Federal Reserve officials are stepping up their expected pace of policy tightening. China is quietly stepping up its interventions in the markets. Biden and Putin both claim victory after the Geneva meeting. Here’s what you need to know to start your day.
The US Federal Reserve predicts two rate hikes by the end of 2023. Officials have signaled that the pace of the US economic recovery from the pandemic raises expectations of how quickly they will reduce political support. Fed Chairman Jerome Powell told a news conference officials have started a discussion about cutting bond purchases and predicted a quicker-than-expected tightening. Inflation estimates for the next three years have been revised upwards. The central bank has kept its policy rate target range unchanged at zero at 0.25% – where it has been since March 2020.
US futures extended losses and Asian stocks appeared a mixed start after the Fed’s statement. Treasury yields jumped along with the dollar. Futures were little changed in Japan and Australia, and fell in Hong Kong. S&P 500 contracts slipped after the benchmark closed, but they came out of their lows after Fed Chairman Jerome Powell downplayed the risk of an immediate rate hike. Ten-year Treasury yields jumped eight basis points, while five- and seven-year equivalents rose more as the market reassessed the timing of rate hikes. A dollar index experienced its biggest jump in a year.
China is resorting to increasingly aggressive measures to contain risks to the financial system, measures that threaten to undermine President Xi Jinping’s commitment to give more freedom to markets. In recent weeks, authorities have ordered state enterprises to reduce their exposure to commodities abroad, forcing national banks to hold more foreign currency, considered a price caps for thermal coal, censored searches for crypto exchanges and efficiently prohibits brokers from posting bullish stock index targets. A new rule will prohibit cash management products from holding riskier securities and limit their use of leverage. micro-level risk targeting is likely to continue. The problem is, if traders know that authorities are likely to step in to limit gains or losses in an asset class, they can bet on that outcome with some certainty. Read the full story here.
Joe Biden and Vladimir Putin claimed victory at the outcome of the US-Russian summit in Geneva. Biden said he wanted to meet with the Russian leader to set “rules of the road” in a relationship that has been eroding for years. He said he confronted Putin on cyber attacks on the United States, Russia’s treatment of democracy activists, and the need for cooperation on nuclear weapons and the Arctic. Putin has one thing he dreams of: legitimacy on the international stage. But the concrete achievements were difficult to define.
The world’s largest banks are struggling to remain attractive to junior bankers in Asia. Despite the offer of big names big financial incentives and faster promotions, juniors from Asia’s biggest hubs are heading to the many fintech and investment companies that have sprung up to tap the region’s booming economies and growing wealth. Exits in Hong Kong have intensified despite annual salary increases of 25-30% since 2019. In Singapore, opportunities are growing in hedge funds and private equity firms, as well as in a new generation of companies. financial technology and digital banking. The exodus calls into question the expansion plans of banks in a region that is growing faster than almost anywhere else.
What we read
Here’s what caught our attention over the past 24 hours:
And finally, here’s what interests Tracy today
So this is a hawkish surprise from the Federal Reserve and, in fact, a potentially very important giveaway to China, which is struggling to contain the strength of the yuan against the dollar and curb rising commodity prices. The US central bank did not choose to hike benchmark interest rates, but its new dot plot forecast showed two hikes now expected by the end of 2023.
And while Fed Chairman Jerome Powell clearly wanted to downplay the importance of the rising points, the question is whether the talks about the reduction and the hikes are enough to start pushing the US dollar higher. This is what happened in 2014, when the Fed’s dot plot last surprised 50 to 75 basis points higher, as Ben Emons of Medley Global Advisors points out. “When the Fed communicates the cut and the tightening in one message, and the economy is predicted to be strong, real yields rise and these can negatively impact the strengthening dollar in foreign stock markets. “, did he declare.
A stronger dollar typically causes a lot of pain for much of the world (and could be especially painful in places that are still struggling with the coronavirus crisis). In the case of China, which has already started cutting some of its monetary easing and tried to reduce the resulting pressures on the yuan, as well as reduce some hot money flows to Chinese bonds, this could well be good news.
You can follow Tracy Alloway on Twitter at @tracyalloway.