The U.S. Just Borrowed $488 Billion, a Record High for the First Quarter
U.S. Treasury Secretary Steven Mnuchin said he’s unconcerned about the bond market’s ability to absorb rising government debt after his department said it borrowed a record amount for the first quarter. “It’s a very large, robust market — it’s the most liquid market in the world, and there is a lot of supply,” he said in a Bloomberg TV interview on Monday. “But I think the market can easily handle it.” Earlier on Monday the Treasury said net borrowing totaled $488 billion from January through March, a record for that period and about $47 billion more than it had previously estimated, according to a statement released in Washington. The end-of-March cash balance was $290 billion, compared with an initial estimate of $210 billion. “By definition supply and demand will equate,” Mnuchin said. “I’m not concerned about that. I think that there are still a lot of buyers for U.S. Treasuries,” he said when asked about the risks of reduced demand for Treasuries and increased supply. The Treasury’s debt-management plans were complicated earlier this year by a political fight that was resolved when lawmakers agreed to suspend the federal debt limit in a two-year budget agreement in February. The U.S.’s need to issue more Treasuries is expected to grow as the fiscal picture deteriorates. The budget deficit widened to $600 billion halfway through the fiscal year, as spending increased at three times the pace of revenue growth in the October-to-March period, according to Treasury figures released earlier this month. Tax and spending measures approved by Congress and President Donald Trump are expected to push the budget gap to $804 billion in the current fiscal year, from $665 billion in fiscal 2017, and then surpass $1 trillion by 2020, according to the Congressional Budget Office. In an accompanying statement about the state of the economy, the Treasury said Monday that tax changes are “poised to underpin near-term consumption and investment” and “the stage is set for a pick-up in growth over the near term.”
U.S. Extends Steel Tariffs Relief for EU and Other Allies
President Donald Trump will delay imposing steel and aluminum tariffs on the European Union, Mexico and Canada until June 1 as he finalizes deals with them, the White House said in a statement. The administration has reached agreements-in-principle with Argentina, Australia and Brazil, according to the statement, which the White House released late Monday night. The details “will be finalized shortly,” the statement added. The U.S. will also extend exemptions for the EU, Canada and Mexico for 30 days to allow for further talks.” In all of these negotiations, the administration is focused on quotas that will restrain imports, prevent transhipment, and protect the national security,” the White House said. “These agreements underscore the Trump administration’s successful strategy to reach fair outcomes with allies to protect our national security and address global challenges to the steel and aluminum industries.” Trump in March imposed a 25 percent tariff on steel imports and a 10 percent duty on aluminum after a government report found that foreign shipments of the metals imperil national-security interests. He directed U.S. Trade Representative Robert Lighthizer to negotiate with countries seeking to turn their temporary tariff exemptions into permanent ones. Exemptions for the EU and the five other nations were due to expire May 1. The president’s decision to delay the tariffs gives breathing room — but also a new deadline — for allies who have been scrambling to secure permanent refuge from the metals duties. It could be seen as a gesture of goodwill for Canadian and Mexican negotiators who are in talks with the U.S. to revise the North American Free Trade Agreement. Trump dangled a permanent exemption as incentive to reach a tentative Nafta deal, though talks continue with no immediate agreement in sight. Canada is the biggest steel exporter to the U.S.
U.K. Data Cast Fresh Doubt Over Strength of British Economy
U.K. manufacturing slowed more than predicted in April and consumers borrowed at the weakest pace in 5 1/2 years in March, adding to signs that the economy’s poor first-quarter performance could persist. IHS Markit said its monthly Purchasing Managers Index was at 53.9, from a downwardly revised 54.9 in March. A 17-month low, it was worse than economists had forecast and hardened expectations the Bank of England will refrain from raising borrowing costs on May 10. The pound fell as much as 0.7 percent. A picture of an economy losing momentum was reinforced by figures from the BOE showing unsecured credit rose just 254 million pounds ($348 million) in March, the least since November 2012. Mortgage approvals meanwhile dipped to the lowest level this year. An interest-rate hike this month was seen as a done deal until recently. Investors, who at one stage were assigning a more than 90 percent chance to such a move, have slashed those odds to about 20 percent after weaker-than-expected inflation, cautious comments from Governor Mark Carney and dismal growth figures for the first quarter. Only a small part of the slowdown was due to the heavy snowfalls that brought chaos to the country, statisticians estimate. “While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance,” said Rob Dobson, director at IHS Markit. “The chances of a near-term hike in interest rates by the Bank of England look increasingly remote.” The pound fell after the reports, sliding 0.5 percent to $1.3700 as of 10:57 a.m. London time. The currency has dropped for 10 of the past 11 days, after touching $1.4377 on April 17 — the highest since the immediate aftermath of the Brexit vote in June 2016. Other PMIs to be published this week, including for construction and the dominant services sector, will set the backdrop for the Monetary Policy Committee ahead of their decision next week.
Indonesia Vows to Restore Calm to Currency Market After Selloff
Indonesia pledged to restore stability in the country’s financial market after a slump in the nation’s currency to a more than two-year low last week sparked a selloff in stocks and bonds. Bank Indonesia is open to adjusting interest rates if the pressure on rupiah persists and is considering boosting dollar supply through more forex swap auctions, Governor Agus Martowardojo told reporters after a meeting of the country’s Financial System Stability Committee. The government will use the budget to support economic growth, though there is pressure coming from the weakening currency, Finance Minister Sri Mulyani Indrawati said. Indonesia’s rupiah is among Asia’s worst performers in the past three months despite aggressive interventions by the nation’s central bank as investors exited emerging markets amid higher U.S. Treasury yields and a stronger dollar. Bank Indonesia will possibly hike interest rate in the near term, but the timing will depend on data traffic next month, according to PT Bank Mandiri. Bank Indonesia will push companies with dollar exposure to increase hedging and it will also strengthen its second line of defense to guard the rupiah, Martowardojo said. The central bank has at least $60 billion in swap facilities under bilateral agreements with Japan, South Korea and Australia and the regional Chiang Mai Initiative Multilateralization Agreement, official data show. It can also tap into International Monetary Fund’s credit line for crisis prevention. The government is sticking to its forecast of 5.4 percent growth in gross domestic product this year, Indrawati said. The ministry will sustain growth momentum by extending economic assistance to low income groups, she told reporters. The government’s borrowing program to finance budget deficit faced no threat from the currency slump and front-loading of borrowing has ensured ample liquidity, Indrawati said. Indonesia expects the fiscal deficit this year to decline to 2.19 percent of GDP from 2.5 percent last year. The government’s gross borrowing may total 856.5 trillion rupiah this year with about 80 percent of it raised through the sale of bonds and sukuks in the local market.