairman Jerome Powell backed further gradual interest-rate increases amid strong U.S. economic momentum, in remarks that avoided the turbulent U.S. stock market and sought to steer clear of the simmering U.S.-China trade dispute. “We will continue to aim for 2 percent inflation and for a sustained economic expansion with a strong labor market,” Powell said Friday in his first speech since becoming chairman in February. “As long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals.” U.S. stocks extended losses after his remarks, with the S&P 500 Index ending 2.2 percent lower Friday as investors took note of Powell’s reluctance to be swayed from raising rates. His remarks were reinforced by comments several hours later by incoming New York Fed chief John Williams. “I guarantee you they are thinking about it,” Roberto Perli, a partner at Cornerstone Macro LLC said. “It is hard to think that any more bad news on tariffs doesn’t reduce the odds of faster tightening down the road.” Powell’s prepared comments, which included no reference to China or financial markets, hewed closely to his March 21 press conference that emphasized the stronger U.S. economic outlook after the Fed raised interest rates and signaled at least two more moves in 2018. Asked subsequently about the tariff debate, he said it’s “really too early” to estimate how tariffs will impact the U.S. economy. President Donald Trump on Thursday said he was weighing tariffs on an additional $100 billion in Chinese imports, bringing to $150 billion the range of Chinese goods under consideration. China says it will respond proportionately.
Russian Markets Tumble After Sanctions Leave Kremlin Scrambling
Russian markets tumbled after a new wave of U.S. sanctions left the Kremlin scrambling to find ways to help its tycoons.Moscow-traded stocks headed for their biggest drop in four years and the ruble slumped the most in the world after the U.S. slapped new sanctions on billionaires. Targets include aluminum king and close Putin associate Oleg Deripaska, who saw the value of his biggest company plunge as much as 50 percent. The Russian government has tried to provide reassurance that it will protect them. But even its stable of well-capitalized state-controlled banks may not be willing to take the risk of continuing to do business with the industrial giants targeted by the U.S. Friday. Moscow is focusing its efforts on Deripaska and fellow billionaire Viktor Vekselberg but hasn’t settled on what form aid will take, according to a senior official involved in the process. The latest U.S. moves marked the first time that major publicly traded Russian companies with global reach were hit with the restrictions, aimed at punishing Russia for aggressive policies from Ukraine to Syria. “A precedent has been set,” Citigroup analyst Barry Ehrlich said in a note Monday. If Rusal can be hit, “any Russian company can be included” in the future, he added.
Euro-Area Economy’s Soft Patch Starts to Rattle Investor Nerves
Investors are losing faith in the strength of the euro-area economy after a string of numbers that fell short of expectations. A monthly report from research group Sentix said their view of the economy has turned negative for the first time since July 2016. It said the downward dynamic was “even more pronounced” for Germany, where separate data on Monday showed a sharp drop in exports in February. The sudden weakness comes after the best year for euro-area economy in a decade, and has been blamed on a number of exceptional factors from bad weather to bottlenecks constraining the ability to handle additional demand. There’s also the uncertainty surrounding the trade spat between U.S. President Donald Trump’s administration and China. “The good-weather period for the economy in the euro area is coming to an end,” said Patrick Hussy, managing director at Sentix GmbH in Frankfurt. In the latest salvo, China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in the trade dispute. Signs of a euro-area slowdown come at a bad moment for the the European Central Bank as policy makers debate how to end their bond-buying program and an inflation pickup remains elusive. Executive Board member Benoit Coeure warned on Friday that protectionist sentiment has already “contributed to tighter financial conditions.”
Asian Stocks Rebound as Investors Assess Impact of Trade War
Asia stocks rebounded as concerns over the possibility of full-scale trade war between the world’s two biggest economies eased. Chinese equity markets reopened after a long weekend.The MSCI Asia Pacific Index gained 0.5 percent 172.48 as of 6:07 p.m. in Hong Kong, led by gains in healthcare stocks. Hong Kong equities capped their best day in almost a month as investors piled into beaten-down shares. U.S. President Donald Trump said Beijing will relax its restrictions “because it’s the right thing to do,” and added that deals will be made on tax reciprocity and intellectual property. Investors focus will now turn to China’s Boao Forum, where President Xi Jinping is among senior officials scheduled to speak. All major U.S. equity indexes on the cash market ended last week lower as data showed March payrolls were cooler than economists forecast. “Investors started to realized that the risk from a trade war between U.S. and China is quite manageable and the impact should be limited to other countries in Asia, particularly those in Southeast Asia,” Jeffrosenberg Tan, head of investment strategy at PT Sinarmas Sekuritas, said. “The Federal Reserves might be more dovish after the payroll date which is good for the regional currencies.”
China Is Studying Yuan Devaluation as a Tool in Trade Spat
China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide. Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China devalues the yuan to offset the impact of any trade deal that curbs exports. The analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders, the people said, asking not to be named as the information is private. The yuan weakened as much as 0.2 percent to 6.3186 per dollar in onshore trading on Monday before trading little changed as of 5:49 p.m. local time. China’s central bank didn’t immediately respond to a faxed request for comment. “It seems as if Beijing is showing the full extent of policies they could deploy,” said Viraj Patel, a strategist at ING Bank NV in London. While Trump regularly bashed China on the campaign trail for keeping its currency artificially weak, the yuan has gained about 9 percent against the greenback since he took office and has been steady in recent weeks despite an escalation of trade tensions between the world’s two largest economies. The Chinese currency touched the strongest level since August 2015 last month.