E.U.:
ECB split over keeping bond buys open-ended: minutes
European Central Bank policymakers broadly agreed last month on extending their asset purchase scheme but a decision to keep the bond buys open-ended appeared to generate fiercer debate, minutes of the meeting released on Thursday showed. Having to reconcile rapid economic growth with anemic inflation, the ECB opted last month to halve its asset purchases while extending them by nine months, hoping that gentler though longer stimulus would still keep growth strong enough to generate inflation. But minutes of the debate at the Oct. 26 policy meeting suggest policymakers were far from unanimous, with some keen to signal a clear end to the ECB’s lavish asset purchases and others arguing for a change in emphasis as a precursor to their eventual end. The euro zone’s central bank already has over 2.2 trillion euros worth of assets on its balance sheet. While the nine-month extension of the scheme at 30 billion euros per month enjoyed broad support, policymakers discussed a range of alternatives, debated an eventual change in the bank’s guidance, and agreed that other components of central bank stimulus should also be highlighted, the minutes showed.
Euro zone bond yields creep up as ECB minutes move into focus
Borrowing costs in the euro area crept up on Thursday ahead of the release of minutes from the European Central Bank’s October meeting, at which monthly asset purchases were extended well into 2018 albeit at a reduced pace. In a week that has seen discussion among central bank officials focus on the changes in communication next year, the minutes could offer some insight into what the ECB may signal next. Benoit Coeure, the ECB director in charge of its market operations, told a German newspaper this week he expects the ECB to drop by next September a pledge to continue buying bonds until inflation heads towards its near 2-percent target. That was followed on Wednesday by a source-based story from Reuters that said rate-setters hope to put off debate on new moves until well into next year. “What has materialized this week is how the debate is going to change in the future,” said Peter Chatwell, head of euro rates strategy at Mizuho. “The most important information to come from the accounts will be the degree of support there was for keeping QE open- ended by saying that it can be done beyond September.”
Asia:
Bond selloff, debt clampdown jitters slam Chinese shares
Worries over a sustained bond selloff in China bled into the country’s stock markets on Thursday, dealing blue chips their worst one-day loss in nearly 18 months, as investors reacted to the government’s latest measures to reduce risks in the financial system. The yield on Chinese 10-year treasury bonds touched a three-year high of 4.03 percent on Thursday, traders said. The unease comes as the government steps up its deleveraging campaign, most recently with measures aimed at curtailing micro-lending and imposing tighter regulation on asset management businesses. The blue-chip CSI300 index .CSI300 tumbled nearly 3 percent to 4,103.73 points, its biggest drop since June 13, 2016, while the Shanghai Composite Index .SSEC slid 2.3 percent to 3,352.99 in its worst day since December. “For the short term, the biggest worry in the stock market is Beijing’s sweeping new rules to regulate the asset management business, which require financial institutions to set leverage limits on asset management products,” said Yang Weixiao, an analyst with Founder Securities. In some sectors such as healthcare and consumer products, analysts said the concerns provided a good opportunity for profit-taking after long run-ups.
U.S.:
U.S. core capital goods orders drop; business spending strong
New orders for key U.S.-made capital goods unexpectedly fell in October after three straight months of hefty gains, but a sustained increase in shipments pointed to robust business investment and economic momentum as the year winds down. The economy’s prospects were bolstered by other data on Wednesday showing a decline in the number of Americans filing claims for unemployment benefits. Strong business investment and tightening labor market conditions will likely keep the Federal Reserve on track to raise interest rates next month. “Fed policymakers will likely be impressed with the positive overall trend of business investment in equipment this year,” said Chris Rupkey, chief economist at MUFG in New York. “Interest rates do not need to be left at such low levels if the goal is to further business investment.” The Commerce Department on Wednesday said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, declined 0.5 percent last month. That was the biggest drop since September 2016 and followed an upwardly revised 2.1 percent increase in September. Orders of these so-called core capital goods increased at a 14.5 percent annualized pace in the three months prior to October, the strongest since June 2013.