Wed, Mar 20, 2019 @ 15:25 GMT

John Williams takes over New York Fed, pledges openness and transparency

    Ex-San Francisco Fed President John Williams takes over the job of New York Fed President today. In a statement, he pledged openness and transparency, objectivity and independence of thought, and commitment to the diverse needs of familis and business across the District.

    Below is the full statement.

    Statement from President Williams

    I am pleased to be starting my tenure today as president and CEO of the Federal Reserve Bank of New York. As someone who has dedicated his career to public service, I can think of no better place from where to continue to support the nation’s economic well-being.

    The New York Fed plays a unique role in the Federal Reserve System, with responsibilities for implementing monetary policy, managing a critical payments system, overseeing a large number of complex financial institutions and managing international relationships. I take each of these responsibilities with the utmost seriousness and am committed to executing my role as president of the New York Fed and on the Federal Open Market Committee (FOMC) to the absolute best of my ability.

    So what can you, the public, expect of me?

    • Openness and transparency. I am dedicated to learning from a wide range of perspectives and experiences from across the District. Openness flows both ways, and we have a duty to explain the reasoning behind our actions. I am committed to acting in as transparent a manner as possible.
    • Objectivity and independence of thought. I will continue to make monetary policy recommendations based on what I believe is in the best interest of our economy. Throughout, I will strive to explain my reasoning, particularly when my views may differ from those of others.
    • Commitment to the diverse needs of families and businesses across our District. Understanding the varied financial and economic needs of families, businesses, and communities, and advocating for them at the policy table is a critical component of my role. I am equally committed to building a diverse and inclusive workforce and workplace at the New York Fed, which will help us better serve our communities.

    I start my first day with a deep commitment to securing the stability of our financial system and prosperity for our economy. I look forward to engaging with and learning from members of our communities and stakeholders throughout the District and beyond.

    John C. Williams became the 11th president and chief executive officer of the New York Fed on June 18, 2018.

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    CBRT announced measures on Turkish Lira and FX liquidity management

      Full statement below.

      Press Release on Financial Markets

      To support financial stability and sustain the effective functioning of markets, the following measures have been introduced:

      I. Turkish lira liquidity management:

      1) In the framework of intraday and overnight standing facilities, the Central Bank will provide all the liquidity the banks need.

      2) Discount rates for collaterals against Turkish lira transactions will be revised based on type and maturity, thus providing banks with flexibility in their collateral management. Through this regulation, the discounted value of banks’ current unencumbered collaterals is projected to increase by approximately 3,8 billion Turkish liras.

      3) Collateral FX deposit limits for Turkish lira transactions of banks have been raised to 20 billion euros from 7,2 billion euros.

      4) As cited in the Monetary and Exchange Rate Policy Text for 2018, when deemed necessary, in addition to one-week repo auctions, which are the main funding instrument of the Central Bank, traditional repo auctions or deposit selling auctions may be held with maturities no longer than 91 days.

      5) For the days with relatively higher funding need, more than one repo auction may be conducted with maturities between 6 and 10 days.

      6) To provide flexibility in banks’ collateral management, upon the request of banks, a portion of or the entire amount of the winning bids in one-week repo auctions will be allowed to be used in deposit transactions instead of repo transactions at the Central Bank Interbank Money Market with the same interest rate and maturity.

      II. FX liquidity management:

      1) Banks will be able to borrow FX deposits in one-month maturity in addition to one-week maturity.

      2) The Central Bank will resume its intermediary function at the FX deposit market. Accordingly, through the intermediation of the Central Bank, banks will be able to borrow from and lend to each other at the FX deposit market as per the rules set by the Implementation Instructions on the Foreign Exchange and Banknotes Markets.

      3) Banks’ current foreign exchange deposit limits of around 50 billion US dollars may be increased and utilization conditions may be improved if deemed necessary.

      4) Banks will continue to purchase foreign banknotes from the Central Bank via foreign exchange transactions within their pre-determined limits at the Foreign Exchange and Banknotes Markets.

      The Central Bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary.

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      US-China joint statement vowing not to launch a trade war

        US and China issued a joint statement on Saturday to conclude the trade talks with Chinese Vice Premier Liu He on May 17 and 18. There was no mentioning of any number, but the statement said there were “consensus on taking effective measures to substantially reduce” US trade deficit in goods with China. And, China agreed to “significantly increase purchase” of US goods and services.

        Additionally, there would be “meaningful increases” in US agriculture and energy exports to China, “expanding trade” in manufactured goods and services, encouraging “two-way investment” with “fair, level playing field for competition”. China also pledged to work on laws and regulations on intellectually property protections.

        The Chinese State-owned Xinhua news agency described the statement as “vowing not to launch a trade war against each other”.

        Here is a graphical summary by Xinhua.

        Full statement below:

        THE WHITE HOUSE – Office of the Press Secretary
        FOR IMMEDIATE RELEASE – May 19, 2018

        Joint Statement of the United States and China Regarding Trade Consultations

        At the direction of President Donald J. Trump and President Xi Jinping, on May 17 and 18, 2018, the United States and China engaged in constructive consultations regarding trade in Washington, D.C. The United States delegation included Secretary of the Treasury Steven T. Mnuchin, Secretary of Commerce Wilbur L. Ross, and United States Trade Representative Robert E. Lighthizer. The Chinese delegation was led by State Council Vice Premier Liu He, Special Envoy of President Xi.

        There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China. To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services. This will help support growth and employment in the United States.

        Both sides agreed on meaningful increases in United States agriculture and energy exports. The United States will send a team to China to work out the details.

        The delegations also discussed expanding trade in manufactured goods and services. There was consensus on the need to create favorable conditions to increase trade in these areas.

        Both sides attach paramount importance to intellectual property protections, and agreed to strengthen cooperation. China will advance relevant amendments to its laws and regulations in this area, including the Patent Law.

        Both sides agreed to encourage two-way investment and to strive to create a fair, level playing field for competition.

        Both sides agreed to continue to engage at high levels on these issues and to seek to resolve their economic and trade concerns in a proactive manner.

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        Economics professor Giovanni Tria might replace Paolo Savona as Italian Economy Minister

          It’s reported that  Italy’s anti-establishment 5-Star Movement and the far-right League party are close to finding that “point of compromise” in replacing Paolo Savona as economy minister in the government.

          The name of economics professor Giovanni Tria flow around in the media. Meanwhile, law professor Giuseppe Conte will likely remain as prime minister. Decision could come as soon as on Friday. And if these names are accepted by President Sergio Mattarella, a snap election could be averted and a coalition government would finally be formed.

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          China released 36k-word white paper showing it’s not backing down on trade war with US

            China’s State Council release a “White Paper on China-US Economic and Trade Frictions and China’s Position” today. This 36000 words paper consists of six sections, detailing the benefits of the bilateral trade, the economic and trade relations, US protectionism and trade hegemonism, the threat of US practice to world economy and China’s own position.

            In particular, the paper condemns the under the “America First” bandwagon, the new US government “abandoned the basic norms of international exchanges such as mutual respect and equal consultation, and implemented unilateralism, protectionism and economic hegemonism.”And the US used different means to “carry out economic intimidation, and impose extreme pressure its own interests impose its own interests on China.” The paper also detailed the new protectionist measures of the US. These include measures that discriminate products of other countries, abused national security investigations, subsidies on local industries.

            China’s own position include defending the “dignity and core interests of the country”, “promote healthy trade relationship with the US”, “promote and improve multilateral trade system”, “protect property and intellectual property rights”, “protect rights of foreign businesses in China”, “continue deepening reforms on opening the markets”, work on win-win relationships with developed and developing countries”, etc.

            All-in-all, the main message is that China is not going to back down in the trade conflicts. That’s what we get. Below are the links to the details as reported by the official Xinhua (in simplified Chinese). Look like they’re pretty serious.

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            China announces additional tariffs on 5207 US imports, valued at USD 60B, rates from 5% to 25%

              More from China, the Finance Ministry announced the counter measures to US threat of imposing 25% products on USD 200B in Chinese goods. The State Council’s Customs Tariff Commission decided to impost additional levies on 5207 US products, totalling around USD 60B in value.

              Additional 25% tariff will be imposed on 2493 products, additional 20% on 1078 products, additional 10% on 974 products and additional 5% on 662 products. The effect date is to be determined.

              Here is the official statement in simplified Chinese.

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              China raises FX RRR to 20% to stabilize Yuan from free fall, Dollar tumbles broadly. Is that manipulation?

                Offshore Chinese Yuan staged a strong rebound, while Dollar tumbles across the board, after China’s Central bank announced measure to curb capital outflow and stabilize the falling Yuan exchange rate.

                The People’s Bank of China said after market close that it raises the “foreign exchange risk reserve ratio of forward sales from 0% to 20%, effective August 6, 2018. According to the statement, it’s an act to “prevent macro financial risks, promote the stable operation of financial institutions, and strengthen macro-prudential management.”

                In the next step, PBoC will “continue to strengthen the monitoring of the foreign exchange market,” and, “take effective measures to carry out countercyclical adjustments, maintain the smooth operation of the foreign exchange market, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.”

                Full statement in simplified Chinese.

                USD/CNH (offshore Yuan) tumbles sharply after hitting 6.912 earlier today, and it looks like it’s set to take on 6.8 handle soon.

                Dollar tumbles across the board in the current 4H bar, just ahead of NFP. It’s also the weakest major currency for today now.

                We’ve mentioned many times that the Chinese Government won’t allow free fall of the Yuan happens. If they’re going to do something, they will either halt its decline, or at best, slow the Yuan’s decline.

                This is clear exchange rate manipulation to us. Where is Mnuchin? Where is Trump? Don’t move goal post, and stop your lies. Come out and tell China to stop the manipulation!

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                New Zealand BusinessNZ PMI dropped to 52.8 and production dipped again

                  New Zealand BusinessNZ Performance of Manufacturing Index dropped to 52.8 in June, down from 54.4. BusinessNZ’s executive director for manufacturing Catherine Beard said that the slow-down in expansion was mainly due to ongoing drops in a key sub-index.

                  “Production (51.8) experienced another decrease in expansion levels for June, which meant it was down to its lowest point since January 2017. On a positive note, the other key sub-index of New Orders (57.1) remained in healthy territory, which at least should feed through to production levels in the coming months.

                  In addition, the proportion of positive comments in June (51.7%) decreased from May (55.1%), and very similar to February (51.4%). Those who provided negative comments typically noted a general downturn and uncertainty in the market”.

                  BNZ Senior Economist, Craig Ebert said that “broadly speaking, the PMI has settled down into a trend-like pace this year, averaging 53.8 (excluding April’s spike). This is after outperformance through most of 2017, when it averaged 56.2”.

                  Full BusinessNZ Performance of Manufacturing Index release.

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                  Into US session: Oversold Euro recovers broadly, markets won’t forget there are US trade tensions

                    Euro is making a strong come back today as market digest recent sharp losses. EUR/USD breached 1.1639 minor resistance while EUR/JPY break 126.43. Both developments suggest temporary bottoming. Though, they’re far from reversing recent down trend. And, at the time of writing, German (0.369) and Italy (2.864) yield spread are still close to 250, which suggests much nervousness in the markets.

                    Though, the news that 5-Star Movement is trying to find a point of compromise for economy minister is supporting sentiments. At least, they’re working on forming a government again. And while being highly critical, 5-Star has never committed themselves to leaving Euro. The news that anti-euro League is not interested, but is pushing for election again is also sentiment supportive. Additionally, Eurozone data released today are not bad.

                    Yen and Dollar, on the other hand, are trading broadly lower. Yen weaken on rebound in German, UK and US yields. Meanwhile, Dollar is weak as markets won’t forget that the US is in trade tension with many other countries/regions, even its own allies. NAFTA talk is going nowhere and there is no positive news regarding trade talk with EU. The steel tariff temporary exemption is going to expire on Friday and retaliations from Canada, Mexico and the EU are waiting on the line. Trump also made an about turn and issued a strong statement regarding China yesterday, indicating very little intention to carry on with negotiation.

                    For the week, Euro remains the weakest one, followed by Sterling. New Zealand Dollar and Japanese Yen are the strongest ones.

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                    Into US session: Sterling recovers from GDP blip, Euro and Dollar firm too

                      Entering into US session, Sterling is trading as the strongest one for today so far. Weaker than expected UK GDP triggered very brief retreat in the Pound. And Sterling quickly find its footing on Brexit optimism again. At the time of writing, Euro is the second strongest as Italian yield drops for another day. The selling climax in Italian bonds could have passed the climax for the near, possibly until credit agency rating actions. Dollar trades mildly high as consolidative price actions extend. Yen is the weakest one as sentiments stabilized and turned mixed. Kiwi is the second weakest, followed by Loonie.

                      In Europe, CAC leads the way down by -0.71%, DAX is down -0.64% and FTSE is down -0.05%. Italian 10 year yield is dropping -0.0361 at 3.475. German 10 year bund yield is up 0.0049 at 0.556. German-Italian spread is no back below 300. Earlier in Asia, Nikkei rose 0.16%, Hong Kong HSI rose 0.08%, China Shanghai SSE rose 0.18%. But Singapore Strait Times dropped -1.11%. 10 year JGB yield dropped -0.0065 to 0.156, still way above BoJ’s allowed band of -0.1 to 0.1%.

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                      Euro drops sharply as Italian populist duo could seek debt forgiveness

                        Euro drops sharply in European session with EUR/USD taking out 1.1822 support with conviction finally. EUR/JPY also dropped through 129.99 minor support and is heading back to 129.22 low. EUR/CHF’s selloff accelerates and breaks 1.8 handle. Other currencies are relatively steady against each other.

                        The main trigger of the selloff is Italy. it’s reported that the anti-establishment Five Star Movement and the anti-immigration League are discussing to seek EUR 250B write of in debt from ECB.

                        From trend following point of view, EUR/USD is a good candidate for short as it just went through a period of consolidation. Action Bias are back in downside red across time frame.

                        From trend reversal point of view, EUR/CHF could be a candidate for short. It just took out 1.1864 support with downside acceleration. Usually, we won’t jump to call for short when weekly Action Bias is still in upside blue. But as EUR/CHF was just rejected by 1.2 key resistance, selling the cross can be considered.

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                        Gold heading to 1172 after disappointing rebound

                          Gold’s strong break of 1236.66 today confirms resumption of whole decline from 1365.24, after a rather disappointing decline. It also confirms that medium term rise from 1122.81 has completed at 1365.24. And more importantly, it also affirm the view that price actions from 1046.54 low are corrective in nature, as was limited by 38.2% retracement of 1920.94 to 1046.54 at 1380.56.

                          For the near term to medium term further fall is now in favor to 61.8% retracement of 1045.54 to 1375.15 at 1172.69. There is also risk of revisiting 1046.54 low, depending on downside momentum. Such development will be an indication of underlying dollar strength.

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                          Gold to break 1200 finally, head towards 1172 fibonacci level

                            Gold finally breaks out of consolidation today and reaches as low as 1201.24 so far. The down trend from 1365.24 has resumed. Near term outlook will now stay bearish as long as 1217.31 resistance holds. Next target is 1172.07 fibonacci level. On the upside, though, break of 1217.31 will indicate short term bottoming. And rebound could be seen back to 55 day EMA (now at 1247.14 before staging another decline.

                            Currently decline from 1365.24 is viewed as part of the long term sideway pattern from 1046.54 (2015 low). Sustained break of 61.8% retracement of 1045.65 to 1375.15 will pave the way to 1046.54/1122/81 support zone. At this point, we’re not expecting a break there to resume long term down trend yet. Hence, we’ll look for bottoming signal below 1122.81.

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                            5 Star to find someone other than Savona as economy minister

                              The anti-establishment 5-Star Movement in Italy in is working hard on forming a government to solve the current political turmoil. It’s leader Luigi Di Maio met with President Sergio Mattarella today. After that, Di Maio said “let’s find someone of the same caliber as Savona, who would still remain in the government in another ministry.” And “If the League agrees … we can still form a government.”

                              Di Maio is now trying to find that “point of compromise” between Mattaralla and eurosceptic League. No name is thrown out yet and it could take some time to negotiate with League. Note that League leade rMatteo Salvini is pushing for another election as the effort to form a coalition government collapsed.

                              But after all, the development s calmed the markets mildly as Euro also recovered.

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                              USD finally starting to pull back after clearing CPI risk

                                Dollar drops broadly, except versus pound after inflation data.

                                Headline CPI accelerated to 2.5% yoy in April, up from 2.4% yoy and met expectation. However, core CPI was unchanged at 2.1% yoy, below expectation of 2.2% yoy.

                                Also from US, initial jobless claims was unchanged at 211k in the week ended May 5, sticking to the lowest level in 49 years for the second straight week. Four-week moving average dropped -5.5k to 216k, touching the lowest level since December 1969. Continuing claims rose 3k to 1.79m in the week ended April 28.

                                The momentum in the post data USD selloff argues that traders are finally relieved that can take profits from recent long stretched rally. 1.1938 minor resistance in EUR/USD and 0.9982 minor support in USD/CHF will be the key levels to watch to confirm this case.

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                                Gold finally breaks out, to the downside, 1160 next

                                  Gold finally breaks out from recent range, to the downside, through 1187.58 support. The development indicates that corrective rebound from 1160.36 has completed. We mark the end point of the correction at 1211.05. Deeper fall should be seen back to 1160.36 low next.

                                  In the bigger picture, Gold is held comfortably below falling 55 day EMA. That suggests fall from 1365.24 is still in progress. Break of 1160.36 low will confirm decline resumption. In that case, next downside target will be 61.8% projection of 1365.24 to 1160.36 from 1211.05 at 1084.43.

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                                  WTI crude oil resumes recent free fall

                                    WTI crude oil’s recent free fall resumes today by taking out 54.84 low and reaches as low as 53.65 so far. Near term outlook will now stay bearish as long as 58.04 resistance holds even in case of recovery.

                                    Fall from 77.06 is at least correcting the up trend from 27.69 to 77.06. Based on current momentum, it could indeed be an impulsive move rather than a corrective move. In either case, deeper decline should be seen to 61.8% retracement of 27.69 to 77.06 at 46.54 in medium term.

                                    Also, a net effect in the currency markets is a drag on the Canadian Dollar.

                                     

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                                    UK government Brexit scenario analysis, from -10.7% GDP contraction to -0.1% in 15 years.

                                      The UK Government released a series of five papers on Brexit today. The most anticipated in the one on long term economic analysis of Brexit. In short, according the government, in 15 years by 2034 after Brexit:

                                      • GDP could contract as much as -10.7% in case of no-deal Brexit with zero net inflow of EEA workers
                                      • GDP would contract just -1.4% if it’s modelled after EEA-type (European Economic Area) of deal, that is, Norway kind of deal.
                                      • Under Prime Minister Theresa’s Plan, GDP would contract only -0.6% if there is no change in migration arrangement. Or, in the best case scenario, GDP could just contract -0.1%.

                                      The EU Exit: Long-term economic analysis report here. And, all five papers here.

                                      In the parliament, Prime Minister Theresa May hailed her own plan and said “What the analysis shows, it does show that this deal that we have negotiated is the best deal for our jobs and our economy which delivers on the results of the referendum.”

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                                      Euro in broad based selloff, another update on EUR/JPY short

                                        Euro is suffering steep selloff just ahead of European session. In particular, EUR/USD’s break of 1.1507 support confirms medium term down trend resumption. The pair should be targeting 1.1186 fibonacci level next.

                                        EUR/CHF is on course for 1.1366 support. Based on current momentum, the medium term correction from 1.2004 should be resuming for 1.1198 key support level before bottoming.

                                        EUR/GBP also suffers steep pull back after failing 0.9043 fibonacci level. But for the cross, outlook stays bullish as long as 0.8854 support holds.

                                        EUR/JPY’s break of 127.13 support confirms our view that corrective rise from 124.61 has completed with three waves up to 131.97 already. The larger fall from 137.49 could already be resuming.

                                        Here is an update to our short position (sold at 128.60) as mentioned in prior comment. The development is in line with our expectations so far. We’ll hold short in EUR/JPY and lower the stop to 128.10 (slightly above 128.04 minor resistance). The stop is relatively wide for giving the position a bit of space to breathe in case of mild recovery. As noted before, we’re indeed eyeing at least a test on 124.61 low. We’re decide whether to take profit around there later, based on downside momentum in the cross.

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                                        Strong 44k job growth in Australia, unemployment rate unchanged at 5.3%

                                          Australia job market grew 44k in August, well pass expectation of 18.4k. Full time employment grew strongly by 33.7k. Part time jobs added 10.2k. Unemployment was unchanged at 5.3%, matched expectation. Labor force participation rate rose to 65.7%, up from 65.6%.

                                          Overall, the set of data affirmed RBA’s view that spare capacity is gradually being taken out, which is a prelude to meaningful wage growth. However, wages have actually need to show the increase before RBA is convinced that eventually there is enough upward pressure on inflation. Talk of rate hike is premature based on just today’s data.

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