Central Banks Sounding More Cautious as Fed Holds: Economy Week
The Federal Reserve took a pass this week on raising interest rates while appearing ready as ever to pull the trigger amid quickening inflation. Central bankers in other parts of the world though are showing signs of cold feet on tightening monetary policy as they await more convincing price growth and hotter demand. The outlook for growth and central banks is among the topics in our weekly wrap up of what’s going on in the world economy. The Fed headlined the week with its decision Wednesday in Washington to hold pat, for now, on further “gradual” interest-rate increases while flagging that inflation will keep them on pace for more hikes in 2018 – even if a $200 billion asset manager warns against it. Argentina hiked interest rates for a third time in a week to stem a selloff in the peso, but without a realistic inflation target and a firm fiscal path, it’s just one battle in an extended war. The Bank of England, despite getting some jitters about its own hiking, probably will still go ahead with tightening this year, Bloomberg Economics analysis shows, just don’t expect a move next week. The European Central Bank won some validation for its more guarded tone of late, as inflation in the euro-area unexpectedly slowed. Bank Indonesia is mulling a rate hike to defend the weak rupiah while it buys more bonds amid a yield surge, and the Philippine’s central bank chief gave further clues he is preparing to raise interest rates. A run-up in oil prices is putting pressure on the Reserve Bank of India for an early tightening move. Meanwhile, Australia and New Zealand are preaching more patience, even as Kiwi unemployment declined to a nine-year low.
Bank of England hike pushed to August on Carney comments, data: economists
The Bank of England will wait until August before raising interest rates, according to a Reuters poll in which nearly all economists pushed back previous expectations of a hike on Thursday. That dramatic turnaround from a poll taken just a few weeks ago was triggered by dovish comments from BoE Governor Mark Carney, together with a slew of downbeat data suggesting Britain’s economy is barely growing. All but three of the 62 economists polled from May 3-8 expect no move from 0.5 percent this month – a complete reversal from an April 18 poll when 69 of 76 economists had a 25 basis point increase penciled in for May 10. Just under a third of economists polled now expect no change in August either. Financial markets have made a similar about-face. At the start of April they were pricing in a 90 percent chance of a hike, but that has plummeted to around 10 percent. Sterling has plunged from above $1.43 in mid-April to around $1.35 now. “Following dovish comments from Governor Mark Carney on April 19, softening activity data, a downside surprise on inflation and GDP growth of just 0.1 percent quarter-on-quarter in Q1, the probability has fallen,” Simon Wells at HSBC told clients when changing his forecast. Bank Rate will instead rise to 0.75 percent in August, medians in the poll said, and then to 1.0 percent in the second quarter of 2019, just after Britain is scheduled to leave the European Union. “We expect the data to improve in the coming months, allowing the Monetary Policy Committee to hike Bank Rate in August. But we acknowledge that the risks now look skewed to the downside,” noted Andrew Wishart at Capital Economics. Some of the economists polled have no rate hike this year or in their forecast horizon.
China’s trade surplus with U.S. widens to $22.19 billion in April
China’s trade surplus with the United States widened to $22.19 billion in April, from $15.43 billion in March, customs data showed on Tuesday. For January-April, China’s trade surplus with the United States was $80.4 billion. The world’s two largest economies have threatened each other with tens of billions of dollars’ worth of tariffs in recent months, leading to worries that Washington and Beijing may engage in a full-scale trade war that could damage global growth and roil markets. The Trump administration has drawn a hard line in trade talks, demanding a $200 billion cut in the Chinese trade surplus with the United States, sharply lower tariffs and advanced technology subsidies.
China, Japan and South Korea highlight unity amid North Korea moves
China, Japan and South Korea agreed on Wednesday to cooperate in seeking the denuclearisation of the Korean peninsula, with Japanese Prime Minister Shinzo Abe saying recent positive momentum must be matched by “concrete action” by North Korea. North Korea, which has been pursuing nuclear and missile programs in defiance of U.N. Security Council resolutions, figured prominently in talks between the three leaders in Tokyo after South Korean President Moon Jae-in’s historic meeting last month with the North’s Kim Jong Un. Kim is expected to have a summit soon with U.S. President Donald Trump. Leaders of the three Asian powers, whose ties have been strained by territorial and historical disputes, also touched on economics in the face of U.S. trade pressure on China and Japan. Abe praised efforts by Moon and China to engage North Korea and said further efforts on denuclearisation were essential. “We must take the recent momentum towards denuclearisation on the Korean peninsula and towards peace and security in Northeast Asia, and, cooperating even further with international society, make sure this is linked to concrete action by North Korea,” Abe told a news conference after the meeting. Chinese Premier Li Keqiang also attended the three-way summit, which was last held in Seoul in 2015. Moon said the three countries agreed to highlight unity as the two Koreas moved towards a permanent peace settlement. “Above all, we reached the consensus that complete denuclearisation of the Korean peninsula, a permanent peace settlement and improvement of South-North relations is very important for peace and prosperity of Northeast Asia,” Moon said. North and South Korea are technically still at war because their 1950-53 conflict ended in a truce, not a treaty.