Tag Archives: Currency Intervention

Trump Fed nominee Shelton hits bipartisan skepticism in Senate hearing

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WASHINGTON (Reuters) – Federal Reserve board nominee Judy Shelton faced deep skepticism from Republicans and Democrats on the Senate Banking Committee on Thursday, as lawmakers challenged her independence from President Donald Trump and characterized her thinking as too far outside the mainstream to trust with the nation’s economy.

After the hearing, three Republican senators indicated she had not fully alleviated their concerns – enough to sink her nomination in a committee divided between 13 of Trump’s fellow Republicans and 12 Democrats, who are unlikely to vote in her favor.

Over the course of the roughly two-hour hearing she found herself having to back away from prior views, explain that she would not pursue a common North American currency with Canada and Mexico if confirmed as a Fed governor, and even apologize for comparing a currency forger’s challenge of the federal government’s dominance over money to civil rights pioneer Rosa Parks’ challenge of segregation laws.

“I apologize for the comparison. I truly do,” Shelton said of an incident raised by Alabama Democratic Senator Doug Jones in which a North Carolina man issued millions of dollars of his own precious-metal backed currency. “I believe he was testing the idea” that money needed to be backed by gold and silver, Shelton explained.

“Is that something you want to test?” Jones shot back, summing up committee concerns about past Shelton writings seeming to support a return to something like a gold or other asset-backed standard to keep the value of the dollar stable.

“No, senator,” said Shelton, a member of the Trump transition team and a long-time conservative author and commentator on financial issues.

It was one of a series of pointed exchanges between senators and Shelton, an economist with a long track record criticizing the Fed and questioning, at least in theory, whether central banks can even do the job assigned to them.

NOT IN THE MAINSTREAM

Four previous Trump appointees to the Fed failed to clear the Senate, a sign of the weight Congress has put on keeping the country’s monetary policy as free as possible of political interference, given Trump’s open verbal attacks on the Fed and demand for lower interest rates.

Asked about Trump’s war-by-tweet against the Fed, Shelton responded “I don’t censor what someone says.”

But during the hearing Pennsylvania Republican Senator Patrick Toomey called her views about using the Fed to manage the value of the dollar against other currencies “a very very dangerous path to go down.” Trump has often blamed the Fed for a rising dollar, which he argues has hurt exports. Shelton has often written about the need for a “sound” dollar.

A spokesman for Toomey said afterwards that the senator was undecided and that Shelton’s answers “didn’t alleviate” his concerns.

Alabama Senator Richard Shelby also “has not decided at this point, I know he still has some concerns,” the senator’s communications director, Blair Taylor, told Reuters.

Shelton, who holds a doctorate in business administration and has been sharply critical of the Federal Reserve in her writings and commentary, pledged broadly that she would be an independent thinker who would work well with existing Fed officials.

“I pledge to be independent in my decision-making, and frankly no one tells me what to do,” Shelton said, deflecting questions about her past writings that, for example, characterized the Fed’s setting of a short-term interest rate as similar to Soviet central planning.

“I don’t claim to be in the mainstream of economists….I would bring my own perspective. But I think the intellectual diversity strengthens the discussion.”

Senate Democrats said flatly that they do not trust her.

“Shelton has flip-flopped on too many issues to be confirmed,” said Ohio Democratic Senator Sherrod Brown. “She is far outside the mainstream. She is outside the ideological spectrum.”

TWO NOMINEES

A second nominee, Christopher Waller, a career economist who is currently the research director of the St. Louis Federal Reserve, faced few questions about his views.

Both were nominated by Trump to fill vacant seats on the Fed’s seven-member Washington-based Board of Governors.

Both Waller and Shelton released opening statements on Wednesday ahead of their hearings that offered few clues about their views on monetary policy beyond promising to promote policies that support financial stability and help the Fed meet its goals of full employment and price stability.

The two emphasized the Fed’s accountability to Congress, which oversees the central bank.

Both said they agreed with many of the opinions held by current Fed officials, including a reluctance to use negative interest rates as some other central banks have done, and a willingness to renew Fed bond purchases and expand the Fed’s balance sheet to fight a future downturn.For Waller, that is an extension of his 11 years working at the Fed and helping shape current policy as a key adviser to St. Louis Fed President James Bullard.

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie

For Shelton, it was a seeming reversal from her earlier views that “quantitative easing” amounted to an inappropriate Fed intervention in markets that was inflating stock prices but doing little for the economy.

After cutting rates to zero, quantitative easing “is your only alternative,” Shelton said in response to a sharp and insistent series of questions from Louisiana Republican Senator John Kennedy on how she would respond to a downturn. Following the hearing, he remained undecided on whether to support Shelton’s nomination, according to an aide.

“It seems like you are taking a 180 degree position on all of this just to be appointed,” said Nevada Democratic Senator Catherine Cortez Masto. “Who are we getting?”

Additional reporting by Ann Saphir in San Francisco; Editing by Chizu Nomiyama, Dan Grebler and Andrea Ricci

Our Standards:The Thomson Reuters Trust Principles.

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Greenback bounces after end-2019 selloff, yuan shrugs off coverage easing

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(Reuters) – The greenback snapped a six-day dropping streak so as to add 0.25% on Thursday, the primary buying and selling day of 2020, pushing the euro off five-month highs whereas the offshore yuan shrugged off reserve ratio cuts that might add $115 billion value of liquidity.

FILE PHOTO: U.S. 100 greenback notes are seen on this image illustration taken in Seoul February 7, 2011. REUTERS/Lee Jae-Gained/

Buying and selling might stay skinny till Tuesday, when most European international locations open after Monday’s Epiphany vacation however market gamers will likely be relieved the greenback navigated the vacation interval with out experiencing the cash market squeezes many had feared.

The greenback index slumped 0.4% on New Yr Eve as massive banks took solely a small portion of the $150 billion supplied by the U.S. Federal Reserve’s in a single day repo operation and borrowing prices fell to the bottom stage since March 2018.

(Graphic: The Fed dives into the repo market png click on, right here)

Whereas wariness stays that there might be a repeat of final January’s “flash crash”, when large stop-loss promoting swept via holiday-thinned markets, analysts mentioned the Fed’s liquidity injections had lowered the danger.

“There’s nothing basic…on the finish of final 12 months the greenback offered off fairly sharply so we’re seeing an easing in among the greenback promoting stress,” mentioned Lee Hardman, senior FX strategist at MUFG.

“The liquidity squeeze didn’t materialise in order that’s contributing to stability in broader monetary markets…However the greenback story has been turning detrimental in current months, partly due to motion taken by the Fed to ease greenback liquidity,” Hardman mentioned, referring to the U.S. central financial institution’s steadiness sheet growth re-launched in October.

Having ended December nearly 2% decrease in opposition to a basket of currencies, the greenback inched as much as 96.65 whereas in opposition to the euro it was at $1.119, knocking the only forex from its highest stage since early August of $1.1249.

The dollar index ended 2019 nearly flat.

The Chinese language yuan closed at 6.9631 to the greenback, its strongest shut since Aug. 2, and in addition firmed offshore after small downward strikes triggered by Wednesday’s transfer to chop the amount of money that banks should maintain, releasing $115 billion value of funds to assist the economic system.

The transfer had been broadly anticipated following Premier Li Keqiang’s pledge final month to unleash extra stimulus.

(Graphic: China lending fee and RRR click on, right here)

Traders at the moment are ready for the U.S. ISM manufacturing survey due on Friday. Throughout a lot of Asia and Europe, closing buying managers indexes painted a barely brighter image, with French, German and euro zone readings a contact higher than advance PMIs.

However additionally they confirmed an 11th straight month of contracting euro zone exercise.

The euro slipped 0.2%, having strengthened 1.8% in opposition to the greenback final month. Nevertheless, euro zone bond yields prolonged their rise and inflation expectations rose to the very best since July.

“Increased bond yields are more likely to hold the euro’s micro-rally going, wildfires will hold a lid on Aussie greenback, and PMIs and oil are supporting Norwegian, Swedish and Canadian currencies,” Societe Generale informed purchasers.

The Swedish crown briefly firmed 0.3% in opposition to the euro after PMIs rose in December following three months of declines, though they nonetheless languished in contraction territory.

The Norwegian crown inched to 3-1/2 month highs after firmer PMIs, additionally benefiting from firmer crude costs.

The Australian greenback slipped 0.3%.

U.S. President Donald Trump mentioned on Tuesday that Section 1 of a commerce take care of China could be signed on Jan. 15 on the White Home. Markets are ready for additional particulars

Reporting by Sujata Rao; Modifying by Frances Kerry, Kirsten Donovan

Our Requirements:The Thomson Reuters Belief Rules.

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Waning ECB stimulus bets push bond yields higher

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LONDON (Reuters) – Global bond yields rose on Monday, amid growing caution over the extent to which the European Central Bank will add stimulus to boost an ailing economy this week and rising hopes that Berlin could loosen its purse strings.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 6, 2019. REUTERS/Staff/File Photo

Germany’s 30-year benchmark bond yield briefly broke into positive territory for the first time in more than a month, while U.S. Treasury yields climbed to 18-day highs.

Safe-haven assets have been caught up in the fixed income sell-off, with gold XAU= touching a one-month trough and Japan’s yen plumbing a five-week low. But equities failed to make gains, as weak Chinese producer prices data dampened the mood.

The bond moves comes as markets are gearing up for Thursday’s European Central Bank (ECB) meeting, which is widely expected to deliver a cut to interest rates and point to further bond-buying stimulus.

However, there is a growing chorus of opinion that ECB policymakers and other central banks with negative interest rates and sub-zero long-term sovereign bond yields are nearing the limits of stimulus policies.

Germany also starts to debate its 2020 budget in parliament later in the day, where Finance Minister Olaf Scholz’s speech will be scrutinized after Reuters reported Berlin was looking into creating a “shadow budget” to boost public investment and effectively circumvent limits set by its national debt rules.

“These stories have become more frequent in recent weeks,” said Deutsche Bank’s Jim Reid. “Whilst the market always gets more excited by the headlines than is justified by hard evidence of any change in policy, it’s fair to conclude that market pressure and chatter on this story is building.”

Europe’s largest economy is teetering on the brink of recession, but strict national spending rules have tied policymakers hands on fiscal policy.

The U.S. Federal Reserve is also widely expected to cut interest rates next week as policymakers race to shield the global economy from risks, which also include Britain’s planned exit from the European Union.

With interest rates plumbing record lows in many countries and the effectiveness of further bond-buying muted by already record-low borrowing costs for governments, attention has turned to increased public spending or tax cuts to fire up growth.

A CHINESE CLOUD

The sell-off in fixed income markets failed to lift global stocks, where the mood was subdued amid concerns over the health of the world economy.

Data showing China’s mainland factory-gate prices shrank at their fastest pace in three years, as flagging demand at home and abroad forced some businesses to slash prices, saw Asian bourses slip lower.

In Europe, the pan-European stocks benchmark index STOXX 600 fell 0.4% in a second day of losses.

China-sensitive German stocks .GDAXI eased 0.3% while France’s CAC .FCHI dropped 0.6%.

“China inflation data was probably the worst combination of prints the market could have hoped for,” said Stephen Innes, Market Strategist AXI Trader.

“While the enormous slide in China factory gate prices reminded us of what we already know, U.S. tariffs are sinking the Chinese economy and at a much quicker pace than anyone could have imagined.”

However, climbing bond yields helped lift European banking stocks .SX7P 0.3% – one of the few sectors in the black.

U.S. stock futures pointed to a lower open on Wall Street after the S&P 500 .SPX ended flat in New York on Monday.

In currencies, the rise in Treasury yields helped lift the dollar to touch a five-week high of 107.50 yen JPY=EBS. The euro EUR=EBS was flat at $1.104 after reaching an overnight high of $1.1067.

The pound GBP=D3 traded near a six-week high of $1.2385 after a law came into force demanding that Prime Minister Boris Johnson delay Britain’s departure from the European Union unless he can strike a divorce deal with the bloc.

Oil futures hit their highest level in six weeks in Asia after Saudi Arabia’s new energy minister confirmed he would stick with his country’s policy of limiting crude output to support prices.

U.S. crude traded at $57.97 a barrel after hitting the highest since July 31. Brent crude futures climbed to $62.67 a barrel.

Prince Abdulaziz bin Salman, who became Saudi Arabia’s new energy minister on Sunday, told reporters there would be “no radical” change in Saudi’s oil policy. Saudi Arabia is OPEC’s de facto leader.

Reporting by Karin Strohecker in London, additional reporting and graphic by Sujata Rao in London, additional reporting by Stanley White in Tokyo; Editing by Lincoln Feast, Sam Holmes and Alex Richardson

Our Standards:The Thomson Reuters Trust Principles.

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IMF stands by yuan view; says China may need stimulus if commerce warfare worsens

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WASHINGTON (Reuters) – The Worldwide Financial Fund on Friday stood by its evaluation that the worth of China’s yuan was largely according to financial fundamentals, however an IMF official stated the fund was encouraging China to pursue a extra versatile trade charge with much less intervention.

Indicators of Chinese language yuan and U.S. greenback are seen at a forex trade retailer in Shanghai, China August 8, 2019. REUTERS/Aly Music

James Daniel, director of the IMF’s China division, stated that an evaluation of China’s financial insurance policies discovered the yuan trade charge in 2018 to be “not considerably over-valued or under-valued.”

The IMF’s views on the yuan are at odds with these of its largest shareholder, america, which this week declared China a “forex manipulator” after it allowed the yuan to slide under 7 to the greenback to 11-year lows.

U.S. Treasury Secretary Steven Mnuchin is searching for to interact the IMF to assist “right” an unfair commerce benefit from Beijing’s forex actions, however Daniel declined to say how the IMF was responding to the request.

“Our discussions with the U.S. Treasury are ongoing on a variety of points,” Daniel advised reporters on a convention name, echoing an earlier assertion from an IMF spokesperson.

The IMF stated within the report {that a} worsening of commerce tensions with america may put China’s financial and monetary stability in danger, making new fiscal stimulus measures from the federal government warranted.

The IMF stated if america had been to impose 25% tariffs on a remaining $300 billion checklist of Chinese language imports, this would scale back China’s progress by round 0.Eight proportion factors over the next 12 months, pushed by a pointy fall in demand and a tightening of economic circumstances. Destructive international spillovers might be vital, it added.

Daniel stated {that a} 10% tariff on this class of products — as U.S. President Donald Trump intends to impose on Sept. 1 — may lead to a 0.three proportion level lower to progress.

Weighed down by weak demand at residence and overseas, China’s progress slowed to six.2% within the second quarter, a close to 30-year low.

Extra trade charge flexibility may assist China cope with these exterior pressures, releasing up financial coverage to cope with home demand circumstances, Daniel stated.

He additionally stated the IMF was urgent China for structural reforms to its financial system, together with opening extra sectors to overseas competitors and lowering the position of the state in sure business — targets additionally broadly sought by the Trump administration.

“We see continued rebalancing and opening up by China and elevated trade charge flexibility as being in China’s personal pursuits and in addition benefiting the worldwide financial system.”

IMF administrators in an announcement agreed with employees assessments that China’s exterior place in 2018 was broadly according to fundamentals.

However in addition they known as for extra transparency in China’s trade charge insurance policies, the IMF stated, with some searching for disclosures of China’s overseas trade market interventions.

Reporting by David Lawder and Jonas Ekblom; Enhancing by Jonathan Oatis, Leslie Adler & Kim Coghill

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Strong stock and bond markets at odds over global growth

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NEW YORK (Reuters) – It looks like something has to give in global markets.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., April 18, 2019. REUTERS/Brendan McDermid

Stocks and bonds around the world have rallied atypically together since the start of the year, rewarding investors both bullish and bearish on the direction of global growth.

The main catalyst for the gains was the Federal Reserve’s surprise decision in early January to pause its tightening policy, after four interest rate increases in 2018 raised fears it was being too aggressive as the economy cooled and inflation remained minimal. Those fears helped send global markets into a tailspin in December.

Yet with the U.S. benchmark S&P 500 near a record level and corporate junk bonds notching new highs, the question stock and bond investors are asking is whether the Fed’s next move will be a rate cut that further propels risk assets or a rate hike that cuts into the stock market’s momentum.

A move by the Fed on interest rates or a communication misstep by the central bank would likely end either the rally in the stock market or in investment-grade bonds by the end of the year, restoring the traditional give-and-take between risk and safety, investors say.

“The Fed is between a rock and a hard place,” said Kathleen Gaffney, a portfolio manager at Eaton Vance Management in Boston. “They can’t go lower because there are signs that inflation is rising and they can’t go higher because of global political uncertainty. It leaves the market on pause.”

The U.S. central bank has said it will soon stop letting bonds bought during its “quantitative easing” period following the financial crisis roll off its balance sheet, which also helped push yields on safe havens like Treasuries lower and acted as a tailwind for riskier assets.

Gaffney said the Fed will likely have to raise rates again because of rising wages and other forms of inflation by the end of the year, adding that such a move will “pierce” the high valuations in both the stocks and bond markets.

TWIN RALLY

The rolling four-month percentage change in the price of the S&P 500 and the 10-Year Treasury note have both been positive for three straight months, according to a Reuters analysis. That is the longest such streak since a five-month run that ended in August 2017, it showed.

In that same 2017 period, the S&P 500 gained and 10-year Treasury yields fell as the market digested conflicting economic reports during the first year of the Trump administration, before the Federal Reserve in September began quantitative tightening that resulted in bond yields rising as the S&P 500 continued to rally.

Since January equity markets around the world have made up much of the ground they lost during a wrenching fourth quarter of 2018 that sent the U.S. stock market to the brink of a bear market.

The S&P 500 and Europe’s STOXX 600 are up almost 16% year to date, while stock indexes in China are up nearly 30%.

The ICE Merrill Lynch U.S. high yield index is up 8.6% year to date while the Merrill Lynch World sovereign bond index is up almost 1.5%.

World stocks vs bonds – tmsnrt.rs/2IrqXeF

A rally in benchmark 10-year Treasury notes, usually seen as a safe haven, undercuts the picture of a “risk on” market. Their yields have slid from 2.69% at the start of the year to as low as 2.34% in late March.

“At this point in the cycle, equity investors are trying to take any incremental news positively while fixed income investors are not,” said Jen Robertson, a portfolio manager at Wells Fargo Asset Management in London. “It’s quite delicate at the moment and any negative news out of first quarter earnings could impact this sharp bounce.”

Further uncertainty due to the economic impact of the UK leaving the European Union, which has now been pushed back to Oct. 31, or a deterioration in U.S.-China trade talks could be a “shock to the system” and derail both stocks and bonds, she said.

The spread between U.S. three-month bills and 10-year notes turned negative for the first time since 2007 in March, a bearish sign as a yield curve inversion has signaled an upcoming economic recession in the past.

The move initially boosted stock prices as investors predicted it would hem the Fed in from future interest rate hikes. But equities could fall soon if recession fears continue to grow, said Hiroaki Hayashi, managing director of Fukoku Capital Management in Tokyo.

“If you look at the past experiences, share prices have often rallied six to nine months after the yield curve initially inverted before entering a major correction. I believe we are exactly at such a phase now.”

Despite outsized gains this year, financial markets have not indicated investors have faith that the global economy can grow without historically low interest rates a decade after the end of the Great Recession, said Anwiti Bahuguna, head of multi-asset strategy at Columbia Threadneedle Investments.

“The bull market we’ve had for the past 10 years is essentially because of really low interest rates,” Bahuguna said.

“I don’t think that equilibrium will last much longer,” she added, saying rising inflation and low unemployment could soon test global markets’ ability to cope with tighter monetary policy.

Additional reporting by Hideyuki Sano in Tokyo and Terence Gabriel in New York.; Editing by Alden Bentley and Tom Brown

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G20 must tackle root causes of trade tensions that threaten growth: EU

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BUCHAREST (Reuters) – The European Union will tell a meeting of finance leaders from the world’s 20 biggest economies next week that they must all tackle the root causes of global trade tensions because they are putting global growth at risk, an EU document showed.

FILE PHOTO: Containers and trucks are seen at a terminal of the Qingdao port in Shandong province, China November 8, 2018. REUTERS/Stringer

Finance ministers and central bank governors of the Group of 20 (G20) major economies are to meet in Washington on April 11-12 to discuss the main challenges to the world economy.

“Current trade tensions put the ongoing expansion at risk and are therefore a source of concern,” a joint position paper agreed by EU finance ministers on Saturday said.

The United States and China are engaged in intense negotiations to end a months-long trade war that has rattled global markets. Hopes of a resolution soared after both sides expressed optimism following talks in Beijing last week.

The International Monetary Fund said in its April World Economic Outlook this week that an escalation of the U.S.-China trade war could reduce U.S. growth by up to 0.6 percent and China’s by up to 1.5 percent.

“The international community has to tackle the root causes of the ongoing trade tensions by ensuring a level playing field for open and free trade in goods and services, investment and intellectual property rights,” the joint EU statement said.

The United States is also in talks with the European Union on a trade deal after imposing tariffs on European steel and aluminum last year and threatening to impose tariffs on European cars.

“We reaffirm our commitment to keep the global economy open as well as rules-based, to support an inclusive multilateral trading system with the World Trade Organization (WTO) at its center and to keep international economic cooperation on track,” the EU said.

Washington has reservations about the WTO which it believes is unable to tackle modern trade challenges and issues such as intellectual property theft.

The EU believes the WTO is the best way to deal with trade disputes but that it should be reformed to address U.S. and its own concerns.

Reporting by Jan Strupczewski; Editing by Mark Potter

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