U.S.:
Fed Debate Over $4.5 Trillion Balance Sheet Looms in 2017
It’s time to talk about the balance sheet. Eight years after the Federal Reserve launched the first of three controversial bond-buying campaigns to help save the U.S. economy, its holdings are stuck at $4.5 trillion, and the question of when to let them shrink is beginning to simmer. Several policy makers have pushed publicly to get the debate started. How the discussion plays out could have big implications for the pace of future interest-rate hikes and for the dollar. The sheer weight of the balance sheet helps hold down long-term U.S. borrowing costs, which is why the Fed bought bonds in the first place. If officials allow holdings to mature without continuing their current practice of reinvesting the principal, they could push yields higher by reducing demand in the bond market.
<https://www.bloomberg.com/news/articles/2017-01-24/fed-debate-over-4-5-trillion-balance-sheet-looms-in-2017>
Europe:
Euro Area Starts 2017 on Strong Note as Price Pressures Build
The euro-area economy expanded at a robust pace at the start of the year as inflation pressures increased, according to IHS Markit. A Purchasing Managers’ Index signalled quarterly growth of 0.4 percent, with broad-based expansion in both manufacturing and services, the London-based company said in a statement on Tuesday. Although the gauge slipped to 54.3 in January from 54.4 in December, economic momentum remained robust, it said. Economists surveyed by Bloomberg predicted a reading of 54.5. “Perhaps the most encouraging development is the upturn in hiring, with January seeing the largest monthly rise in employment for nine years amid improved optimism about the year ahead,” said Chris Williamson, chief business economist at IHS Markit. While selling-price growth remained subdued, “the recent strengthening of demand is at least starting to help restore some pricing power among suppliers, hinting at an upturn in core inflationary pressures.”
<https://www.bloomberg.com/news/articles/2017-01-24/euro-area-starts-2017-on-strong-note-as-price-pressures-build>
Asia:
China’s central bank lifts two of its lending rates to rein in debt
China’s central bank raised interest rates on a key funding tool, the medium-term lending facility (MLF), on Tuesday in its latest bid to cut debt levels and bolster financial stability. Policymakers are trying to keep the world’s second-largest economy sufficiently greased to counter an economic slowdown while also managing risks created by an explosive growth in debt that has fueled a housing boom. China’s benchmark bond futures prices fell at the end of the trading day on the higher rates, as the People’s Bank of China (PBOC) also rolled over maturing MLF loans. The central bank raised the interest rate for one-year and six-month MLFs by 10 basis points each to 3.1 percent and 2.95 percent, respectively.
<http://www.reuters.com/article/us-china-markets-mlf-idUSKBN1581B8>
South America:
Brazil’s external deficit shrinks in 2016, covered by FDI
Jan 24 Brazil’s central bank recorded a current account deficit of $23.507 billion in 2016, shrinking from the previous year and covered entirely by the $78.9 billion in foreign direct investment that flowed into the country, central bank data showed on Tuesday. In December, the country’s current account widened from the previous month to $5.881 billion, a larger deficit than the $4.5 billion gap expected by the median of analysts in a Reuters poll. (Reporting by Marcela Ayres; Writing by Alonso Soto)
<http://www.reuters.com/article/brazil-economy-external-idUSE4N1CH01G>