Policy validation

Bloomberg 6/11/21

China’s banking regulator and central bank issued rules Friday to strengthen supervision of cash management products of commercial banks and wealth-management companies, according to a statement on CBIRC website.
Rules cap leverage of each cash management product at 120%
Limit investment areas for cash management products to bank deposits, bond repurchase agreements, central bank bills, CDs, some money market instruments
The rules are aimed at preventing unregulated increase in the products and mounting risks, and stabilizing market expectations.

Bloomberg 6/5/21

Bitcoin continued its decline on Saturday
after potentially positive catalysts from El Salvador and Square
Inc. were unable to assuage investor concerns over Chinese
regulatory risks.

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.

BBC 6/5/21

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.

Bloomberg 5/27/21

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. “

Bloomberg 5/27/21

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.”

Bloomberg 5/12/21

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.

Bloomberg 6/11/21

China’s new data security regime gives President Xi Jinping the power to shut down or fine tech companies as part of his drive to wrest control of vast reams of
data held by giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
Firms found mishandling “core state data” can be forced to cease operations, have their operating licenses revoked or fined up to 10 million yuan ($1.6 million) under a law passed Thursday by the Asian nation’s top legislative body.
Companies that leak sensitive data abroad can be hit with
similar fines and punishments, and those providing electronic
information to overseas law enforcement bodies without
permission can face financial penalties up to 5 million yuan and
business suspensions, according to the law published on the
website of the National People’s Congress.

The law, which goes into effect Sept. 1, stipulates that
major decisions involving data security will be made by central
national security officials.

(IANS 4/21/21)

German Constitutional Court allows support to EU pandemic fund

Germany's Constitutional Court gave the green light on
Wednesday for the government to back the European Union's coronavirus recovery
fund, which has set aside 750 billion euros ($900 billion) to revive the
bloc's economy.

The court threw out an urgent application for German participation in the fund
to be declared unconstitutional. Nevertheless, Wednesday's ruling is not the
last word in the case as the court has yet to make a definitive judgement, DPA
reported.

The court said its "summary examination" had not found a high likelihood of an
infringement of the constitution.

(Bloomberg 3/18/21)

Treasury Yields Top 1.75% After Powell Spurs Bets on Inflation
ING sees ‘no real barrier’ for move higher in 10-year rate
U.S. 10-year yield climbs to highest level since January 2020
Treasury yields breached key levels as traders boosted bets the Federal Reserve will allow inflation to overshoot amid an economic rebound.

Yields on the benchmark 10-year note climbed as much as 11 basis points to 1.75% -- the highest since January 2020, while the 30-year jumped to 2.5% for the first time since August 2019. Market measures of inflation expectations are near multi-year highs, with traders paring back bets the Fed would start tightening as soon as late next year. The dollar rebounded against its major peers. Treasury yields pared some gains but remained elevated during New York morning trading.

The moves came after Fed Chair Jerome Powell indicated he wasn’t concerned over the recent surge in long-term yields -- with his focus still on whether financial conditions remained accommodative. Rates have surged this year on expectations that stimulus spending and vaccine rollouts will fuel a sharper economic recovery and a pickup in inflation.

(Market Watch 3/17/21)

Dow Up 160 Points As Stocks Turn Higher After Fed Policy Announcement

Stock-market investors reacted positively to the Federal Reserve's policy announcement, erasing losses or extending minor gains after the central bank signaled it expected no change in interest rates through 2023 even as inflation slightly overshoots its target. The Dow Jones Industrial Average jumped as much as 200 points at its high and remained up around 160 points.

(Bloomberg 3/17/21)
Greenback Extends Broad Drop Ahead of Powell on Rate Outlook

The greenback is at a session low ahead of Fed Chair Jerome Powell’s press conference as traders sell the dollar on expectations the central bank will be on hold for the foreseeable future.

The Bloomberg Dollar Spot Index is -0.3%; commodity and emerging market currencies leading gainers; yields rise

EUR/USD is +0.5% at 1.1958 after stops are triggered above the key pivot level of 1.1952, the Feb. 5 low; eyes double top ahead of 1.20
USD/JPY erases advance and trades at 108.95

(Bloomberg 3/17/21)

UST 5s30s Curve Steepens 10bp Toward 2021 High, Most in a Year

Treasury yield curve is sharply steeper in response to Federal Reserve message being articulated by Chair Powell following FOMC decision, widening 5s30s spread by 10bp, its biggest increase in a year. Front-end and intermediate yields are falling as Powell sounds dovish tones, saying it’s premature to discuss tapering asset purchases and that an announcement on SLR exemption is planned in the coming days.

Five-year yield declined as much as 6.5bp to 0.764%, while 30-year remains nearly 5bp higher on the day at around 2.42%; 5s30s curve touched 166.3bp, within 1bp of its 2021 high on Feb. 24

10-year yield briefly erased an increase of as much as 7bp to 1.689%, the highest level since January, reached before the FOMC decision; 10-year futures are near best levels of the day around 132-06

Gains led by belly of the curve richened the 2s5s10s fly by 9bp on the day while 2s10s spread exceeded 150bp for the first time since 2015

Long-end lag reflects focus on inflation outlook, and steepening of 5s30s curve by more than 10bp is largest one-day move since March 17, 2020, during the liquidity crisis

(Bloomberg 3/11/21)

Euro Fades, Bond Yields Dip as ECB Signals Faster Bond Purchases

The euro dipped from the day’s highs and German 10-year bond yields declined after the European Central Bank indicated it will step up the pace of purchases under its PEPP program over the next quarter. Rates were kept unchanged as expected.

(Bloomberg 3/4/21)

OPEC+ decided to keep a tight limit on oil production next month, sending prices soaring in a market that had been expecting additional supply.

The agreement is a victory for Saudi Arabia, which has consistently pushed to tighten the market. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation just as widespread vaccination allows economies to emerge from the Covid-19 downturn.

The cartel had been debating whether to restore as much as 1.5 million barrels a day of output. But after being urged to “keep our powder dry” by Saudi Energy Minister Prince Abdulaziz bin Salman, members agreed to hold steady at current levels -- with the exception of modest increases granted to Russia and Kazakhstan.
In a briefing after Thursday’s meeting, the prince went one step further by making the kingdom’s additional 1 million barrel-a-day production cut open ended. He gave no date for phasing out the voluntary reduction and told reporters he is in no hurry to do so.

Russia and Kazakhstan secured exemptions from the deal, allowing them to boost output by 130,000 and 20,000 barrels a day in April, respectively, “due to continued seasonal consumption patterns,” according to a statement posted on OPEC’s website. The two nations were granted similar allowances for February and March.

Policy Validation

(Bloomberg 3/5/21)

China set a conservative economic growth target that signals more restrained monetary and fiscal policies this year, in contrast to other major nations still pumping in stimulus to support growth. The government set a growth target of above 6% for the year, well below what economists forecast, and will narrow the
budget deficit to 3.2% of gross domestic product, Premier Li Keqiang said Friday at the opening of the National People’s Congress. While the fiscal gap is lower than last year, it’s above the 3% expected by many analysts, signaling Beijing still
sees a need for spending to support the recovery. “A target of over 6% will enable all of us to devote full energy to promoting reform, innovation, and high-quality
development,” said Li.

(Bloomberg 3/2/21)

Treasuries Firm; Brainard Says Last Week’s Swing ‘Caught My Eye’

Treasuries continue to trade with a bid tone across belly of the curve, which extended outperformance as Federal Reserve Governor Lael Brainard sounded a dovish tone concerning last week’s bond market volatility.

Outperformance by intermediate sectors tightened 2s5s10s fly by 4.5bp on the day as 5-year yields shed 2.5bp outright Treasury 10-year note futures are near session highs, with yields slightly richer vs Monday’s close, while 30-year yields remain ~2bp cheaper on the day
Brainard said she’s paying close attention to market developments and that the speed of last week’s moves caught her eye

Around the same time Fed’s Daly said the central bank needs to be patient in implementing its new monetary policy strategy


Policy Validation

(Bloomberg 3/2/21)

Brainard Says Recent Bond Market Moves Have ‘Caught’ Her Eye
Fed governor cites improving outlook while noting risks remain
Says economy remains far from Fed’s goals for inflation, jobsBy Craig Torres

Federal Reserve Governor Lael Brainard said it will take “some time” to meet the conditions laid out by the U.S. central bank for reducing the pace of its massive bond purchases, while noting recent bond market volatility.

“I am paying close attention to market developments,” she said Tuesday in response to a question after giving a speech. “Some of those moves last week, and the speed of the moves, caught my eye. I would be concerned if disorderly conditions or of a persistent tightening in financial conditions that could slow progress towards our goal.”

(Bloomberg 3/2/21)

Treasuries Firm; Brainard Says Last Week’s Swing ‘Caught My Eye’

Treasuries continue to trade with a bid tone across belly of the curve, which extended outperformance as Federal Reserve Governor Lael Brainard sounded a dovish tone concerning last week’s bond market volatility.
Outperformance by intermediate sectors tightened 2s5s10s fly by 4.5bp on the day as 5-year yields shed 2.5bp outright
Treasury 10-year note futures are near session highs, with yields slightly richer vs Monday’s close, while 30-year yields remain ~2bp cheaper on the day

Policy Validation

(MarketWatch 3/2/21)

Fed's Brainard expresses unease about last week's bond market turmoil

Size and speed of last week's bond market selloff caught her eye, Fed Governor says
Federal Reserve Governor Lael Brainard on Tuesday became the first top official at the central bank to express unease about last week's sharp rise in longer-term U.S. Treasury yields.
Asked about the bond market during a talk at the Council of Foreign Relations, Brainard said she was "paying close attention to market developments."
"Some of those moves last week and the speed of the moves caught my eye," Brainard said.
"I would be concerned if I saw disorderly conditions or persistent tightening in financial conditions that could slow progress" towards the central bank's twin goals of a strong labor market and stable 2% longer-run inflation.

Policy Validation

(Bloomberg 2/23/21)

*POWELL: RATES ARE MOVING UP DUE TO HIGHER GROWTH EXPECTATIONS
*POWELL: LOOK AT BROAD RANGE OF CONDITIONS, INCLUDING YIELDS
*POWELL: MOVE IN YIELDS REFLECTS MORE CONFIDENCE IN THE ECONOMY
*POWELL: EXPECT US TO MOVE CAREFULLY AND PATIENTLY OVER TIME
*POWELL: THERE'S LONG WAY TO GO, WE'RE 10M JOBS BELOW PRE-VIRUS

Policy Validation

Bloomberg 2/23/21

Powell Signals Continued Fed Aid for Economy He Sees Improving
By Rich Miller
Federal Reserve Chairman Jerome Powell signaled that the central bank was nowhere close to pulling back on its support for the pandemic-damaged U.S. economy even as he voiced expectations for a return to more normal, improved activity later this year.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said in the text of testimony to be delivered Tuesday to the Senate Banking Committee.

(Bloomberg 3/19/21)

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.