Overseas Headlines- March 26, 2019

United States:

Trump Fed Pick Moore Has Burned Bridges But Made Few GOP Enemies

President Donald Trump’s pick for an open Federal Reserve board seat, Stephen Moore, has sharply criticized some of the Republican senators whose votes he’ll need for confirmation. Yet that hasn’t made him many enemies. “I’ve known him a long time and expect to support him,” said Tennessee Senator Lamar Alexander, who Moore once lambasted as a “turncoat” Republican for not backing a full repeal of Obamacare. Republicans hold 53 seats in the Senate and have only a one-vote advantage on the Banking Committee that will review his nomination. That leaves a narrow path to confirmation for a controversial nominee, who’s drawn criticism from some economists who’ve questioned whether he’s qualified to join the Fed’s seven-seat board of governors. Moore’s outspoken views on limited government that he’s expressed on television and radio, along with his work for the Trump campaign and as an economist at the conservative Heritage Foundation, seem all but certain to leave him without support from Senate Democrats. Whether he’s confirmed or becomes Trump’s third failed Fed nominee depends on winning support from some of the Republican moderates he’s torched in the past. Moore drew some initial praise from some GOP senators Monday, including members of the Banking Committee. “Moore is an independent thinker, he’s strong-willed, I know him well, I’ve worked with him on a number of issues and I respect him,” said Senator Richard Shelby, an Alabama Republican and a member of the Banking panel. “I think he will be a new voice on the Fed; I believe the Fed could use a voice like that.”



Euro-Area Banks Can Expect ECB Loan Details by June, Rehn Says

Euro-area banks will know by June how generous the terms of the European Central Bank’s new loans are going to be, according to Governing Council member Olli Rehn. Policy makers have yet to pass judgment on the severity of the current slowdown that prompted that measure, the Finnish central bank governor told Bloomberg in an interview. They are determined to keep lending conditions favorable with record-low interest rates and the new round of long-term funding announced earlier this month. “We will take the decisions in due time, well in advance of the start of the operations, so that the general public and the banks are early enough aware of their precise nature,” he said, when asked about details of the ECB’s so-called TLTRO-3 program. “We have the next meetings in April and June.” Banks in the euro area have slowed lending in recent months as companies reined in investments amid uncertain business prospects. The ECB announced on March 7 that it will offer fresh liquidity to banks starting in September to spur credit growth, arguing this will improve the economy’s resilience to a weakening global environment. Rehn said the terms of the new operations “should be close” to TLTRO-2, which provided the industry with more than 700 billion euros ($792 billion) in loans between 2016 and 2017. To banks, low profitability poses another key challenge, and some say that nearly five years of keeping the ECB deposit rate negative haven’t helped.



China’s Economy Will Just About Escape Deflation in 2019, Survey Says

China’s economy will flirt with deflation this year, with producer prices likely contracting in the second half, according to economists. Factory-gate prices will grow by just 0.3 percent in 2019, according to the median estimate of 15 economists in a Bloomberg survey. That’s down from the forecast of 0.8 percent seen last month. Some said prices could begin contracting as soon as July, with negative price growth remaining until early 2020. The outlook for producer-price gains in the next two years was also cut by almost half to 0.8 percent in 2020 and 1.3 percent in 2021, suggesting a prolonged battle with weak demand and declining industrial profits. The rekindled deflation risks in China add to global concerns on growth. Domestically, tepid price gains bring greater pressure on company debt repayments as their profit shrinks, and weaker fiscal revenues. The People’s Bank of China started cutting interest rates when factory-price growth stayed negative between 2012 and 2016, although it is less likely to repeat that course in 2019 amid a new focus on targeted fiscal stimulus. “Interbank market rates will likely decline further” on slowing producer prices, said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. The divergence between factory inflation and faster consumer price gains will worsen the pressure on manufacturers’ profits, he said.


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