Date: August 2, 2018
United States:
Fed Leaves Key Rate Unchanged With Economy Growing at ‘Strong Rate’
Federal Reserve officials left U.S. interest rates unchanged and stuck with a plan to gradually lift borrowing costs amid “strong” growth that backs bets for a hike in September. Economic activity has been “rising at a strong rate,” and unemployment “has stayed low,” the Federal Open Market Committee said Wednesday in a statement released in Washington. “Household spending and business fixed investment have grown strongly.” While leaving rates on hold as expected, the committee repeated guidance for “further gradual increases” in its policy benchmark, lining up September’s FOMC meeting for the third hike of the year. President Donald Trump lashed out at the Fed last month, saying he wasn’t “thrilled” it was raising rates. The comments threw a political cloud over the central bank’s decisions, though economists and investors had widely anticipated Wednesday’s decision. Policy makers “are not really affected or paying close attention to the political commentary,” said Laura Rosner, senior economist at Macropolicy Perspectives. Stocks and bonds shrugged off the Fed announcement, with the Standard & Poor’s 500 Index closing down 0.1 percent and the 10-year Treasury yield at 3 percent at 4 p.m. New York time. Odds for a rate hike at the central bank’s Sept. 25-26 meeting held around 80 percent. “The FOMC did nothing to the statement that would suggest a lower likelihood of a September hike,” said former Fed Governor Laurence Meyer, who runs a policy research firm in Washington. “The market has now priced a September rate hike as a near-certainty, and we agree with that assessment.” Fed Chairman Jerome Powell is trying to nurture the second longest U.S. expansion on record by slowly reducing the amount of support that monetary policy provides to growth. The economy is riding a tailwind from tax cuts and higher federal spending, though a trade war threatens to dent growth. The committee described risks to the outlook as “roughly balanced,” and restated that “monetary policy remains accommodative” while leaving the target range for its benchmark policy rate at 1.75 percent to 2 percent. Most Fed officials in June projected three or four rate hikes for 2018, implying one or two more moves this year.
Europe:
European Stocks Slump as Trade Spat Hits Autos, Industrials
European stocks sank for a second day, mirroring a sharp pull-back in Asian shares, as the prospect of higher U.S. tariffs on Chinese goods looked increasingly likely, hammering cyclical sectors such as mining and autos. The Stoxx Europe 600 Index retreated 0.7 percent, after falling 0.5 percent on Wednesday. Germany’s exporters-heavy DAX index was down 1.7%. Gauges for basic resources and autos sectors were down 2.5 percent and 1.9 percent respectively. They have been the biggest casualties of the global trade tensions so far, with both sectors down about 12 percent since mid-June. The latest flare up in the trade spat has also sent shock waves in the derivatives market, with the Euro Stoxx 50 Volatility Index, known as the VStoxx, jumping 28 percent so far this week, signaling a volatile start to August. European stocks sank for a second day, mirroring a sharp pull-back in Asian shares, as the prospect of higher U.S. tariffs on Chinese goods looked increasingly likely, hammering cyclical sectors such as mining and autos. The Stoxx Europe 600 Index retreated 0.7 percent, after falling 0.5 percent on Wednesday. Germany’s exporters-heavy DAX index was down 1.7%. Gauges for basic resources and autos sectors were down 2.5 percent and 1.9 percent respectively. They have been the biggest casualties of the global trade tensions so far, with both sectors down about 12 percent since mid-June. The latest flare up in the trade spat has also sent shock waves in the derivatives market, with the Euro Stoxx 50 Volatility Index, known as the VStoxx, jumping 28 percent so far this week, signaling a volatile start to August. President Donald Trump has asked U.S. Trade Representative Robert Lighthizer to consider hiking the proposed tariff on $200 billion of Chinese goods to 25 percent from 10 percent, increasing pressure on Beijing. “I don’t think Mr. Trump will go ‘all in’ but for the moment it keeps investors on the sidelines watching what’s going on,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. “Let the shorties have their share of the game. We’re in the middle of the reporting season and things don’t look scary at all.”The busy earnings week is nearing its end, with Rolls-Royce Holdings surging today 4.2 percent after saying that full-year earnings will be at the upper end of a forecast range. Siemens AG slumped 3.8 percent after its third-quarter business profit missed estimates.
Asia:
Trump’s Tariff Threats Erase $220 Billion From Asia Stock Values
The respite was brief: A fresh round of trade-war fears sent stock markets sinking across Asia. Investors had nowhere to hide, with equity gauges from Japan to India plunging on Thursday. The MSCI Asia Pacific Index dropped as much as 1.4 percent, heading for its biggest slide in six weeks as more than $220 billion in equity-market value evaporated, according to data compiled by Bloomberg. The measure has lost 2.1 percent from a high less than a week ago. “The hot and cold news on tariffs and mixed signals coming out of the U.S. are taking their toll on investor sentiment,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “All in all, markets seem to be gearing up for another leg down. We are taking risk off the table.” President Donald Trump has asked U.S. Trade Representative Robert Lighthizer to consider hiking proposed tariffs on $200 billion of Chinese goods to 25 percent from 10 percent. The measures could be implemented as early as next month. Shares in China paced losses, as the Shanghai Composite Index came close to its bottom in July, while Hong Kong’s Hang Seng Index fell for a fourth day to its lowest level since September. Benchmarks in Japan and South Korea retreated at least 1 percent, while Australia’s slipped 0.6 percent, led by a slump in commodity producers. BHP Billiton Ltd. sank 3.3 percent in Australia, the most since February, after workers at its Escondida copper mine in Chile overwhelmingly voted in favor of a strike. The dispute is one of a number in the country that could lead to supply woes for the key industrial metal. Technology stocks including Tencent Holdings Ltd., Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. were the biggest drags in Asia, despite gains for the sector in the U.S. on Wednesday. The S&P 500 Index itself erased an advance in that session as trade concerns and the Federal Reserve’s moves to stick with a plan for a gradual rate hike offset bullish sentiment following Apple Inc.’s surge to a record.
China Vows It Won’t Back Down After Trump’s Latest Tariff Threat
China said that the latest threat by the U.S. to increase tariffs won’t succeed in forcing concessions from Beijing. “China is fully prepared and will have to retaliate to defend the nation’s dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries,” China’s Ministry of Commerce said in a statement Thursday on its website. The “carrot-and-stick” tactic won’t work, it said. The Trump administration said Wednesday that it’s considering increasing the proposed tariff on $200 billion in Chinese imports to 25 percent from 10 percent, in a bid to force China back to the negotiating table. President Donald Trump has asked U.S. Trade Representative Robert Lighthizer to consider hiking the duties, which could be implemented as early as next month. China’s yuan extended loss following Mofcom’s comments, signaling investor concern that the trade war is escalating. The onshore currency tumbled 0.35 percent to 6.8494 per dollar, the lowest level in more than a year, as of 5:58 p.m. in Shanghai. The offshore rate lost 0.58 percent. Earlier, shares in Asia fell. The U.S. had indicated it is open to restarting formal negotiations with China, though Beijing must agree to open its markets to more competition and stop retaliating against U.S. trade measures. Along with its pledge to fight back, China also left the door open for a resumption of negotiations. The statement also left out language that had been used previously pledging to fight back using the “same scale, same intensity” as the U.S. trade measures. “China has consistently advocated resolving differences through dialogue, but only on the condition that we treat each other equally and honor our words,” the ministry said. “The Chinese side always believes that bad things can turn into good things and challenges can be turned into opportunities.”