U.S.:
Fed’s Mester Says She’s ‘Comfortable’ With Rates Moving Higher
Federal Reserve Bank of Cleveland President Loretta Mester said she would be “comfortable” with the central bank raising interest rates now as inflation pressures pick up. While the Fed isn’t “behind the curve” on interest rates yet, delaying policy tightening will create risks, Mester said in reply to questions after a speech delivered in Singapore on Monday. “I’d be comfortable with an increase in the Funds rate at this point, if the economy keeps going the way it’s going,” she said. “My outlook builds in a gradual increase in the Funds rate over time. And I’m comfortable with that.” Investors have raised their bets of a U.S. rate increase as early as March or May after relatively hawkish congressional testimony last week from Fed Chair Janet Yellen and a strong inflation reading for January. Mester said market participants and the Fed are now “thinking about the economy in the same way.” “In my mind, where the economy is now argues that we should be bringing the rate up,” she said. “But no one on the Fed, I would say, is thinking of precipitously raising.”
<https://www.bloomberg.com/news/articles/2017-02-20/fed-s-mester-says-she-s-comfortable-with-rates-moving-higher>
Europe:
French Bonds Slump as Political Campaign Still Seen Wide Open
French bonds fell across the board as a weekend of intense campaigning compounded bets for volatility in the run-up to the first round of the nation’s presidential elections in April. Germany’s two-year yields fell to a record. The spread between France’s 10-year notes and comparable German bunds reached the widest level since 2012 after a poll showed support for anti-euro presidential candidate Marine Le Pen rising in both election rounds. The weekend saw independent candidate Emmanuel Macron ensnared by the country’s colonial past and attempts to unite the left fizzle. “Politics remains the main driver for short-dated bonds, with reactions depending on where you are, core or periphery,” said Christian Lenk, a Frankfurt-based strategist at DZ Bank AG. “The market can go from euphoria to depression depending on what the latest polls show.”
<https://www.bloomberg.com/news/articles/2017-02-20/french-bonds-slump-as-political-campaign-still-seen-wide-open>
Asia:
China adjusts yuan midpoint mechanism – sources
China tweaked its formula for setting daily reference midpoints for its yuan currency on Monday, three sources with direct knowledge of the matter said, in what was seen as authorities’ latest move to help curb speculation in the currency. Global attention on China’s exchange rate policy has intensified since its foreign exchange reserves fell below the $3 trillion level in January, but currency traders said it was too early to say if the latest changes were anything more than technical in nature. The tightly managed currency is allowed to trade in a narrow daily band which is defined by a midpoint fixing rate set by the market regulator each morning. One of the components the regulator uses to calculate its midpoint is the movements in other currencies of China’s trading partners. Monday’s adjustment by the operator of the foreign exchange trading platform shortens the reference period for those currencies, banking sources said on the condition of anonymity.
<http://www.reuters.com/article/uk-china-yuan-midpoint-idUSKBN15Z0YE>
Brazil:
Brazil housing starts drop 21.5 pct in December -report
Brazil’s housing starts fell sharply in December following several months of improvement, an industry group said on Monday, indicating a still fickle pickup in real estate activity as the economy edges closer to a recovery. The widely followed Abrainc-Fipe index showed a 21.5 percent drop in housing starts in December from a year earlier, the group known as Abrainc and research institute Fipe said in a report. Still, it rose 9 percent in 2016, suggesting a potential rebound as interest rates fall toward single digits, boosting the outlook for home lending. The so-called VSO indicator, which gauges sales as a share of total units available for purchase, slipped 0.6 percentage point to 7.6 percent, indicating available inventory would cover 13.2 months’ worth of demand, according to the report.
<http://www.reuters.com/article/brazil-realestate-outlook-idUSL1N1G212V>