China raises short- and medium- term interest rates after Fed
China’s central bank nudged money market interest rates upward on Thursday just hours after the Federal Reserve raised the U.S. benchmark, as Beijing seeks to prevent destabilizing capital outflows without hurting economic growth. Economists were surprised by the move but said at just five basis points, the increases were small and more symbolic than substantive. The People’s Bank of China called it a “normal market reaction” to the Fed that would keep interest rate expectations reasonable and help with the deleveraging campaign. China’s major stock indexes declined modestly after the news, with infrastructure, IT and financial shares down. The PBOC increased rates on reverse repurchase agreements, or reverse repos, used for open market operations by 5 basis points for the 7-day and 28-day tenors. It also said in a statement it increased rates on its one-year medium-term lending facility (MLF) also by 5 basis points.
‘Congratulations’: EU launches next phase of Brexit but warns of tough talks ahead
The European Union agreed on Friday to move Brexit talks onto trade and a transition pact but some leaders cautioned that the final year of Britain’s divorce negotiations could be fraught with peril. On the second day of a Brussels summit, EU leaders agreed “sufficient progress” was made after a deal on citizens’ rights, the Irish border and Britain’s outstanding payments, giving negotiators a mandate to move on to the main phase of talks. “EU leaders agree to move on to the second phase of Brexit talks. Congratulations PM Theresa May,” European Council President Donald Tusk, who chairs EU summits, said on Twitter. Discussion of a transition period to calm nerves among businesses is due to start in the new year, although talks on a future free trade pact will not begin until after March — a date underlined by “guidelines” that set out how to proceed as Britain seeks to unravel more than 40 years of membership. May replied via Twitter, thanking Tusk and European Commission President Jean-Claude Juncker: “Today is an important step on the road to delivering a smooth and orderly Brexit and forging our deep and special future partnership,” May said.
Biggest inflows to U.S. large caps since April: BAML
U.S. large cap stocks attracted their biggest inflows since April in the week Wednesday to Wednesday, Bank of America Merril Lynch (BAML) data showed on Friday, as investors eyed progress on long-awaited U.S. tax cuts. The planned tax overhaul will slash the U.S. corporate tax rate to 21 percent, helping to fuel a burst of growth in 2018 according to the U.S. Federal Reserve. It also cheered up investors who have been betting on expansionary U.S. policies all year. U.S. equities pulled in $7.8 billion, with U.S. large caps accounting for $7.6 billion of inflows, the BAML data showed. The inflows were broad-based across sectors and styles, with U.S. growth stocks attracting $3 billion and U.S. value equities $2.5 billion, the strongest inflows since March 2017. U.S. stock markets .SPX have powered to record highs in December, also supported by robust economic data and falling unemployment. BAML said that U.S. small business, manufacturing, homebuilders and consumer confidence were at their strongest in aggregate since the early 1980s, consistent with 5-6 percent U.S. real GDP growth. Coupled with this, rate expectations remain extraordinarily low, with only 81 basis points of tightening from the U.S. Federal Reserve seen over the next three years, BAML said.