Overseas Headlines – May 17, 2018

May 17, 2018

United States:

Treasury Yields Hit 3.1%; Customs Talk Roils Pound: Markets Wrap

Ten-year U.S. Treasury yields hit 3.1 percent on Thursday, as global markets continue to grapple with the outlook for the world’s largest economy. The pound jumped but then erased the move amid conflicting reports over Britain’s future in the EU customs union. Benchmark yields traded little changed just over the 3.1 percent level. The euro weakened and Italian bonds dropped, extending a plunge from Tuesday as party leaders sealed an agreement to form a populist government which their members need to vote on. Gilts followed suit and sterling wiped out all of its advance amid reported denials of an earlier Telegraph story claiming the U.K. is prepared to stay in the customs union beyond 2021. The Stoxx Europe 600 Index advanced, while U.S. stock futures slipped. Earlier in Asia equities rose in Japan and fell in Australia and Korea. West Texas oil climbed above $72 a barrel as Brent briefly topped $80 for the first time since 2014. The dollar edged higher. Ten-year U.S. Treasury yields hit 3.1 percent on Thursday, as global markets continue to grapple with the outlook for the world’s largest economy. The pound jumped but then erased the move amid conflicting reports over Britain’s future in the EU customs union. Benchmark yields traded little changed just over the 3.1 percent level. The euro weakened and Italian bonds dropped, extending a plunge from Tuesday as party leaders sealed an agreement to form a populist government which their members need to vote on. Gilts followed suit and sterling wiped out all of its advance amid reported denials of an earlier Telegraph story claiming the U.K. is prepared to stay in the customs union beyond 2021. The Stoxx Europe 600 Index advanced, while U.S. stock futures slipped. Earlier in Asia equities rose in Japan and fell in Australia and Korea. West Texas oil climbed above $72 a barrel as Brent briefly topped $80 for the first time since 2014. The dollar edged higher.

https://www.bloomberg.com/news/articles/2018-05-16/asian-stocks-set-to-gain-10-year-yield-eyes-3-1-markets-wrap

Europe:

Bank of England Tipped to Raise Rates in Slowing Economy

Slower-than-expected U.K. growth this year won’t stop the Bank of England from at least one interest-rate increase, according to a Bloomberg survey of economists. Output will stutter to 1.4 percent from 1.8 percent in 2017, the median forecast showed, slightly lower than the 1.5 percent previously forecast. Nearly 60 percent of economists see a hike at the August meeting. The poll was conducted in the week after the BOE’s May 10 policy announcement, when it left its key rate at 0.5 percent. The economy almost ground to a halt in the first quarter amid snowy weather and a pullback from consumers. Investors responded by pushing back bets on a rate increase having at one time seen a May move as a done deal. BOE Governor Mark Carney said that growth will probably recover from its first-quarter slump and policy will still need to be tightened in the coming years to keep inflation under control. That view of the U.K. economy was largely replicated in the Bloomberg survey. Economists see output recovering to 0.4 percent this quarter and continuing at that pace until the end of next year, while a similar rebound may be seen across most advanced economies. Recent figures have, however, have been mixed. A BOE report published Wednesday said investment intentions remain modest and said there was a “marked” slowdown in retail sales. Consumer spending will also falter more than economists had previously expected and export growth this year will slow to 2.5 percent, the lowest since the survey began. The BOE said last week that it expects the U.K.’s engine of growth to shift toward exports and investment and away from household consumption.

https://www.bloomberg.com/news/articles/2018-05-17/boe-will-raise-interest-rates-into-slowing-economy-survey-shows

Asia:

China’s Holdings of U.S. Treasuries Rise to Five-Month High

China’s holdings of Treasuries rose to a five-month high in March, underscoring the allure of U.S. government debt even amid trade tensions between the world’s two largest economies.China’s holdings of U.S. bonds, bills and notes increased by $11 billion to $1.19 trillion in March, according to Treasury Department data released in Washington on Tuesday. China remained the largest foreign creditor to the U.S., followed by Japan, whose holdings dropped by $16 billion to $1.04 trillion, the lowest level since October 2011. The month of March marked a rapid escalation in trade tensions as the Trump administration slapped new tariffs on imported steel and aluminum — mainly aimed at reining in China’s excess industrial capacity. The White House also announced plans to impose duties on billions of dollars of goods from China, which then vowed to retaliate. Speculation is growing about whether China could use its vast Treasury holdings as a bargaining chip in a trade dispute with the U.S. A Chinese delegation is in Washington this week to try to work out the differences, which U.S. Commerce Secretary Wilbur Ross on Monday described as “wide.” The negotiations are easing worries over a trade war. China’s stockpile of foreign-exchange reserves rose by $8 billion in March, after declining in February for the first time in more than a year amid volatility in the global financial markets. The yuan has gained about 8 percent over the past year as stricter capital controls have kept money from flowing out. Foreign demand for U.S. debt is a critical issue as the U.S. government ramps up borrowing to cover a widening budget gap. The fiscal deficit is forecast to surpass $1 trillion by 2020 amid tax cuts and increased spending under President Donald Trump, adding pressure on a debt burden that was already swelling under President Barack Obama. The U.S. is boosting the amount of long-term debt it sells to $73 billion this quarter, after setting a first-quarter record by borrowing a net $488 billion.

https://www.bloomberg.com/news/articles/2018-05-15/china-s-holdings-of-u-s-treasuries-increase-to-five-month-high

 

2018-05-17T12:52:36+00:00