New York Fed President Dudley to Retire

The Federal Reserve Bank of New York today announced that William C. Dudley, president and chief executive officer, intends to retire from his position in mid-2018 to ensure that a successor is in place well before the end of his term. Mr. Dudley’s term ends in January of 2019 when he reaches the 10 year policy-limit in the role.

Mr. Dudley joined the New York Fed in 2007 as executive vice president and head of the Markets Group, where he also managed the System Open Market Account for the Federal Open Market Committee (FOMC). He was named the 10th president and CEO of the New York Fed on January 27, 2009, taking over the remainder of his predecessor’s term. Mr. Dudley was appointed for his first full term as president and CEO in 2011 and reappointed in 2016.

First as head of the Markets Group and then as president and CEO of the New York Fed and vice chairman of the FOMC, Mr. Dudley was instrumental in the design and implementation of many of the emergency lending facilities and extraordinary monetary policy measures undertaken by the Federal Reserve to support the U.S. economy. In the years following the crisis, he has been equally instrumental in the effort towards normalizing the Fed’s monetary policy and balance sheet, and has been a strong advocate for strengthening the nation’s financial system and payments infrastructure. Following the LIBOR scandals, Mr. Dudley was part of an international effort to reform and improve reference rates, including the creation of a new set of New York Fed-administered benchmark rates. Mr. Dudley is also active in international fora, including serving on the Board of the Bank for International Settlements and has chaired the Committee on Payments and Market Infrastructures and currently chairs the Committee on the Global Financial System. He played a key role in the development and global adoption of Principles for Financial Market Infrastructures (PFMI) designed to ensure the robustness and resiliency of these critical infrastructures.

“I have deeply appreciated Bill Dudley’s enormous contributions to the FOMC, his wise counsel and warm friendship throughout the years of the financial crisis and its aftermath,” said Federal Reserve Board Chair Janet L. Yellen. “The American economy is stronger and the financial system safer because of his many thoughtful contributions. The Federal Reserve System and the country owe him a debt of gratitude.”
“For someone who has always had an interest in public policy and service, leading the New York Fed and being a member of the FOMC has been a dream job. I have had the honor to work at the Fed with colleagues who are amongst the most dedicated and talented public servants anywhere,” said Mr. Dudley. “I would especially thank Tim Geithner, Ben Bernanke and Janet Yellen for giving me the opportunity to work closely with them during the crisis and the subsequent economic recovery. I am extremely proud of the work we have done in New York, and as a System, from our efforts to help the nation navigate the financial crisis to beginning the process of normalizing the balance sheet to our work on reforming the culture of the financial services industry. I have every confidence in the institution, its leadership and staff, and know that well after I leave, the New York Fed, as a critical part of the Federal Reserve System, will continue to contribute strongly to the nation’s well-being.”

Sara Horowitz, founder and executive director of the Freelancers Union and chair of the New York Fed’s Board of Directors, said, “I want to thank Bill for his thoughtful stewardship. What I have come to appreciate about Bill is his humility and empathy. I admire how he combines smarts with openness to new and differing perspectives. This includes an appreciation of the fundamentally changing nature of work in the country. Bill has also been eager to engage with a broad range of groups and individuals, including those who are critical of the Fed. And, he takes to heart his responsibility to explain what the Fed does and to understand how the economy and thus the Fed’s decisions affect real people in different communities. I saw this first hand during a visit to WHEDco, a community development organization in the Bronx, where his genuine interest and concern was clear. These are certainly attributes that I will be looking for as we conduct our search.”

The eligible members of the New York Fed’s Board of Directors, those without bank affiliations, have begun the process for finding Mr. Dudley’s successor. Ms. Horowitz and Glenn Hutchins, co-founder of North Island and of Silver Lake, are serving as co-chairs of the search committee. The committee also includes David Cote, chairman of Honeywell International, Inc. and Denise Scott, executive vice president of the Local Initiatives Support Corporation. The committee has retained executive search firms Spencer Stuart and Bridge Partners to assist with the search.

The committee is conducting a nationwide search to identify a broad, diverse and highly qualified pool of candidates from which to select the next president and CEO, subject to the approval of the Board of Governors of the Federal Reserve. As part of the process, the committee will engage with and solicit feedback from a broad set of representatives of the New York Fed’s constituents, including from academia, community and economic development organizations, labor, small business and industry. The search committee expects to conclude the search by mid-2018, dependent on finding the best candidate.

New York Federal Reserve

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Next Four Days Will Be Crucial for the GOP Tax Bill

The House tax-writing committee begins debate Monday on the GOP’s proposed overhaul, kicking off four frantic days for lobbyists and lawmakers to revise a bill that represents President Donald Trump’s final hope for a signature legislative achievement this year.

It could prove to be a make-or-break week. The head of the tax-writing panel, Kevin Brady, has signaled that he intends to allow revisions during his committee’s meetings this week — but not when the bill is on the full House floor. That means other House members will have to settle for a take-it-or-leave-it vote — perhaps as soon as the week of Nov. 13.

Lobbyists and lawmakers are going to want to make their preferred changes, but “people are dreaming — it’s awfully hard to get those tweaks in there,” said John Feehery, a Republican lobbyist and former House leadership aide.

White House legislative affairs director Marc Short downplayed concerns a vote would be rushed through, saying in an interview Monday on Bloomberg Television that “it’s not really four days” but rather several weeks, because the legislation also must clear the Senate and a conference process.

Democrats will get “every opportunity” to weigh in in the the Senate, where amendments can be considered on the floor as well as in the committee progress, he said. Short acknowledged that Republicans have a “very narrow” margin for passage in the Senate but said, “We’re confident we’ll get it done.”

The strategy underscores the importance of reaching deals on such divisive provisions as ending most of the individual deductions for state and local taxes — part of the bill that would affect high-tax states like New York and New Jersey the most. Other points of contention include plans to reduce the cap on the mortgage-interest deduction to $500,000 and to create tough rules for which partnerships, limited liability companies and other so-called pass-through businesses would qualify for a major rate cut.

As lawmakers struggle to contain the costs of the tax package, it will be important for House leaders to control what amendments might be attached, Feehery said. “If you tend to pull one strand away then the whole thing collapses,” he said. “So that’s why you don’t want to have amendments on the floor. You have to pay for it somehow. And pretty soon you have this house of cards that’s going to collapse.”

Brady’s tactics represent the same approach GOP leaders have taken all year with the tax effort — negotiating details behind closed doors, keeping them highly guarded and then acting quickly after they’re revealed. The purpose is to keep intra-party dissension and lobbyists at bay. Republican leaders took a similar tack on repealing Obamacare; the bill eventually passed the House before dying in the Senate.

Offshore Taxes

Another potential obstacle for the tax bill arose Sunday as investigative reports surfaced alleging offshore tax-avoidance by U.S. multinational companies including Apple Inc. along with offshore holdings by members of the Trump administration. Congressional Democrats and tax-advocacy groups said the findings meant House Republicans should slow down their efforts.

Brady responded by saying lawmakers “have a pretty good handle” on how to address the erosion to the U.S. tax base that results when corporations shift profits offshore and would stick with their timetable.

Rallying their own party members around the tax bill will top the House GOP leaders’ agenda. Because they aren’t counting on any Democratic support, they must ensure that the bill that clears Ways and Means would lose no more than 22 of their members on the floor.

Powerful lobbying groups that represent small businesses, real estate and charitable organizations have already said they’re opposed to the House bill.

Following a Ways and Means meeting Sunday afternoon, Brady said his committee was working with the independent business lobbyists to make changes to the bill’s pass-through provisions. The panel will “continue to look to ways to simplify pass-through relief both for smaller and larger pass-throughs,” he said, while adding there would still be guardrails in place so owner-operator businesses see the most relief.

‘Dead Fish’

“This is the challenge of a lifetime, legislatively,” Brady said during an interview with Politico at an event in Washington on Friday. He predicted that getting it done “won’t be easy,” but expressed a sense of desperation that’s been palpable among Republicans after so far failing to pass major legislation in Trump’s first year in office.

“We’ve not delivered on our promise on health-care repeal,” Brady said. “It’s critical that we deliver on our promise on tax reform.”

The Ways and Means panel is scheduled to begin marking up the legislation on Monday at noon, and allow “four days of open, full-throated debate,” Brady said. Brady defended his inclination to preclude floor amendments by saying that a tax overhaul means “changing the biggest economy on the planet.” He expressed a desire to prevent a situation where “really bad things happen.”

Senate Minority Leader Chuck Schumer charged Republicans with being ashamed of their bill.

“That’s why they don’t want hearings. That’s why they won’t want discussion,” said Schumer, a New York Democrat. He compared the legislation to “a dead fish — the more it hangs out in the sunlight the stinkier it gets.”

Middle-Class Families

GOP leaders also face the balancing act of not losing some members by trying to appease others. Some Republicans have voiced concerns about how middle-class families will fare, while some conservative activists have said they’re upset with Republicans for maintaining a 39.6 percent rate for the highest incomes. Americans For Prosperity called it “disappointing to see House Republicans succumb to the politics of envy.”

Senate Majority Leader Mitch McConnell made a bold promise in an interview Saturday with MSNBC’s Hugh Hewitt: “At the end of the day, nobody in the middle class is going to get a tax increase,” he said. Brady has refrained from making that categorical promise.

Already, a pair of analyses — one from an official congressional scorekeeper and another from a conservative-leaning policy group — suggest that the bill would benefit high earners most in the long run and would fail to pay for itself through economic growth.

The House legislation is expected to cut taxes for many middle-income earners, but the elimination of various tax breaks — such as state and local taxes, personal exemptions, and tax breaks for extensive medical expenses and adoption costs– will hit some middle class families with high bills, experts say.

1 Percent

In 2018, the top 1 percent of earners would see after tax gains of 7.5 percent, while the bottom 20 percent would see just a 0.8 percent boost under the House tax bill, according to an analysis by the conservative Tax Foundation. In 2027, the disparity would be a bit more muted, with top earners gaining 3.3 while the bottom 20 percent see a 0.4 percent increase.

Meanwhile, Congress’s Joint Committee on Taxation has found that by 2023, the bill’s changes would mean higher federal tax bills for some, including those who make between $20,000 and $40,000 and those who make between $200,000 and $1 million.

Another factor that could complicate plans is the potential addition of a provision to repeal the Obamacare individual mandate — doing so would raise an estimated $416 billion over a decade. House Speaker Paul Ryan said on “Fox News Sunday” that House Republicans are considering adding the provision, as requested by Trump.

“Yes, we have an active conversation with our members in a whole host of ideas on things to add to this bill. And that’s one of the things that’s being discussed,” he said. “That’s among the ideas that a lot of members are suggesting that we could add to this bill to make it even better.”

But adding the repeal provision might make matters worse in the Senate. A “skinny” repeal of Obamacare that scrapped the individual mandate failed in July to pass the Senate after three GOP senators defected. Brady declined to comment Sunday on whether any discussions were focused on repealing the mandate in the tax bill.

Senate Bill

So far he’s offered only a brief indication of what’s to come: “At the start of our markup on Monday, I will also offer an additional amendment making more substantive improvements to the bill,” he said.
Others suggested that any additions to the bill won’t be that unexpected.

“I think it’s very possible you’ll see some tweaks, but nothing in the bill should come as a real surprise to anyone,” said Chris Hartline, a former House Republican budget aide. “They’ve spent a lot of time getting input and buy-in from members across the conference.”

But even if House Republicans are able to keep their members in line this week and next, another threat to passage may be taking shape across the Capitol: Senate Republicans are gearing up to release their own tax bill, which is likely to have different provisions and create fresh points of contention.

Brady’s Senate counterpart, Finance Chairman Orrin Hatch, said he plans to release a version for his committee to consider “once the House Ways and Means Committee completes its work, hopefully toward the end” of the week.

Bloomberg

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Turkey’s Central Bank Supports Lira

Monday November 6: Five things the markets are talking about

Ahead of a light week for economic data releases, investor focus has turned to Asia and the U.S. president’s visit to the region.

Trump has already brought up trade grievances about both China and Japan and has warned the region nations against challenging the U.S. After Japan, Trump flies to South Korea and China later in the week.

Two more central banks are meeting this coming week – the Reserve Bank of Australia (Nov. 6 10:30 pm EDT) and Reserve Bank of New Zealand (Nov. 8 3 pm EDT). Neither is expected to change policy.

In Europe, composite PMI’s will be posted in Europe, beginning with today’s German September manufacturing orders and industrial production. Industrial production for France, Italy and the U.K are also expected this week.

In Asia, China begins to release its latest monthly data for merchandise trade and consumer and producer price indexes for October.

Elsewhere, Brexit talks will resume amid a lack of progress in talks over the U.K.’s exit from the E.U.

1. Equities mixed results

In Japan, the Nikkei share average ended flat overnight as weakness in financials was offset by gains in retailing. The index ended almost unchanged after printing its highest intraday level in 21-years. Last week, the Nikkei rallied +2.4%, its eighth consecutive weekly gain. That was its longest winning streak since PM Abe’s Abenomics reforms started five years ago. The broader Topix edged down -0.1%.

Down-under, Australia’s S&P/ASX 200 Index dipped -0.2% and South Korea’s Kospi index lost -0.9%.

In Hong Kong, stocks pared sharp losses overnight, as mainland investors sought bargains in blue chip stocks. The benchmark Hang Seng index tumbled as much as -1.6%, but recouped most of its losses by market close, ending down -0.6%. The China Enterprises Index lost -0.7%.

Note: The weakness was the result of profit taking triggered by negative news flows over the weekend – including a corruption crackdown in Saudi Arabia and a call for tougher regulation in China.

In China, stocks ended higher, supported by gains in consumer and healthcare firms. The blue-chip CSI300 index rose +0.7%, while the Shanghai Composite Index closed up +0.5%.

In Europe, regional bourses trade slightly lower across the board consolidating recent gains, as the Spanish Ibex once again under performs.

U.S stocks are set to open in the black (+0.2%).

Indices: Stoxx600 flat at 395.9 FTSE -0.1% at 7549, DAX -0.2 at 13453, CAC-40 -0.2 at 5507, IBEX-35 -0.3% at 10324, FTSE MIB -0.2% at 22963, SMI +0.1% at 9291, S&P 500 Futures +0.1%

2. Oil hits highest levels in two-years, amid tightening markets, gold lower

Oil prices hit their highest levels since July 2015 overnight as markets tightened, while Saudi Arabia’s crown prince tightened his power over the weekend through an anti-corruption crackdown that included high-profile arrests.

This morning, Brent futures traded as high as +$62.90 per barrel, that is over +40% higher from last June’s 2017 lows. U.S West Texas Intermediate (WTI) crude has rallied above +$56 per barrel. It’s one-third higher than its 2017 lows.

Saudi Crown Prince Mohammed bin Salman has tightened his grip on power through an anti-corruption purge by arresting royals, ministers and investors. In the short term, no immediate change is expected in the oil policy of Saudi Arabia, which is the world’s biggest exporter of crude oil. The Prince seems strongly committed to anchoring the OPEC agreement deep into 2018.

Elsewhere, there are ongoing signs of tightening market conditions. In the U.S, energy companies cut eight oilrigs last week, to 729, in the biggest reduction since May 2016. While there seems to be growing consensus amongst OPEC members to extend their pledge to hold back about -1.8m bpd beyond next March’s deadline.

Ahead of the U.S open, gold prices trade atop of their one-week low hit in last Friday’s session, as the dollar firmed after largely upbeat U.S economic data reinforced the prospects of another rate hike by the Fed in December. Spot gold is down -0.1% at +$1,268.61 per ounce.

3. Sovereign yields fall

It’s rumoured that Federal Reserve Bank of New York President William Dudley is close to announcing his retirement. If so, his early departure would mean the top three positions at the Fed changing over within a relatively short period.

President Trump announced last week that Fed Governor Jerome Powell would be nominated to replace Janet Yellen when her term expires in February.

Note: Vice-Chairman Stanley Fischer retired in mid-October.

Spreads for Saudi Arabia’s international bonds widened slightly in early trade in response to the government’s anti-corruption crackdown, which has detained dozens of people from the kingdom’s political and business elites.

The yield on U.S 10-years has fallen-1 bps to +2.32%, the lowest in more than two weeks. In Germany, the 10-year Bund yield fell -2 bps to +0.34%, the lowest in eight weeks, while in the U.K, the 10-year Gilt yield declined – 2bps to +1.245%, the lowest in more than seven weeks.

4. Tight FX ranges on rate differentials

The USD is holding onto its recent gains against the major pairs as the markets believe, that despite the softer-than-expected jobs data on Friday, there is little change in market expectations for the Fed to raise interest rates next month for a third time this year.

The EUR (€1.1607) is trading flat after having dropped to a one-week low at €1.1596, and against the pound at €0.8875. USD/JPY (¥114.02) managed to print an eight-month high just under ¥114.75 on news of Saudi Arabia anti-corruption crackdown.

Elsewhere this morning, Turkey’s central bank (CBRT) took steps to support price and financial stability, after TRY’s ($3.8561 -0.53%) recent slump. In a statement on its website, the CBRT, said it has tweaked its reserve option mechanism, lowering the upper limit for the FX maintenance facility to +55% from +60% – their aim is to draw liquidity from the market and support the currency.

5. German Manufacturing Orders Rose in September

German data this morning points to a resilient growth pace in their economy. Manufacturing new orders increased by +1.0% on the month in September, beating market expectations of a -1.3% decline.

Digging deeper, orders in August were also revised upward to show growth of +4.1% after an originally reported +3.6% rise. Foreign orders rose +1.7%, while domestic orders slid +0.1%. Foreign orders from within the eurozone grew by +6.3%.

Other Euro data showed that PMI services data mostly came in below expectations – miss: Italy, France, Germany and the beat were the Eurozone.

Forex heatmap

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U.S Factory Orders Rise, Core Capital Goods Orders Revised Higher

New orders for U.S.-made goods rose for a second straight month in September and orders for
core capital goods were stronger than previously reported, suggesting manufacturing activity was gathering momentum.

Factory goods orders increased 1.4 percent as demand for a range of goods rose, the Commerce Department said on Friday. Orders increased by an unrevised 1.2 percent in August.

Economists had forecast factory orders increasing 1.3 percent in September.

Orders for non-defense capital goods excluding aircraft – seen as a measure of business spending plans – surged 1.7percent in September instead of the 1.3 percent increase reported last month. September’s increase in these so-called core capital goods orders was the largest since July 2016.

Orders for core capital goods rose 1.4 percent in August. Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, increased 0.9 percent instead of the previously reported 0.7 percent rise.

The Commerce Department said it was unable to isolate the impact of Hurricanes Harvey and Irma on the data as the survey is “designed to estimate the month-to-month change in manufacturing activity at the national level and not at specific geographic areas.”

Strong business spending on equipment is helping to underpin manufacturing, which makes up about 12 percent of the U.S. economy. Manufacturing is also being buoyed by a weakening U.S.
dollar, replenishing of business inventories and strengthening global demand. Business investment in equipment has contributed to GDP growth for four straight quarters.

Spending is rising despite signs of slowing oil and gas drilling as ample supplies curb crude oil price increases.

In September, orders for machinery gained 0.1 percent after being unchanged in August. Mining, oil field and gas field machinery orders rebounded 17.8 percent after tumbling 7.5 percent in August.

Orders for transportation equipment rose 4.7 percent, reflecting a 30.8 percent jump in civilian aircraft orders. Motor vehicle orders edged up 0.1 percent after accelerating 2.5 percent in August.

CNBC

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A Hot Canadian and U.S Jobs Market

  • US Labor Oct non-farm payrolls +261k; consensus +315k
  • US Oct Unemployment Rate +4.1%; Consensus +4.2%
  • US Oct Average Hourly Earnings -0.04%, or -$0.01 to $26.53; Over Year +2.4%
  • US Oct Private Sector Payrolls +252k and Government Payrolls +9k
  • US Oct Labor-Force Participation Rate 62.7%
  • US Sep Payrolls Revised to +18K; Aug Revised to +208K
  • U.S. employers hired at a strong pace last month, and revisions showed the labor market weathered hurricane damage better than previously estimated.

    Disappointing was wages, it failed to break out, rising +2.4% from a year earlier, a slowdown from last month.

    Strong revisions

    Payroll growth was significantly stronger than previously estimated in recent months. Upward revisions showed +90k more jobs were added to payrolls in August and September than previously reported.

    September hiring was revised to a gain of +18k from an initial estimate of down -33k. When combined with August and September’s job growth, data show the economy added jobs over the last three months at a pace of +162k a month.

    Despite being a strong print, it did not beat market expectations. The dollar is trying to gain some traction across the board (€1.1663, £1.3030 and ¥113.34), with the one exception CAD (C$1.2742).

    Canadian Job Market on Fire

  • Canada Oct net jobs +35,300 from Sep vs. forecast at +15,000
  • Canada Oct full-time jobs +88,700; part-time -53,400
  • Canada Oct jobless rate +6.3%; Sep +6.2%
  • Canada Oct avg. hourly wages +2.4% y/y
  • Canada added jobs (+ 35.3k) in October at a stronger-than-expected pace amid a slowing economic backdrop, with full-time employment surging and wage gains accelerating for a second straight month.

    The unemployment rate rose from a post crisis low of +6.2% to +6.3%, but that was due to more young people searching for work.

    October’s advance marked the 11th straight month of job gains, which is the longest streak in over a decade. All of the net new jobs added were in the private sector and of the full-time variety, which tend to offer higher pay and steady benefits compared with part-time work.

    The ‘loonie’ has strengthened across the board +0.64% to C$1.2729 outright and +0.74% EUR/CAD to €1.4832.

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    Manafort, Ex-Associate Face Charges in U.S. Russia probe

    U.S. President Donald Trump’s former campaign manager Paul Manafort will surrender to federal authorities later on Monday amid an ongoing probe into alleged Russian meddling in the 2016 presidential campaign, CNN and the New York Times reported, citing unnamed sources.

    The Times, citing someone involved in the case, said Manafort’s former business associate Rick Gates was also told to surrender to U.S. authorities.

    Manafort was seen leaving his home early Monday morning, according to a Reuters witness, but it was unclear where he was headed.

    Reuters

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    Mueller, Fed and NFP to Guide U.S Dollar This Week

    Monday October 30: Five things the markets are talking about

    This is a busy week on many fronts; there are geopolitical risks in Spain (Catalonia) and the U.S, a plethora of central bank meetings and a busy season of corporate earnings along with U.S data that will keep capital markets on its toes.

    The Fed (Wed. Nov. 1), the Bank of Japan (Mon. Oct 30) and Bank of England (Thu. Nov. 2) will announce their respective monetary policy decisions this week. No change is expected from the Fed or BoJ; however, Governor Carney and team are expected to hike interest rates by +25 bps to +0.5%.

    Elsewhere, updates on employment in the U.S and Canada along with initial estimates of Q3 GDP in the eurozone will be announced. There are a number October manufacturing PMI’s to be released from Asia, Europe and the U.S.

    Corporate earning reports this week from some of the world’s largest companies may show if there’s enough optimism in the earnings season to push global equities to new heights.

    Speculation continues around who U.S President Donald Trump will choose as the next Fed chair, with Governor Jerome Powell said to be the front-runner.

    Note: Trump is expected to announce his choice ahead of his Asia trip this Friday

    And today in Washington it’s rumoured that special counsel Robert Mueller’s probe into Russian meddling in the 2016 U.S election and possible collusion with Trump’s election campaign could see an ‘arrest.’

    1. Stocks mixed results

    Japan’s Nikkei share average made little headway in choppy trade overnight, with gains in suppliers to Apple offset by selling in financials and caution ahead of Tier I central bank meetings this week. The Nikkei ended flat, after hitting a fresh 21-year intraday high, while the broader Topix was also little changed.

    Down-under, Australia’s S&P/ASX 200 Index rose +0.3%, while South Korea’s Kospi index gained +0.2%.

    In Hong Kong, shares fell overnight, opposing the trend in Asia markets, with sentiment hurt by a slump in mainland stocks that was triggered by liquidity concerns. The Hang Seng index fell -0.4%, while the China Enterprises Index lost -0.7%.

    Note: Increasing cross-border flows have made Hong Kong more vulnerable to swings in China markets.

    In China, Shanghai stocks posted their biggest one-day slide in nearly three-months, hurt by expectations of a new wave of initial public offerings (IPO’s) and a further rise in bond yields, signalling tighter liquidity. The Shanghai Composite Index dropped -0.8%, while the blue-chip CSI300 index fell -0.3%.

    Note: Overnight, China’s 10-year yield climbed +6 bps to +3.90%, touching the highest print since 2014.

    In Europe, regional indexes are trading mixed with notable out performance from the Spanish Ibex, which trades over +1% higher while the Swiss SMI and FTSE 100 trade slightly weaker.

    In the U.S, stocks are set to open in the ‘red’ (-0.2%).

    Indices: Stoxx600 flat at 393.4, FTSE -0.1% at 7498, DAX +0.1% at 13229, CAC-40 +0.1% at 5495, IBEX-35 +1.4% at 10339, FTSE MIB +0.3% at 22739, SMI -0.3% at 9158, S&P 500 Futures -0.2%

    2. Oil prices rise on expected extension of output cuts, gold lower

    Oil prices start the week better bid, with Brent crude prices remaining above the psychological +$60 per barrel on expectations that an OPEC-led production cut due to expire next March would be extended, although rising exports from Iraq continues to cap most price gains.

    Brent crude futures are trading at +$60.73 per barrel, +29c or +0.48% above Friday’s close and atop of their highest level in two-years.

    Note: Brent has rallied more than +36% since June’s 2017 lows.

    U.S West Texas Intermediate (WTI) crude futures are up +16c, or +0.3% at +$54.06 a barrel.

    OPEC plus Russia and nine other non-OPEC producers have agreed to hold back about -1.8m bpd to get rid of a supply glut. The pact runs to March 2018, but Saudi Arabia and Russia have both voiced their support to extend the agreement.

    Note: OPEC is scheduled to meet officially at its headquarters in Vienna, Austria, on Nov. 30.

    Capping price gains is the +900k bpd export capacity increase from Iraq’s southern ports to +4.6m bpd, reported on the weekend.

    Gold prices start the week under pressure, as the market remains cautious ahead of Tier I central banks policy meetings, while keeping an eye on the appointment of the next U.S Fed chair. Ahead of the U.S open, spot gold has dipped -0.3% to +$1,269.23 per ounce.

    3. Sovereign yields fall on flight to safety

    By extending its QE program last week, the ECB is prolonging the “hunt for yield” theme in bond markets.

    Bond yields have fallen to record low levels in the past few years on the back of the ECB’s generous monetary stimulus, greatly reducing the borrowing costs of many eurozone members.

    Also providing pressure is uncertainty in Catalonia, which is boosting ‘flight-to-safety’ flows into German Bunds. Yields on the 10-year German Bunds trade at +0.383%, down from +0.48% before last week’s ECB meeting.

    Note: The Spanish central government has taken control of the region and there are signs “anti-separatists” maybe gaining momentum.

    Elsewhere, the yield on 10-year U.S Treasuries decreased less than -1 bps to +2.40%, while in the U.K 10-year Gilt yield increased +1 bps to +1.348%.

    4. Pound gains as BoE is expected to raise rates

    Sterling (£1.3162) starts the week firmer ahead of a Bank of England (BoE) policy meeting on Thursday (Nov. 2 08:00am EDT), where it is widely expected to raise interest rates by +25 bps to +0.5%. EUR/GBP is down -0.1% to €0.8838.

    Events in Catalonia are trying to put pressure on an otherwise strong EUR (€1.1637), but the single unit has started the week steady. In response to the Catalan parliament’s declaration of independence last week, Madrid has triggered article 155 – stripping the region from its autonomy- and called for snap regional elections on Dec. 21.

    Note: The Spanish government are hoping that the new elections would return an administration that is less “pro-independence.” However, uncertainty remains high given ‘pro’ and ‘anti’ -independence parties are roughly neck-and-neck in the polls.

    The ‘mighty’ U.S dollar is expected to be driven by Wednesday’s Fed meeting, which should not alter market expectations of a December interest rate increase, and by Friday’s non-farm payrolls, which is expected to come in strong (+311k expected headline print).

    5. U.K consumer credit slowed in September

    Data this morning showed growth in U.K. unsecured borrowing slowed in September, but remained above the six-month average, as U.K consumers continued to rely on cheap credit to fund their spending amid accelerating inflation.

    New consumer credit stood at £1.6B, down from the £1.8B seen in August, but still the streets expectations.

    The Bank of England has previously said that speedy growth in consumer credit represents “a pocket of risk” in an otherwise benign borrowing environment.

    Note: The U.K economy accelerated in Q3, according to a preliminary estimate, and inflation hit a five-year high in September.

    Forex heatmap

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    Catalan Parliament Declares Independence from Spain

    The Catalan regional parliament has voted to declare independence from Spain, just as the Spanish government appears set to impose direct rule.

    The move was was backed 70-10 in a ballot boycotted by opposition MPs.

    Spanish Prime Minister Mariano Rajoy earlier told senators direct rule was needed to return “law, democracy and stability” to Catalonia.

    The crisis began when Catalans backed independence in an illegal vote earlier this month.

    BBC

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    U.S. Growth Above Forecast

    The U.S. economy expanded at a faster pace than forecast in the third quarter, indicating resilient demand from consumers and businesses even with the hit from hurricanes Harvey and Irma, Commerce Department data showed Friday.

    HIGHLIGHTS OF THIRD-QUARTER GDP (FIRST ESTIMATE)

  • Gross domestic product grew at a 3% annualized rate (est. 2.6%) following a 3.1% gain in 2Q, best back-to-back quarters since 2014
  • Consumer spending, biggest part of the economy, grew 2.4% (est. 2.1%) after 3.3% in 2Q
  • Business fixed investment rose 1.5%, adding 0.25 ppt to growth; spending on nonresidential structures fell, equipment and intellectual property gained, residential dropped
  • Trade, inventories added a combined 1.14 ppt to growth
  • Commerce Dept. said it can’t estimate hurricanes’ impact on GDP; disaster losses on fixed assets, private and public, totaled about $131.4b
  • Key Takeaways

    While GDP grew more than anticipated, analysts look to another key measure to assess the true health of the economy. Final sales to domestic purchasers, which strip out trade and inventories — the two most volatile components of the GDP calculation — climbed 1.8 percent, the slowest since early 2016, after rising 2.7 percent in prior quarter.

    The fallout from the hurricanes was mixed, probably depressing some figures while lifting others. The storms inflicted extensive damage on parts of Texas and Florida, though the effect is likely to be transitory as economic activity is expected to rebound amid rebuilding efforts.

    Consumer spending, which accounts for about 70 percent of the economy, added 1.6 percentage point to growth last quarter. That was driven by motor vehicles, as Americans replaced cars damaged by the storms, while services spending slowed to the weakest pace since 2013. Even so, a steady job market, contained inflation and low borrowing costs are expected to provide the wherewithal for households to sustain their spending.

    The first reading of GDP, the value of all goods and services produced, also showed continued strength in business investment, indicating growth is broadening out to more sources beyond household consumption. Companies are upbeat about the outlook and overseas markets are improving, which may help boost exports and contain the trade deficit.

    At the same time, the details of business investment showed a mixed picture. The decline in investment in structures probably reflects the hit from Hurricane Harvey, especially on oil and gas drilling.

    Residential investment remained a weak spot. Builders are up against a shortage of qualified labor and ready-to-build lots at the same time sales are being held back by a shortage of available properties that’s driving up prices.

    Price data in the GDP report showed inflation picked up while still lagging behind the Federal Reserve’s 2 percent goal. Excluding food and energy, the Fed’s preferred price index — which is tied to personal spending — rose at a 1.3 percent annualized rate last quarter, following a 0.9 percent gain.

    Fed policy makers can point to evidence that growth is steady enough to allow them to keep raising interest rates, with investors expecting a quarter-point increase in December.

    While the economy is probably on solid footing in the ninth year of this expansion, the central bank and many economists expect GDP growth to slow beyond 2018, moving closer to 2 percent rather than the sustained 3 percent pace that the Trump administration says will happen if its tax plan is enacted.

    Economist Views

    “Much of the key source data in the quarter was whipsawed by hurricane disruptions,” analysts at Bloomberg Economics wrote in a note before the report.

    “Before the devastating back-to-back hurricanes of Harvey and Irma, the U.S. economy was exhibiting strong momentum,” Sam Bullard, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, wrote in an Oct. 22 note. “We are encouraged by the rebound in activity following the hurricanes’ landfall and expect GDP growth to firm” in the fourth quarter.

    “Hurricanes Harvey and Irma have distorted many of the economic data releases, but the impacts are transitory and should unwind without any significant effect on the underlying trends,” Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida, said in a note before the report.

    Other Details

  • Nonresidential investment — which includes spending on equipment, structures and intellectual property — increased 3.9 percent and added 0.49 percentage point to growth
  • Equipment investment jumped 8.6 percent for a fourth quarter of growth, longest streak since 2014
  • Residential investment fell at a 6 percent rate after 7.3 percent drop, worst two-quarter performance since 2010
  • Net exports added 0.41 percentage point to growth as exports rose, imports fell; inventories added 0.73 point, most since 2016
  • Government spending fell at a 0.1 percent rate; the figures reflected 1.1 percent in federal spending, driven by defense, while state and local outlays dropped 0.9 percent
  • After-tax incomes adjusted for inflation increased at a 0.6 percent annual pace, down from the previous quarter’s 3.3 percent; saving rate fell to 3.4 percent from 3.8 percent
  • GDP report is the first of three estimates for the quarter; the other two are due in November and December as more data become available
  • Bloomberg

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    ECB Plans to Reduce QE Purchases to €30 Billion a Month

    The European Central Bank will reduce its monthly bond purchases next year, a step toward ending a program that has already spent more than 2 trillion euros ($2.4 trillion) trying to revive euro-area inflation.

    Policy makers agreed to scale back buying to 30 billion euros a month starting in January and continue for nine months until the end of September, a decision that was in line with economists’ estimates. The ECB also maintained its pledge to continue buying beyond the current deadline and/or increase the size of its monthly asset purchases if needed.

    The decision marks a watershed moment for Mario Draghi, who heads into the final two years of his ECB presidency after a tenure spent easing policy to contain the fallout from the region’s debt crisis and stave off deflation. The 19-nation bloc is on track for its fastest expansion in a decade, and the central bank is betting that inflation is finally on the verge of picking up.

    Reinvestment Plans

    The Governing Council emphasized its plans for maturing debt, saying the proceeds will be reinvested for an “extended period of time after the end of its net asset purchases, and in any case for as long as necessary.” It also stressed that its refinancing operations — its loans to banks — will be conducted at a fixed rate and with full allotment for as long as needed.

    Draghi has repeatedly said that “we aren’t there yet” on inflation, which was just 1.5 percent last month and which the central bank predicts won’t return to its goal of just under 2 percent before late 2019 at the earliest.

    The Governing Council reiterated that it will continue to spend 60 billion euros a month on debt until the end of December. Officials kept the main refinancing rate at zero percent, the deposit rate at minus 0.4 percent and the marginal rate at 0.25 percent. They repeated a pledge that borrowing costs will stay at present levels until well past the end of net asset purchases.

    The attention now turns to the news conference, where Draghi will face questions about his reasoning for the decision. He may stress that monetary policy will remain accommodative as the central bank’s debt holdings expand to 2.55 trillion euros by September and highlight an additional boost from the reinvestment of proceeds from maturing bonds.

    Another core factor to be resolved is the availability of debt under the current QE rules. Some policy makers judge that the central bank has room to buy little more than 200 billion euros of bonds after December before it runs into shortages.

    Bloomberg

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