World economy talk

[uls]

Fed keeps faith in recovery, bumps up expected rate-hike path | Reuters

(Reuters) - The Federal Reserve on Wednesday expressed confidence the U.S. economic recovery was on track and hinted at a slightly more aggressive pace of interest rate increases starting next year.

At the same time, however, officials at the central bank lowered their projections for the long-run target interest rate, evidence of slightly diminished expectations for a nation climbing out of a severe crisis and struggling with demographic headwinds like declining labor force participation.

As widely expected, the Fed pushed ahead with plans to wind down one of its main stimulus programs, reducing its monthly asset purchases from $45 billion to $35 billion (£20.63 billion) beginning in July.

[uls]

USD weaker across the board

EURUSD breaks above 1.3600

[uls]

I think the BSP will not raise rates yet. The BSP has already raised banks' reserve requirement to absorb excess liquidity. The problem with raising rates is it will attract more hot money because of interest rate arbitrage.

you're right

no rate hike

[uls]

^^^

repo rates (currently at 5.5% for repo, 3.5% for reverse repo)

the BSP uses repo and reverse repo to increase or decrease liquidity in the system

to increase liquidity the BSP buys government securities from banks (repo)

to decrease liquidity the BSP sells government securities to banks (reverse repo)

the BSP's job is to maintain price stability

when there's too much liquidity prices go up (inflation)

the BSP has ways to reduce liquidity -- raise banks' reserve requirement (which the BSP is already doing), pay higher interest on SDAs, raise interest on overnight borrowing (reverse repo)

key rates unchanged

reserve requirement unchanged

the BSP only raised interest rate on SDA

Bangko Sentral ng Pilipinas - Monetary Policy

19 June

The Monetary Board decided to keep the BSP's key policy rates at 3.5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.5 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs and RPs were also kept steady. The reserve requirement ratios were left unchanged as well. At the same time, the Monetary Board decided to raise the interest rate on the Special Deposit Account (SDA) facility by 25 basis points from 2.0 percent to 2.25 percent across all tenors effective immediately.

[Lady Bathory]

The Fed lowered their unemployment rate forecast, raised inflation forecast, cut 2014 GDP outlook. Janet Yellen acknowledged improvements in the U.S. economy and indicated that they are discussing ways to normalize monetary policy. She said there would be "considerable time" between the end of QE and the first rate hike. When asked what she meant by “considerable time” she refused to give details saying only there is no formula for what "considerable time" means. Sounds like the Fed does not want the market to expect rate hikes soon. The dollar sold off across the board, the ten year Treasury yield fell below 2.6%.

[uls]

U.S. Government Bonds Strengthen - WSJ

June 19, 2014 9:43 a.m. ET
Treasury bonds strengthened for a second straight session on Thursday as investors interpreted the Federal Reserve's latest signal that it will keep interest rates low.

In recent trade, the benchmark 10-year note was 12/32 higher, yielding 2.572%, according to Tradeweb. Bond yields fall when their prices rise.

The two-year note was 2/32 higher, yielding 0.44%. The yield has dropped from the highest level since September that hit earlier this week.

Following the conclusion of the two-day policy meeting Wednesday, Fed Chairwoman Janet Yellen reiterated that the central bank expects to keep interest rates near zero for a considerable time, even after it is expected to stop its bond-buying program by the end of this year.

Traders and analysts say the Fed sent a signal to bond investors that it is not concerned about recent data suggesting inflation has risen from very low levels. Instead, they say, the central bank has focused on tame wage pressures and a still-uneven pace of economic growth.

The Fed's reiteration that it was in no hurry to raise interest rates, which have held near zero since December 2008, sparked buying interest.

[uls]

[uls]

brent outperforming wti

USO -- WTI ETF

BNO -- Brent ETF

[uls]

to tame inflation

there's too much money circulating

the BSP has to siphon money from the system

raising rates will encourage financial institutions to park money at the BSP

No change in key policy; SDA rate reset | Inquirer Business

Monetary officials on Thursday decided not to hike benchmark interest rates, but saw it fit to reset the rate on special deposit accounts (SDA) to encourage banks to park more cash with the regulator.

BSP Deputy Governor Diwa C. Guinigundo said the SDA rate hike addressed two issues: Above-normal growth in domestic liquidity and negative real interest rates offered by banks.

The hike in SDA rates would encourage banks to park more money with the central bank. This effectively would mop up excess liquidity circulating in the economy.

[uls]

USDJPY is back where it was before the FOMC decision

[Lady Bathory]

Kneejerk reaction sent the U.S. dollar and Treasury yields lower but both have recovered. The ten year note has been locked in a range for the past two weeks (2.57% to 2.66%). Have a great weekend.

[uls]

China June HSBC flash PMI shows first expansion in six months as orders surge | Reuters

(Reuters) - Activity in China's factory sector expanded in June for the first time in six months as new orders surged, a preliminary HSBC survey showed on Monday, offering new signs the economy is stabilising thanks to Beijing's measures to shore up growth.

The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index rose to 50.8 in June from May's final reading of 49.4, beating a Reuters poll forecast of 49.7 and creeping above the 50-point level that separates growth in activity from contraction.

It was the first time since December that the PMI was in growth territory, and the highest reading since November, when it was also 50.8.

[uls]

Dubai stock index

[Lady Bathory]

USD/JPY continues to wallow under 102. Last night's revision of US Q1 GDP figures had a strong impact on currency and fixed income markets. The sharp downward revision will have a negative impact on overall annual GDP figures and could delay any action by the Fed even further, putting additional pressure on the dollar.

[uls]

#USDJPY

look at how tight the trading range is in the past 3 months

[baludoy]

anong magiging general effect ng contraction ng us economy after its announcement pala?

[tidus1203]

anong magiging general effect ng contraction ng us economy after its announcement pala?

Malamang Yellen would have to delay the raising of rates when everyone is thinking the UK and the US would raise rates first in the G8.

As for the USDJPY I say buy yan, ganun naman yan e pero USDJPY is one hell of a big sideways movement and we are closing in the bottom of that range pag bumalik ng 102.30's benta naman bwahaha! USDJPY so predictable!

[uls]

anong magiging general effect ng contraction ng us economy after its announcement pala?

weak dollar

hot money continues chasing yield in EM

--

Final US first quarter GDP contracts

The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the economy's worst performance in five years, instead of the 1.0 percent pace it had reported last month.

reaction: the dollar and treasury yields fell

the market is thinking the bad GDP number will make the Fed delay tightening of monetary policy even further which is dollar negative



now we're seeing downgrades to Q2 GDP estimates

--

Bathory's view is the US economy is strengthening and the Fed will begin talking about the first rate hike later in the year which is dollar positive

from page 816 May 2, 2014

Yes i'm waiting for the jobs report. My strong dollar thesis is being shot down. As expected the FOMC statement was a non-event. The Federal Reserve will taper asset purchases by another $10 billion and rate hikes are still far, far away. The market was expecting that. None of this week's positive economic data moved the dollar higher. The only hope now is the jobs report which is usually a market mover. I'm being very optimistic here but if we get a really good number like 300,000+ and the unemployment rate falls to 6.5% the Federal Reserve could accelerate the pace of tapering which would move bond yields and the dollar higher.

Eurozone April inflation data lowered the possibility of ECB action. EURUSD rallied but couldn't break 1.3900. The euro is holding at current levels because the market knows the ECB isn't happy with the strong euro. As EURUSD nears 1.400 it will run into verbal intervention by the ECB.

I'm sticking to my view that the dollar will strengthen later in the year. At the current pace of tapering the Federal Reserve's monthly asset purchases will be near zero by September or October. They will start talking about rate hikes by then. So far uls you're right. The dollar cannot rally because of declining U.S. bond yields and reserve diversification. My strong dollar thesis hasn't been proven wrong yet. Give me till the 4th quarter.

[uls]

Bathory, if you have strong conviction in your view then USDJPY is in play

go in at 101.20/101

[Lady Bathory]

Sold last night at 101.70. I'm not going long USD/JPY with U.S. Treasury yields pulling back.