Janet Yellen, the Federal Reserve chairwoman, told Congress on Tuesday that the central bank is pleased with recent economic growth but convinced there is room for improvement and still pondering when to start raising interest rates.
In testimony before the Senate Banking Committee, Ms. Yellen advanced the Fed’s slow-motion retreat from its stimulus campaign. She said the next step would be an announcement, which could come as soon as March, that the Fed would begin to consider raising its benchmark rate at each policy-making meeting.
The change would preserve the possibility of a rate increase as soon as June. But Ms. Yellen emphasized that patience remained the Fed’s watchword, and that the persistence of sluggish inflation might still push back the timing of the liftoff.
U.S. sells T-bills at highest interest rates since Dec
The U.S. Treasury Department on Monday paid the highest interest rates since December to investors on $52 billion of bills in advance of a policy meeting of the Federal Reserve where traders will watch for clues about a possible interest rate increase.
The Treasury sold $26 billion of three-month bills at an interest rate of 0.040 percent, the highest level since Dec. 29, Treasury data showed.
Last week, it sold $26 billion of three-month T-bills at an interest rate of 0.015 percent.
The ratio of bids submitted to the amount of three-month T-bills offered was 3.69, the lowest level since Oct. 15, 2013.
Last week's bid-to-cover ratio that gauges overall demand at an auction was 4.18.
Meanwhile, the Treasury sold $26 billion of six-month bills at an interest rate of 0.145 percent, the highest since Dec. 22. Last week, it paid an interest rate of 0.095 percent.
The bid-to-cover ratio of the latest six-month T-bill auction was 3.59, down from last week's 3.96 and the lowest since Oct. 15, 2013.
In early October 2013, the U.S. government entered into partial shutdown as the White House and top Republican lawmakers wrangled over whether to raise the statutory federal debt ceiling. Traders feared if the debt limit were not increased by Oct. 17, 2013, the United States would delay paying its interest and principal on its debt, risking default and wreaking chaos across financial markets.
France, Germany and Italy Say They’ll Join China-Led Bank
In a challenge to the American-led world financial order, some of the United States’ crucial European allies said on Tuesday that they would join a new development bank for Asia that is largely funded by China and that Washington views as a rival to the World Bank.
The three nations are following the lead of Prime Minister David Cameron’s Conservative-led government in Britain, which last week announced its own decision to join.
The bank was initially proposed by President Xi Jinping of China with a mission of helping to fund infrastructure projects in poor Asian countries, something the World Bank and Asian Development Bank already do. China has pledged a large part of the initial $50 billion of capital, and Beijing hopes the institution will contribute to the expansion of its power base in Asia, even as its growing might, economic and military, reshapes the political dynamics of the region.
Washington had been lobbying against the participation of its allies, fearing that the rise of the Chinese-led lender would erode the institutions, such as the World Bank and International Monetary Fund, that were created to shepherd the world economy after World War II under American leadership.
Before the announcement on Tuesday, the bank had more than 25 members, almost all from developing countries in Asia and the Middle East. Australia, Japan and South Korea have so far refused to join, but the entry of influential European countries could encourage other allies to join, analysts have said.
Fire work today after The key words in Janet L. Yellen’s news conference Wednesday were rather pithy, at least by central bank standards. “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient,” Ms. Yellen, the Federal Reserve chairwoman, said.
Particularly interesting was that Fed officials lowered their estimate of the longer-run unemployment rate, to 5 to 5.2 percent, from 5.2 to 5.5 percent. With joblessness hitting 5.5 percent in February, that implied that policy makers are convinced the job market has more room to tighten before it becomes too tight. Fed leaders now forecast unemployment rates in 2016 and 2017 that are a bit below what many view as the long-term sustainable level, which one would expect to translate into rising wages.
In other words, they want to run the economy a little hot for the next couple of years to help spur the kinds of wage gains that might return inflation to the 2 percent level they aim for, but which they have persistently undershot in recent years.
Fed's Yellen sees gradual rate hikes starting this year
Federal Reserve Chair Janet Yellen signaled that the U.S. central bank will likely start raising borrowing costs later this year, even before inflation and wages have returned to health, but emphasized the return to normal interest rates will be gradual.
After the first rate increase, Yellen said, a further, gradual tightening in monetary policy will likely be warranted. If incoming data fails to support the Fed's economic forecast, the path of policy will be adjusted, she said.
"The actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation," Yellen said.
U.S. Treasury yields fell and held near session lows on Friday after the mildly hawkish comments and as investors bought bonds ahead of month-end rebalancing.
Still, traders of U.S. rate futures kept their bets that the Fed will wait until October to raise rates.
Greek Finance Minister Yanis Varoufakis said on Sunday that Greece "intends to meet all obligations to all its creditors, ad infinitum," seeking to quell default fears ahead of a big loan payment Athens owes the IMF later this week.
Greece has not received bailout funds since August last year and has resorted to measures such as borrowing from state entities to tide it over. It offered a new package of reforms last week in the hope of unlocking funds, but has yet to win agreement on the proposals with its EU and IMF lenders.
Most urgently, Athens is on the hook for a roughly 450 million euro loan repayment to the IMF due this Thursday.
“I welcomed confirmation by the minister that payment owing to the Fund would be forthcoming on April 9th," Lagarde said.
The euro zone country is fast running out of cash, but the bailout extended by the IMF, European Commission and European Central Bank has been frozen until the leftist-led government reaches agreement on a package of reforms.
The government is hoping approval of its reform proposals will free up the remaining aid of 7.2 billion euros under its bailout and lead to the return of about 1.9 billion euros in profits made by the European Central Bank on Greek bonds.
Greece now has its hopes set on another meeting of euro zone deputy finance ministers on April 8-9, although it is unlikely that a deal could be reached by then. The next meeting of euro zone finance ministers will take place on April 24.
Ben Bernanke joins hedge fund Citadel Bernanke will advise Chicago-based Citadel on developments in monetary policy, financial markets and the global economy.
The Federal Reserve downgraded its view of the U.S. labor market and economy on Wednesday in a policy statement that suggested the central bank may have to wait until at least the third quarter to begin raising interest rates.
The Fed's statement put in place a meeting-by-meeting approach on the timing of its first rate hike since June 2006, making such a decision solely dependent on incoming economic data.
Greece will be unable to make its debt repayments to the International Monetary Fund (IMF) next month unless it can reach a deal with creditors, its interior minister said.
Greece IMF showdown entering dangerous final phase Just last week, Greece made a $US485 million repayment to the IMF on its massive debt of $US260 billion to ease concerns about debt default.
In return, Greece asked for more emergency cash to keep the government running so it can maintain social services could pay public sector workers.
But the IMF and eurozone leaders, led by Germany, said "no" and demanded that the Greek government deliver on promised economic reforms within six days.
The deadline for the updated reform strategy is now up and, rather than signal it would comply, Greek finance minister Yanis Varoufakis is giving every indication that the default prospect is real.
"We need to convince our partners, especially in northern Europe, that this government is not about going back to the profligacy of yesteryear," Dr Varoufakis said in Washington.
I.M.F. Urges Fed to Delay Raising Interest Rates The International Monetary Fund said Thursday that the Federal Reserve should wait until next year before raising its benchmark interest rate, citing the stubborn persistence of sluggish inflation.
In an annual review of the United States economy, the I.M.F. said growth had been slower than it expected, and it cut its 2015 forecast to 2.5 percent, from 3.1 percent. While growth is likely to strengthen in the coming months, the I.M.F. said the Fed risked moving too quickly if it started raising rates this year.
The Fed has held rates near zero since December 2008, and officials have said that they are eager to begin the long, slow journey back toward normalcy. But growth continues to disappoint their expectations. The economy shrank at an annual rate of 0.7 percent in the first quarter, according to the latest government estimate. Job growth has weakened. And the Fed’s preferred measure of inflation rose just 1.2 percent during the 12 months though April, the government said this week.
Greeks overwhelmingly 61% voted against their international creditors’ conditions for further bailout aid—a move that many say will deepen the rift between Greece and the rest of Europe and push the country closer to bankruptcy and an exit from the euro.
Then on Monday, Greece’s confrontational finance minister, Yanis Varoufakis, resigned in what looked to the market like a shock-move.
Markets opened weaker across the whole region, but there was no sign of the bloodbath some had feared.
The Stoxx Europe 600 was down 1.5% at one point early in the day, but recouped some of that slide to trade just 0.9% midday. Year-to-date the index is still up more than 10%
A global slowdown in economic growth, together with political and economic upheaval in places like Greece, the Middle East and Ukraine, could hurt U.S. growth going forward, the International Monetary Fund said on Tuesday.
In its detailed yearly analysis of the U.S. economy, the IMF also reiterated that the Federal Reserve should delay its rate hike until the first half of 2016, until there are signs of a pickup in wages and inflation.
IMF staff said weaker global growth, including in China, would sap U.S. exports and investment in certain sectors, and also push down equity market valuations.
One of the Federal Reserve's most dovish officials said on Friday that September may turn out to be the right time to raise interest rates if the U.S. economy continues to improve, and he set a relatively high hurdle for delaying the move until next year.
Boston Fed President Eric Rosengren said in an interview that while wild cards remain - including the recent drop in oil prices, China's economic slowdown, and the ongoing Greek debt crisis - the U.S. central bank could move to tighten policy at any upcoming meeting, including one in mid-September.
China to Crack Down on Market Manipulation as Stocks Fall Again
The CSRC is examining recent short-selling activity for stock-index futures amid the slump, people with knowledge of the matter said on Thursday. The China Financial Futures Exchange said on Wednesday that it didn’t find “large scale” short selling when it checked stock index futures trading by 38 Qualified Foreign Institutional Investors (QFII) and 25 Renminbi QFII investors.
The Shanghai Composite Index fell 3.5 percent on Thursday, bringing its decline from its June 12 peak to 24 percent. Futures on the FTSE China A50 Index expiring in July fell 0.5 percent as of 11:23 a.m. New York time.
The People’s Bank of China’s weekend interest-rate cut failed to stem the stock rout, prompting the CSRC on Monday to urge investors to act rationally and not believe “shorting China rumors.” On Wednesday, China’s government eased margin-trading rules and the nation’s markets and clearing system announced fee cuts.
The Fed’s decision, widely expected by investors, showed that officials still lacked confidence in the strength of the domestic economy even as the central bank has entered its eighth year of overwhelming efforts to stimulate growth.
The committee is scheduled to meet in October and December.
Evans Says Fed Should Delay Liftoff U.S. monetary policy makers should delay raising interest rates until inflation shows signs of sustained upward movement, which may not happen until mid-2016, said Federal Reserve Bank of Chicago President Charles Evans.
The U.S. Federal Reserve kept interest rates unchanged on Wednesday and in a direct reference to its next policy meeting put a December rate hike firmly in play.
Investors had expected the Fed to remain pat on rates, but the overt reference to December came as a surprise.
The central bank also downplayed recent global financial market turmoil and said the U.S. labor market was still healing despite a slower pace of job growth.
"In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress - both realized and expected - toward its objectives of maximum employment and 2 percent inflation," the Fed said in a statement after its latest two-day policy meeting.
Investors quickly shifted their expectations of a December hike, with rates futures contracts upping the chance of a move this year to 43 percent from 34 percent prior to the statement.
"It's a subtle attempt to gently nudge the market in that direction, but not doing it so strongly that it would start to tighten broader financial conditions," said Aneta Markowska, chief U.S. economist at Societe Generale in New York.
"By specifically referring to that meeting they are basically testing the waters a bit, without unnerving the market," Markowska said.
The U.S. dollar rose sharply and yields for U.S. government debt soared in anticipation of tighter policy after the Fed statement. U.S. stock prices pared earlier gains before regaining momentum later in the session.
U.S. economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut, but solid domestic demand could encourage the Federal Reserve to raise interest rates in December.
Gross domestic product increased at a 1.5 percent annual rate after expanding at a 3.9 percent clip in the second quarter, the Commerce Department said on Thursday.
Weak U.S. data clouds December rate hike possibility U.S. consumer spending in September recorded its smallest gain in eight months as personal income barely rose, suggesting some cooling in domestic demand after recent hefty increases.
The Commerce Department data and another report from the Labor Department on Friday also showed weak inflationary pressures, which would argue against the Federal Reserve raising interest rates at the end of the year.
n China, as anywhere else, it’s no use looking to monetary policy to solve structural problems.
This is what two HSBC economists named Julia Wang and Jing Li in Hong Kong wrote last Monday after China announced its lowest GDP growth record, 6.9%, in six years:
Overall, today’s data point to some signs of stabilisation in the Chinese economy. But challenges remain. We forecast another 25 basis points (0.25 percentage points) policy rate cut and 150 basis points (1.5 percentage points) reserve ratio cut in the remainder of 2015.
Four days later, on Friday, the People’s Bank of China did just that, announcing a 25 basis point cut in the benchmark lending rate to bring it down to 4.35%, while reserve-requirement ratios for lenders were reduced by 50 basis points.
U.S. construction spending rises to 7-1/2-year high U.S. construction spending rose in September to the highest level in 7-1/2 years as both private and public outlays increased, suggesting a modest upward revision to the third-quarter GDP growth estimate.
Construction spending advanced 0.6 percent to $1.09 trillion, the highest level since March 2008, after an unrevised 0.7 percent increase in August, the Commerce Department said on Monday.
Construction spending has increased every month this year, and the latest gain suggested the economy remained on firmer ground despite some slowing in consumer spending and persistent weakness in manufacturing.
Asian stocks sank Friday, extending a sell-off in world markets after Europe's central bank unveiled plans to stimulate the continent's ailing economy that fell short of investor expectations.
KEEPING SCORE: Japan's Nikkei 225 dropped 2.3 percent to 19,475.86 and South Korea's Kospi lost 0.8 percent to 1,979.06. Hong Kong's Hang Seng shed 1 percent to 22,190.97 and the Shanghai Composite Index in mainland China dropped 1 percent to 3,547.81. Australia's S&P/ASX 200 retreated 1.5 percent to 5,151.60. Benchmarks in Taiwan and Southeast Asia also lost ground.
CURRENCIES: The dollar was flat at 122.53 yen. The euro edged up to $1.0940 from $1.0939 after jumping 3 percent on yesterday's news.
ENERGY: Oil futures rose on the weaker dollar. Benchmark U.S. crude was up 27 cents to $41.34 a barrel in electronic trading on the New York Mercantile Exchange. The contract jumped $1.14, or 2.9 percent, to close at $41.08 a barrel on Thursday in New York. Brent crude, which is used to set prices for international oils, climbed 14 cents to $43.98 a barrel in London.
Fed Raises Rates After Seven Years at Zero, Expects 'Gradual' Tightening Path
The Federal Reserve said it would raise its benchmark interest rate from near zero for the first time since December 2008 and emphasized it will likely lift it gradually thereafter in a test of the economy's capacity to stand on its own with less support from super-easy monetary policy.
Fed officials said they would move up the rate by a quarter percentage point, to between 0.25% and 0.5%, and would adjust their strategy as they see how the economy performs. At these low rates, they added, policy remains accommodative.
U.S. stocks dropped Thursday on persistent concern over faltering global economic growth, led by declines in energy and materials shares, a day after shares had rallied on the Federal Reserve's decision to raise interest rates.
Oil prices LCOc1 CLc1 extended recent declines on persistent oversupply worries and as the dollar .DXY hit a two-week high. [O/R] [FRX/] Dow components Exxon (XOM.N) and Chevron (CVX.N) were down, by 1.5 and 3.1 percent, respectively.
Newmont Mining (NEM.N), which fell 7.7 percent to $17.61, led declines on the materials index .SPLRCM, which fell 1.9 percent. The S&P energy index .SPNY fell 2.5 percent.
The day's fall followed three sessions of gains. On Wednesday, the market rallied after the Fed raised its benchmark rate by 25 basis points to between 0.25 and 0.50 percent, signaling confidence in the world’s largest economy.
Investors' focus returned on Thursday, however, to concerns about weak global economic conditions as the slide in commodity markets continued unabated.
China's slowdown has been transmitted to the rest of the world through a fall in oil and commodities prices, said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, N.Y., which he said "is raising serious questions about global demand and the global economy."
China stocks have worst day in a month as IPO reform looms
China stocks tumbled more than 2 percent on Monday, their biggest loss in a month, as weak industrial profit data and a looming revamp of how companies will be listed, weighed on the market.
Investors are concerned about the impact of imminent changes to the system for initial public offerings (IPOs), which could see China moving from an approval-based system, toward a U.S.-style registration-system, potentially boosting share supply.
In a major step toward reform, China's top legislature on Sunday approved a proposal to reform the IPO system, authorising the government to kick-off the changes as early as March.
China Faces 2016 Crisis China chose to weaken its currency as speculation about a Federal Reserve interest-rate increase strengthened the U.S. dollar, a key piece of the country's currency peg. That had pushed up the value of the yuan and was crimping exports.
It's too early, meanwhile, to see the impact of the International Monetary Fund's approval this year of a plan for the tender to be included in a special basket of global reserve currencies; some analysts have predicted that the IMF's decision would prompt trillions of dollars of investment to flow into yuan-denominated assets.
According to Smith, there are questions on whether China even has its entire reserves available to defend the currency. For example, he says, the country's central bank has $1 trillion to $1.5 trillion of potential foreign-exchange liabilities, consisting of "inflows to debt and equity markets, carry trades and deposits and loans from overseas." http://www.thestreet.com/story/13407258/1/china-faces-2016-crisis-as-bad-as-u-s-mortgage-meltdown.html
Fed's historic rate hike slammed by markets, weak data A lull in global market turmoil allowed the U.S. Federal Reserve to raise interest rates with a clear conscience in December, but policymakers across the spectrum now acknowledge the economic landscape may have shifted beneath their feet since the move.
It is too early to declare the first rate hike in nearly a decade a mistake, they say, or to fear the U.S. central bank will be forced, like the European Central Bank and others, to retreat before the current tightening cycle is complete.
But that process could take years, given the gradual pace of rate hikes the Fed has projected, and cracks may already be appearing.
Global stock markets continued their 2016 nosedive on Friday as investors braced for a third straight week of losses. Following sharp drops in Europe and Asia, major U.S. stock indexes were down more than 3 percent in midday trading in New York.
While Fed policymakers do not put a lot of weight on equity market moves, they are concerned the loss of investment wealth, unless it proves temporary, could curb spending and confidence among U.S. households and businesses. The Fed forecast that underpinned last month's rate hike leans heavily on domestic consumption to keep the economy growing and offset what the central bank acknowledged is a risky global environment.
U.S. data on Friday also showed a broad decline in retail sales, even after factoring out the downward pull of cheaper gas and prices of some other volatile goods.
A global equities selloff sparked by a sharp drop on China's stock market caused the Fed to delay a widely expected rate hike at its September policy meeting, and officials once again are closely watching volatility on financial markets.
"It is a matter of how long it lasts," Atlanta Federal Reserve Bank President Dennis Lockhart said this week. "I don't want to put a specific number on it, but a matter of several weeks can begin to have an influence on the real economy."
DOUR DATA
Low oil prices - they tumbled on Friday below the psychologically important $30 a barrel level- are keeping a lid on consumer prices and raising concerns that inflation will remain stalled below the Fed's 2 percent target.
Central bank data on Friday also painted a gloomy picture of the manufacturing sector, which has been hard hit by the impact of a strong U.S. dollar and deep spending cuts by oil and gas companies.
Industrial output fell 0.4 percent in December, the third straight monthly decline, while capacity utilization fell 0.4 percentage points to 76.5 percent.
Even last month's strong jobs report, which showed a surge in payrolls to just below 300,000 in December and sharply higher revisions for the previous two months, comes with a caveat.
While the pace of job creation played a large role in the Fed's decision to raise rates, officials also expect it to slow with the economy so close to full employment. The U.S. unemployment rate is at a 7-1/2-year low of 5 percent.
They have already tried to shape expectations around monthly job gains of perhaps 100,000 as being enough to accommodate population growth and continue pulling some sidelined workers back into the labor market.
The changing outlook has caused investors to shift their expectations for the timing of the next rate hike from April to June, a pace about half as fast as that projected by Fed officials in December.
After getting off to the worst start to a new calendar year in history, U.S. stocks on Friday finally posted the first winning week of 2016. So did stocks bottom or is this just a bounce within a bigger pullback that could yet turn into a full-blown bear market?
For the average, long-term investor, the best advice during times of market turmoil is to remain calm and stick to a long-term investing plan. Calling a bottom—or a top—is a challenge even for professional investors. With that in mind, here’s a look at what analysts and traders are watching:
The Wednesday low
It’s “abundantly clear” that Wednesday’s sharp selloff, which saw the S&P 500 fall to its lowest intraday level since February 2014 at 1,812.29, marked a temporary low, said Adam Sarhan, chief executive of Sarhan Capital. But he suspects that despite the subsequent rebound, which may have substantially further to run, the bears are still in control of the market.
Rallies in bear markets tend to be quite strong, fueled by short covering and investors who rush in an effort to “buy the dip,” said Sarhan, who expects stocks to fall into a full-fledged bear market.
Getting to the ultimate bottom is going to take “a lot more time” and price deterioration, he said, noting that genuine bear markets tend to last from 18 to 36 months. In other words, don’t look for a bottom soon as the major indexes have yet to retreat 20% from their highs, which is the widely accepted definition of a bear market. A fall below 1,704.66 would put the S&P 500 in bear territory, while the Dow Jones Industrial Average would need to fall through 14,649.91.
The Russell 200 is already in bear territory.
‘Total capitulation’ Matthew Tuttle, chief executive of Tuttle Tactical Management, is watching the 1,934 level for the S&P 500. A decisive push above that mark, which is the high from the Jan. 14 session, would persuade him that the selloff is over and that stocks are set for at least a near-term rise.
“If the S&P 500 breaks through…we think this is pretty much over and it’s kind of August, September all over again—a V-shaped correction and we move on,” Tuttle said. “We think the bull market ends this year, but if it gets above that level it doesn’t end just yet.”
There is more to it than surpassing a key chart-resistance level. A move above 1,934 would be confirmation of other signs of “total capitulation” that have already been observed, he said.
These include the move by Treasurys to new highs as investors flee for safety during the most intense portion of the stock market selloff, followed by a retreat in Treasurys, and rebound in yields, as stocks began to recover; and a surge in decliners as a percentage of total volume during the selloff.
Conversely, a fall back through the February 2014 low for the S&P would indicate a bear market is likely getting under way sooner rather than later, he said. Oscillators and odd lots
Developed in 1969 by husband-and-wife team Sherman and Marian McClellan, the McClellan Oscillator is widely used by investors to help project when market trends might shift. The oscillator clocked in at negative 182.81 on Thursday — an indication that U.S. stocks are vastly oversold, and that a turnaround is nigh, according to Jeffrey Saut, chief investment officer at Raymond James. The oscillator is based on the daily breadth of the market: the difference between the number of stocks that closed higher and the number that closed lower. The oscillator takes this data, then uses complex statistical processes to enumerate trends.
Meanwhile, the number of odd-lot short bets placed on the New York Stock Exchange rose to a record high Wednesday, Saut said. Odd lots are orders of less than 100 shares. Because of their small size, such orders are typically seen as a proxy for how retail investors are trading. This can be a useful contrary indicator.
“Retail investors are usually wrong,” Saut said. The previous record for odd-lot short activity occurred on Aug. 24—the day stocks fell to their August lows. A short-term reversal began two days later.
As a result of the slump, valuations have fallen back. Analysts at the Institute for International Finance said forward price/earnings ratios relative to their 2005-2015 averages “suggest that not only the U.S., but most other mature equity markets are near or below longer-term values, while many [emerging market] equity markets are trading well below.”
It’s a similar story for the banking industry group’s own measure of the household financial asset gap, which measures the deviation in the ratio of household financial assets to nominal gross domestic product from its long-term trend. The gap had been in overvalued territory since May 2014, a sign of a potential correction. The slump has largely closed the gap.
But the analysts aren’t ready to sound the all-clear, noting that “past episodes of correction in our asset gap metric suggest that prices could decline further, overshooting on the downside as happened in the aftermath of the dot-com and 2008-09 financial crises.”
Waiting for Buffett
“We feel like we have not hit the bottom yet as valuations are too high for value investors to start buying in earnest yet. Though it is very hard to know when the bottom hits in real time,” said Maris Ogg, president of Tower Bridge Advisors. “If you see a headline with Warren Buffett buying a company, that should be an indication that we hit the bottom. So far, no such news.”
Breaking the oil link
Collapsing oil prices have received much of the blame for the stock-market swoon.
Indeed, the correlation between oil futures and stocks has been extraordinarily high since mid-December. Stocks have moved virtually in lockstep with crude, a phenomenon that is perplexed many market watchers who note that the historical relationship between the two assets has been weak.
A breakdown in the recent relationship, while not necessarily signaling a bottom, would be noteworthy.
“My expectation is that the strong correlation we are seeing at the moment will break down and we will go back to different financial markets trading on their own fundamentals again,” wrote Torsten Slok, chief international economist at Deutsche Bank, in a note.
It might already be happening in the currency markets, with the euro-U. S. dollar pair moving sideways since last summer as oil prices continued to fall, he observed. “But it may still take some time before this universal fear of lower oil prices begins to subside.”
Be quantitative
Those that dare attempt to time the market need to take a quantitative approach, said Tuttle.
Without an arm’s-length, data-driven view, an investor is at the mercy of his emotions and perceptions. That is usually a recipe for trouble given the power of fear and greed to drive short-term decisions.
“There has to be some type of quantitative approach that gets you out [of the market] and there’s got to be a quantitative approach that gets you in,” he said. “If not, you’re going to get out on the lows and you’re going to get in at the highs, and you’re not going to get anywhere.”
Joseph Adinolfi and Anora Mahmudova contributed to this article.
Federal Reserve acknowledges slower growth, leaves interest rates unchanged
The Federal Reserve on Wednesday acknowledged that the U.S. economy has slowed down but provided little guidance about when it would raise interest rates again.
The central bank began pulling back its support for the recovery in December and signaled it anticipated increasing its benchmark rate four times this year. But weeks of turmoil on Wall Street have spurred doubts about whether the Fed will forge ahead.
For now, the central bank is standing pat. In a unanimous vote Wednesday, the Fed left the range for its benchmark interest rate unchanged between 0.25 and 0.5 percent. Its official statement emphasized the resilience of the job market despite the weakened recovery and pointed out strength in consumer spending and the housing sector.
Yet broader economic growth has disappointed once more. The Fed's statement cited weak exports and inventory investment among the culprits. Low oil and commodity prices have pushed down inflation. And the central bank alluded to the volatility in financial markets but carefully avoided making any judgment calls.
The Fed is "closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook," its statement read.
U.S. stock markets dropped after the announcement, with the blue-chip Dow Jones industrial average giving up 223 points to close down 1.4 percent at 15,944.46. The Dow and the broader Standard & Poor's 500-stock index see-sawed earlier in the day, opening in negative territory but briefly turning positive before closing in the red.
The Fed has emphasized that it expects future rate increases to be "gradual," and central bank forecasts released last year suggested that meant moving once a quarter. But investor expectations for a second Fed rate hike in March are dropping. Futures markets indicate a one-in-four chance that the central bank will make a move, down from roughly even odds last year. Some analysts question whether the Fed will raise rates at all -- and even whether they might be forced to reverse course.
Bank of Japan on Friday joined European central banks by introducing negative interest rates - that is, charging, not paying, for deposits.
Yuan Vs. Yen: How China Figures Into Japan’s Negative Rates?
Japan’s move to negative interest rates is the latest step in a dangerous dance between the world’s second and third largest economies. ?? The problem is currencies. China’s moves to bring down the value of the yuan have rattled markets this year, sparking a flight from risky assets that has sent investors into safer havens like the yen.
The stronger yen in turn has threatened to tip Japan’s economy back into deflation, which the central bank has struggled to vanquish. The rising yen has also put more pressure on corporate profits and helped push Japanese stocks into bear market territory last week.
So when the Bank of Japan announced its plan to lower interest rates below zero for the first time Friday, it makes sense that Governor Haruhiko Kuroda named just one country among the risks facing its economy — China.
Now it’s China’s turn to sweat. The yen fell as much as 2.1% after the announcement, which will make Chinese exports more expensive relative to Japanese products.
The two countries, and most of their neighbors, are struggling against a tide of money outflows and weak trade. While governments in the rest of Asia have far more room to stimulate their economies than Japan does, a decline in the yen could spur them to try to push down their own currencies.
Were China to follow–and the central bank has already allowed the yuan to fall–it would ignite another round of fear, which could push up the yen and force the Bank of Japan to act again.
So far, the yen’s ups and downs have left it about where it was a year ago, so the risk of a cycle of competitive devaluation is limited. In addition, the drop in the yen would have been a bigger problem for China when the yuan was pegged to the dollar. The government’s recent switch to a basket of currencies that includes the yen means the move up won’t be as big. But it still will push the currency in the wrong direction for the slowing economy.
There’s another reason China doesn’t want the yen to fall. Right now, thousands of Chinese are planning their Lunar New Year’s holidays in Japan early next month, hoping to take advantage of the cheap yen. During the October Golden Week, China’s other big travel week of the year, Chinese tourists descended on Japan, spending more than $830 million on shopping, according to the state-run China Daily.
China is suffering an epic capital flight in which hundreds of billions of dollars are leaving the country. A weaker yen will send more Chinese into Tokyo’s department stores and further drain China’s currency reserves.
The economic fates of China and Japan are closely connected. Until their economies get on stronger footing, moves to boost growth in one country could hurt the other and risk retaliation.
As the world economy stays weak, the interaction between China and Japan could play an increasingly important role both in Asia and globally.
FOREX-Dollar under pressure as Fed's Dudley cools rate-hike views
The dollar nursed hefty losses against the yen and euro on Thursday after tumbling overnight when a top Federal Reserve official tempered expectations on the pace of future U.S. interest rate increases.
The dollar was steady at 117.97 yen after dropping 1.7 percent overnight. The greenback handed back all the gains made against its Japanese counterpart after the Bank of Japan adopted negative interest rates late last week, pushing it as high as 121.70.
The U.S. currency took a beating on Wednesday after William Dudley, president of the Federal Reserve Bank of New York, said financial conditions are considerably tighter and a weakening outlook for the global economy would have to be taken into account.
The dollar was weighed down by a survey from the Institute of Supply Management (ISM) showing activity in the vast U.S. services sector slowed to a near two-year low in January, adding another layer of uncertainty on the Fed's near-term policy path.
The euro traded at $1.1054, hovering near a 3-1/2-month high of $1.1145 scaled overnight. The single currency rallied 1.7 percent against the dollar after U.S. Treasury yields slipped to 10-month lows in the wake of the Dudley comments and downbeat data.
The market focus will now shift to U.S. factory orders data, and comments by Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren later in the session.
"The dollar may rebound as it could have overreacted to the ISM non-manufacturing numbers. But it could still fall below 117 yen on fresh dovish comments from Fed officials," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.
"Of the Fed officials due to speak today, focus will be on whether Mester turns dovish."
Mester had told Reuters in an interview early last month that she prefers a slightly quicker rate hike pace.
Commodity-linked currencies held to their gains made on Wednesday on a sharp rebound in crude oil prices and the dollar's broad retreat.
The Canadian dollar hovered near a 7-week high of C$1.3757 to the dollar struck on Wednesday. The rally helped reverse weakness seen earlier in the year, when the loonie slumped to a 13-year trough of C$1.4689 amid a tumble in crude oil.
The Australian dollar was down 0.2 percent at $0.7155 , pulling back a little from a 1-month high of $0.7189 reached overnight.
Federal Reserve policymakers expressed growing concerns at their meeting last month about potential threats to the U.S. economy, including turbulence in financial markets, plunging oil prices and slowing growth in China and other emerging markets.
Minutes of their discussions released Wednesday showed Fed officials acknowledging that the developments made it difficult to forecast growth and inflation.
The officials said their outlook had grown more uncertain, and they stressed that the pace of any interest-rate increases would hinge on the latest economic data. The Fed raised rates from record lows in December, the first hike in nearly a decade.
While Fed officials continued to express confidence in the strengthening labor market, they were less bullish on other parts of the economy such as manufacturing.
"Most participants indicated that it was difficult to judge at this point whether the outlook for inflation and economic growth had changed materially, but they thought that uncertainty surrounding the outlook had increased as a result of recent financial and economic developments," the minutes said.
Its brief policy statement removed language it had been using that officials judged the risks facing the economy as "balanced." Most Fed officials felt there was not yet enough evidence to say the balance of risks had "changed materially," though some officials did believe the downside risks had increased, according to the minutes.
Among the threats to U.S. growth, the minutes cited the slowdown in China and falling commodity prices that could hurt growth prospects in emerging market nations that produce those commodities. The Fed officials also discussed the steep declines in stock prices that had occurred since the beginning of the year.
Since the Fed's January meeting, some economic indicators have flashed more encouraging signals. The economy created 151,000 jobs in January, pushing the unemployment rate down to an eight-year low of 4.9 percent. The Fed reported Wednesday that industrial production rose 0.5 percent in January, the best showing since July, though retail sales last month remained modest.
In December, the Fed had lifted its target for overnight bank lending from a record low to a new range of 0.25 percent to 0.5 percent — the first hike after seven years of near-zero rates. It also released projections that indicated four additional quarter-point moves in 2016.
But since the start of this year, global financial markets have been rocked by disclosures that China, the world's second largest economy, may be slowing more than previously believed. Oil prices have tumbled, while the U.S. dollar has strengthened. Both of those developments could make it harder for the Fed to achieve its inflation target.
Many private economists have cut their forecasts for Fed rate hikes this year from four down to two or fewer.
"The minutes of the January meeting provide the clearest hints yet that policy makers have likely stepped back from earlier plans to raise interest rates several times this year," said Sal Guatieri, senior economist at BMO Capital Markets. "Until the Fed has more clarity on the impact of worsening financial conditions on the economy and inflation ... it will be highly reluctant to pull the rate trigger a second time."
Guatieri said he expected two rate hikes this year coming in June and July, assuming that financial markets continue to stabilize.
Fed Chair Janet Yellen acknowledged the darker economic landscape in Congressional testimony last week. But she said it was too soon to know whether the new risks would be severe enough to alter interest rate policies.
Yellen said the Fed was not on a "pre-set" course for rate hikes and would assess at its next meeting on March 15-16 whether recent developments have slowed the U.S. economy or threatened to derail the Fed's goal of pushing inflation back toward 2 percent.
Recent comments from other Fed officials also have sounded a note of caution.
In a speech Tuesday, Eric Rosengren, president of the Fed's Boston regional bank and a voter this year on interest rate policies, said that the global weakness may push back the Fed's timetable on inflation.
"In my own view, if inflation is slower to return to its target, monetary policy normalization should be unhurried," Rosengren said. "A more gradual approach is an appropriate response to headwinds from abroad that slow exports and financial volatility that raises the cost of funds to many firms."
Fed Scales Back Rate-Rise Forecasts as Global Risks Remain
Federal Reserve officials held off from raising borrowing costs and scaled back forecasts for how high interest rates will rise this year, citing the potential impact from weaker global growth and financial-market turmoil on the U.S. economy.
The Federal Open Market Committee kept the target range for the benchmark federal funds rate at 0.25 percent to 0.5 percent, the central bank said in a statement Wednesday following a two-day meeting in Washington. The median of policy makers’ updated quarterly projections saw the rate at 0.875 percent at the end of 2016, implying two quarter-point increases this year, down from four forecast in December.
“You have seen a shift this time, in most participants assessments of the appropriate path for policy,” Fed Chair Janet Yellen said at a press conference in Washington. “That largely reflects a somewhat slower projected path for global growth, for growth in the global economy outside the United States, and for some tightening in credit conditions in the form of an increase in spreads.”
Yellen stresses Fed foresees gradual pace of rate hikes
The Fed chair Janet Yellen said Tuesday that the Fed still envisions a gradual pace of interest rate increases in light of global pressures that could weigh on the U.S. economy.
Yellen did not specify a timetable for further hikes to follow the Fed's rate increase in December from record lows. She said the risks to the United States remain limited but cautions that that assessment is subject to "considerable uncertainty."
In prepared remarks to the Economic Club of New York, the Fed chair said the central bank is monitoring the effects of a global economic slump, lower oil prices and stock market turbulence. She said that given the risks, the Fed will "proceed cautiously" in raising rates.
Most economists expect no hike at the Fed's next policy meeting, to be held April 26-27.
Yellen's remarks on the Fed's economic outlook and interest rate policy have been highly anticipated by investors trying to divine the timing of the next rate increase.
When the Fed met two weeks ago, it kept its key rate unchanged and signaled the likelihood of just two rate increases this year. That was half the number that Fed officials had envisioned in December, when they raised their benchmark rate from record lows — their first hike in nearly a decade. As a result, most economists concluded that no rate increase would likely occur before June.
But comments last week from several of the Fed's regional bank presidents had raised the possibility that the central bank will decide to raise rates in April. One of them, Dennis Lockhart of the Fed's Atlanta regional bank, said in a speech that he thought the strength of the most recent U.S. economic data could justify a rate increase as early as April.
The views expressed by Lockhart, who is viewed as a centrist in his approach to interest rates, was echoed by some other Fed regional bank presidents.
Lockhart suggested that despite global economic weakness, the U.S. job market is nearing full health — a key condition for a rate increase. He also said he thought that inflation, which has remained persistently below the Fed's 2 percent target rate for nearly four years, would likely begin picking up later in the year.
The message from Lockhart and some other regional bank presidents seemed to depart from the signal sent by the statement the Fed issued March 16 and by the news conference Yellen held afterward. The theme then was of a slower pace of rate increases in light of global pressures that risk slowing the U.S. economy.
In a speech in Singapore on Tuesday, John Williams, president of the Fed's San Francisco regional bank, said his outlook for both the U.S. and the global economies remains largely unchanged over the past few months. He said the Fed has made it "abundantly clear" in its communications that it expects to raise rates gradually.
"We took the first small step with a modest rate hike in December, and the future will be, as we've said repeatedly, gradual and thoughtful," said Williams, who had suggested last week that a rate hike in either April or June was possible.
Whatever decision the Fed does make in April will hinge on its view of the economy's durability. In the past week, some reports have produced weaker-than-expected readings, including a sharp drop in orders for long-lasting manufactured goods and tepid consumer spending. Those reports have led some economists to downgrade their forecasts for growth in the current January-March quarter from a 2 percent annual rate to a lackluster 1 percent.
The consumer spending report also showed that the Fed's preferred inflation gauge is still signaling that inflation remains well below its target level. For the 12 months that ended in February, inflation rose just 1 percent. "Core" inflation, which excludes the volatile items of food and energy, increased 1.7 percent.
Because of the subpar inflation and the weakness in consumer spending, which drives about 70 percent of economic activity, many economists still say the Fed will be cautious about raising rates.
"The numbers show that inflation is nowhere to be found, and consumers at the moment are on strike," said Sung Won Sohn, an economics professor at California State University, Channel Islands. "They don't want to spend money because of uncertainty in the economy, including the recent volatility in the stock market."
Sohn said he thought the economic outlook remained too uncertain to justify any rate hikes at all this year.
May 12 The Federal Reserve should raise interest rates again if data from the second quarter confirms the U.S. labor market is near full strength and inflation is on track to accelerate, Boston Fed President Eric Rosengren said on Thursday.
The comments by Rosengren, a voting member this year on the Fed's rate-setting committee, point to growing pressure within the U.S. central bank to raise rates in the coming months.
Rosengren said a government report on employment during April suggested the country was still closing in on full employment, while inflation appeared also to be heading higher.
"If the economic data that come in over the course of this quarter confirm these trends, it will be appropriate to continue the gradual normalization of monetary policy," Rosengren said in prepared remarks, using the term U.S. central bankers employ for interest rate hikes.
The Fed is scheduled to review monetary policy at a June 14-15 meeting. Afterward its next policy meeting is July 26-27.
Speaking before the Greater Concord Chamber of Commerce, Rosengren said wage growth appears to be accelerating and the unemployment rate at 5 percent is close to his 4.7 percent estimate of a full-strength labor market.
Fed signals interest rate hike firmly on the table for June
Federal Reserve officials felt the U.S. economy could be ready for another interest rate increase in June, according to the minutes from the central bank's April policy meeting released on Wednesday today.
Most participants in the policy-setting committee's April 26-27 meeting said they wanted to see signs that economic growth was picking up in the second quarter and that employment and inflation were firming, the minutes showed.
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