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Treasuries Tumble, Curve Flatter as Fed Dots Show Two 2023 Hikes
Treasuries drop sharply to session lows with 10-year yields jumping back above 1.50% after Fed’s latest economic projections show two rate increases by the end of 2023. In front-end the IOER was hiked 5bp to 0.15%.
Treasury 10-year yields rose to 1.523% session highs, cheaper by 2.7bp on the day, while belly-led losses flattened 5s30s curve as low as 135.1bp, tightest levels since January.
Futures volumes over the release saw 130k 10-year note contracts trade on move down to 132-04 session lows.
Revised Fed dots show 13 officials seeing a hike by the end of 2023, while 7 officials see a hike by the end of 2022 vs 4 in March.
The U.S. and the European Union agreed to a five-year truce in their 17-year dispute over aircraft subsidies to Airbus SE and Boeing Co. that saw the allies impose tariffs
on $11.5 billion of each other’s exports. The European Commission spent Monday night discussing the accord with member states to get the deal over the line before
an EU-U.S. summit in Brussels with President Joe Biden, according to EU officials familiar with the deliberations. A formal announcement is expected later Tuesday.
*AMAZON SET TO BE INCLUDED IN GLOBAL TAX ACCORD ON LARGE FIRMS
*AMAZON TAX MECHANISM DETAILS STILL UNDER DISCUSSION, PEOPLE SAY
*AMAZON FALLS TO SESSION LOW AFTER BEING INCLUDED IN TAX ACCORD
The G7 will agree that the global financing system needs to be “greened” to better price climate risks and will call for mandatory climate related financial disclosures from companies to help markets value shares accordingly.
To avoid many different standards around the world for what constitutes a “green” or “sustainable” investment, the G7 will pledge to work among themselves and with other international partners towards one common line.
Group of Seven (G7) rich countries backed moves to force banks and companies to disclose their exposure to climate-related risks on Saturday, a measure seen as vital to efforts to safeguard the financial system from climate change shocks.
G7 finance ministers meeting in London also called for more coordination to measure what impact companies are having on the climate and environment, warning of the risk of fragmentation as local jurisdictions adopt different approaches.
"We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants...," said a final communique released after the two days of talks.
"This will help mobilise the trillions of dollars of private sector finance needed, and reinforce government policy to meet our net zero commitments," it said of a growing number of pledges by major economies to attain net-zero carbon emissions.
There is no doubt that this time we have cracked down on encrypted virtual currency more severely than in September 2019, and the price of virtual currency will be hit even harder than last time. We must provide an absolutely safe financial environment for the pilot and promotion of the digital RMB in China [our emphasis added].
Bitcoin continued its decline on Saturday
after potentially positive catalysts from El Salvador and Square
Inc. were unable to assuage investor concerns over Chinese
The world’s largest digital coin slipped to trade around
$35,220 as of 6:31 p.m. in New York, down 5.3% in the past 24
hours. The move extends its downtrend for a second day after a
cryptic tweet from Elon Musk that hinted at a potential split
with the cryptocurrency.
Weibo, a Chinese social-media service, appears to have
blocked some crypto influencer accounts on Saturday, citing
violation of unspecified laws and Weibo community rules.
The G7 group of advanced economies has reached a "historic" deal to make multinational companies pay more tax.
Finance ministers meeting in London agreed to battle tax avoidance by making companies pay more in the countries where they do business.
They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other.
Tech giants Amazon and Facebook are among those likely to be affected.
The deal announced on Saturday, between the US, the UK, France, Germany, Canada, Italy and Japan, plus the EU, could see billions of dollars flow to governments to pay off debts incurred during the Covid crisis.
Negotiated over many years, it will put pressure on other countries to follow suit, including at a meeting of the G20 next month, which includes China, Russia and Brazil.
Taxes under consideration include a levy on non-recyclable plastics, on digital services, a carbon border adjustment tax on imports into the EU from countries with more lax CO2 emission standards, a share of the trade in CO2 emission permits for maritime and air transport, and a slice of the national corporate tax on large multinationals that benefit from operating within the EU single market.
The European Union is planning to slap an import levy on steel, cement and aluminum produced in countries with lower environmental standards, as it seeks to become a world leader on climate without harming domestic producers. In a move no other country in the world has taken, the European Commission wants to introduce a system imposing a penalty for bringing into the bloc emissions embedded in goods, according to a person familiar with the proposals due to be
unveiled next month.
EU leaders have repeatedly said in summit communiques that they would welcome a border-levy mechanism. Still, hashing out the details of the so-called Carbon Border Adjustment Mechanism may stir long debates within the bloc.
Recent interest rate hikes by emerging
economies could lead to a bursting of global financial asset
bubbles, according to a senior official with China’s banking
Unprecedented pandemic easing measures by developed
countries have enlarged such bubbles, Liang Tao, vice chairman
of China Banking and Insurance Regulatory Commission, said at
the International Finance Forum in Beijing on Saturday.
Developed countries are sticking with ultra-low rates even as
emerging economies raised their borrowing costs, potentially
resulting in the re-pricing of global assets, he said.
The housing situation is analogous to the current automobile market. This is the best time to sell a used car, but not so great for buying a new car. Automakers are also struggling with rising costs and, most importantly, a chip shortage that severely limits new production:
In both cases, we should expect the end result of slower sales in the near term as, hopefully, the supply situation adjusts. Some commentators will suggest that slower sales signal softening demand, but don’t be fooled. It’s the supply constraints in both cases that limit growth. It can’t be “solved” with easier monetary or fiscal policy. That said, it could press the Biden administration to push an even faster reopening of the economy.
U.S. Pending Home Sales Decline Unexpectedly on Lean Inventory
April contract signings fall 4.4%, third drop in four months
All regions except the Midwest posted pending sales declines
U.S. pending home sales fell unexpectedly in April for the third time in the last four months, reflecting a lack of affordable properties that continues to restrain the housing market.
The National Association of Realtors’ index of pending home sales decreased 4.4% from the prior month to 106.2, the lowest reading since May of last year, according to data released Thursday. The median estimate in a Bloomberg survey of economists called for the measure to rise 0.4%.
Elevated asking prices, reflecting the limited supply of homes on the market, are making properties less affordable and restraining sales. While declining in April, the NAR’s gauge of contract signings on existing properties is still up 53.5% from a year earlier on an unadjusted basis.
That indicates underlying buyer interest that could translate into a pickup in sales once more properties are listed for sale.
“Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes,” Lawrence Yun, chief economist at the NAR, said in a statement. “
U.S., China Trade Chiefs Hold ‘Candid’ Talks in First Call
U.S. Trade Representative Katherine Tai and
China’s Vice Premier Liu He had a “candid” first conversation as
the two sides try to resolve some of their differences on trade.
The trade chiefs spoke Thursday morning in Beijing, China’s
Ministry of Commerce said in a statement, and “conducted candid,
pragmatic and constructive exchanges in an attitude of equality
and mutual respect.”
Fed’s Clarida Plays Down Significance of Rising U.S. Inflation
Fed vice chair blames rise on largely transitory forces
Clarida suggests Fed still ways away from reducing stimulus
Federal Reserve Vice Chairman Richard Clarida played down the significance of rising inflation, saying it was due largely to transitory forces.
“Readings on inflation on a year-over-year basis have recently increased and are likely to rise somewhat further before moderating later this year,” he said in the text of remarks to be delivered to the National Association for Business Economics on Wednesday. However, “I expect inflation to return to -- or perhaps run somewhat above -- our 2% longer-run goal in 2022 and 2023.”
U.S. consumer prices climbed in April by the most since 2009, bringing the year-on-year increase to 4.2%, amid a record increase in used-car costs, the Labor Department reported on Wednesday. The news drove stock market futures prices deeper into the red.
The calls on and from what we understand even within the BOJ have been mounting to adjust the scale of its equity ETF purchases linked to the Nikkei and Topix indices as Japanese stock markets hit highs not seen for a generation.
We expect the policy review is likely to add some additional flexibility to the BOJ ETF program to enable the central bank to reduce its purchases when markets are high, or rising steeply, and to increase them when they are low, albeit without committing to any specific price levels or metrics.
Expansion of the 10-year JGB band guidance.
As we flagged just under a month ago, (see SGH 1/20/2021; “BOJ: Positioning for Steeper H2 Curve”), we believe the Bank of Japan is more than likely to expand the band within which it allows the 10-year JGB to trade by ten basis points on each side, from plus or minus 0.2% around 0.0%, to plus or minus 0.3%.
The Bank of Japan unveiled a set of carefully crafted policy tweaks aimed at giving itself more flexibility to keep up its long quest to revive inflation.
The bank set out a wider-than-previously-thought movement range for bond yields and scrapped a buying target for stock funds at the end of a three-month policy review.
While the currency and bond markets largely took the moves in stride, the BOJ’s decision to focus its purchasing of exchange-traded funds on the wider Topix index drove down shares on the Nikkei 225.
Many of the tweaks will give the BOJ greater scope to buy fewer assets and could be viewed as a stepping back from stimulus, but the central bank characterized the changes as shoring up the effectiveness and sustainability of its measures over the longer run.