Month: March 2019

Federal Reserve Chairman Jerome Powell said Friday that the healthy U.S. economy and low inflation are allowing the central bank to take a “patient, wait-and-see approach” on interest rates.

Speaking at Stanford University, Powell said the Fed is well along in its effort to normalize Fed operations by scaling back the extraordinary efforts it employed to support the economy’s recovery from the Great Recession.

The Fed is trimming its sizable holdings of Treasury bonds and mortgage-backed securities. Officials are discussing a plan for wrapping up the efforts to reduce the central bank’s balance sheet later this year, Powell said, adding that the plan’s details should be announced soon.

The Fed’s moves to reduce its balance sheet, which hit a peak of $4.5 trillion, are being watched closely by investors.

Slimming its balance sheet

The Fed started in October 2017 reducing the balance sheet by allowing some bonds to run off as they matured. The balance sheet is now around $4 trillion but some investors have worried that the Fed could end up driving long-term interest rates higher and harming the economy by going too far in reducing its holdings.

Some analysts have projected the Fed’s balance sheet will end up being around $3.5 trillion, which would be significantly higher than the less than $1 trillion it held before the financial crisis hit in 2008.

Powell said the size of the holdings will “prove ample” to meet the Fed’s needs of supplying reserves to the banking system and he said “we could be near that level later this year.”

“As we feel our way cautiously to this goal, we will move transparently and predictably in order to minimize needless market disruption,” Powell said.

Updating procedures

The Fed is conducting a yearlong review of its procedures as part of its effort to update its operations in areas such as the way it communicates with the public, Powell said.

One area being examined is whether the Fed should consider altering its inflation target, which is currently a goal of annual price increases of 2 percent, to allow inflation to go above that goal for a time.

Powell did not specifically discuss the course of rate hikes other than to repeat the “patient” pledge the Fed began using in January to signal that it was planning a prolonged pause in hiking rates this year after boosting them four times in 2018.

Some analysts believe the Fed could leave its policy rate unchanged for the entire year and could possibly start cutting rates in 2020 if the economy slows significantly as the effects of the Trump administration tax cuts and a boost in government spending fade.

The rate hikes last year prompted strong criticism from President Donald Trump who charged that the rate increases were driving down the stock market.

In his remarks, Powell said, “We live in a time of intense scrutiny and declining trust in public institutions around the world. At the Fed, we are committed to working hard to build and sustain the public’s trust.”
…

Federal Reserve Chairman Jerome Powell said Friday that the healthy U.S. economy and low inflation are allowing the central bank to take a “patient, wait-and-see approach” on interest rates.

Speaking at Stanford University, Powell said the Fed is well along in its effort to normalize Fed operations by scaling back the extraordinary efforts it employed to support the economy’s recovery from the Great Recession.

The Fed is trimming its sizable holdings of Treasury bonds and mortgage-backed securities. Officials are discussing a plan for wrapping up the efforts to reduce the central bank’s balance sheet later this year, Powell said, adding that the plan’s details should be announced soon.

The Fed’s moves to reduce its balance sheet, which hit a peak of $4.5 trillion, are being watched closely by investors.

Slimming its balance sheet

The Fed started in October 2017 reducing the balance sheet by allowing some bonds to run off as they matured. The balance sheet is now around $4 trillion but some investors have worried that the Fed could end up driving long-term interest rates higher and harming the economy by going too far in reducing its holdings.

Some analysts have projected the Fed’s balance sheet will end up being around $3.5 trillion, which would be significantly higher than the less than $1 trillion it held before the financial crisis hit in 2008.

Powell said the size of the holdings will “prove ample” to meet the Fed’s needs of supplying reserves to the banking system and he said “we could be near that level later this year.”

“As we feel our way cautiously to this goal, we will move transparently and predictably in order to minimize needless market disruption,” Powell said.

Updating procedures

The Fed is conducting a yearlong review of its procedures as part of its effort to update its operations in areas such as the way it communicates with the public, Powell said.

One area being examined is whether the Fed should consider altering its inflation target, which is currently a goal of annual price increases of 2 percent, to allow inflation to go above that goal for a time.

Powell did not specifically discuss the course of rate hikes other than to repeat the “patient” pledge the Fed began using in January to signal that it was planning a prolonged pause in hiking rates this year after boosting them four times in 2018.

Some analysts believe the Fed could leave its policy rate unchanged for the entire year and could possibly start cutting rates in 2020 if the economy slows significantly as the effects of the Trump administration tax cuts and a boost in government spending fade.

The rate hikes last year prompted strong criticism from President Donald Trump who charged that the rate increases were driving down the stock market.

In his remarks, Powell said, “We live in a time of intense scrutiny and declining trust in public institutions around the world. At the Fed, we are committed to working hard to build and sustain the public’s trust.”
…

Hiring tumbled in February, with U.S. employers adding just 20,000 jobs, the smallest monthly gain in nearly a year and a half. The slowdown in hiring, though, might have been depressed by harsh winter weather and the partial shutdown of the government.

Last month’s weak gain came after employers had added a blockbuster 311,000 jobs in January, the most in nearly a year. Over the past three months, job growth has averaged a solid 186,000, enough to lower the unemployment rate over time.

And despite the tepid pace of hiring in February, the government’s monthly jobs report Friday included some positive signs: Average hourly pay last month rose 3.4 percent from a year earlier _ the sharpest year-over-year increase in a decade. The unemployment rate also fell to 3.8 percent, near the lowest level in five decades, from 4 percent in January.

Unseasonably cold weather, which affects such industries as construction and restaurants, afflicted some areas of the country in February. And the 35-day government shutdown that ended in late January likely affected the calculation of job growth.

Still, the hiring pullback comes amid signs that growth is slowing because of a weaker global economy, a trade war between the United States and China and signs of caution among consumers. Those factors have led many economists to forecast weaker growth in the first three months of this year.

Sluggish hiring and job cuts in February were widespread across industries. Construction cut 31,000 jobs, the most in more than five years. Manufacturing added just 4,000 jobs. Retailers cut 6,100. Job growth in a category that includes mostly restaurants and hotels were unchanged last month after adding a huge 89,000 gain in January.

Most analysts expect businesses to keep hiring and growth to rebound in the April-June quarter. It will be harder than usual, though, to get a precise read on the economy because many data reports are still delayed by the partial shutdown of the government.

In the meantime, there are cautionary signs. Consumer confidence fell sharply in January, held back by the shutdown and by a steep fall in stock prices in December. And Americans spent less over the winter holidays, with consumer spending falling in December by the most in five years.

Home sales fell last year and price gains are slowing after the average rate on a 30-year mortgage reached nearly 5 percent last year. Sales of new homes also cratered late last year before picking up in December. And U.S. businesses have cut their orders for equipment and machinery for the past two months, a sign that they are uncertain about their customer demand.

The economy is forecast to be slowing to an annual growth rate of just 1 percent in the first three months of this year, down from 2.6 percent in the October-December quarter. Growth reached nearly 3 percent for all of last year, the strongest pace since 2015.

Still, economists expect a rebound in the April-June quarter, and there are already signs of one: Consumer confidence rose in February along with the stock market.

And more Americans signed contracts to buy homes in January, propelled by lower mortgage rates. Analysts have forecast that annual growth will top 2 percent next quarter.

 
…

Hiring tumbled in February, with U.S. employers adding just 20,000 jobs, the smallest monthly gain in nearly a year and a half. The slowdown in hiring, though, might have been depressed by harsh winter weather and the partial shutdown of the government.

Last month’s weak gain came after employers had added a blockbuster 311,000 jobs in January, the most in nearly a year. Over the past three months, job growth has averaged a solid 186,000, enough to lower the unemployment rate over time.

And despite the tepid pace of hiring in February, the government’s monthly jobs report Friday included some positive signs: Average hourly pay last month rose 3.4 percent from a year earlier _ the sharpest year-over-year increase in a decade. The unemployment rate also fell to 3.8 percent, near the lowest level in five decades, from 4 percent in January.

Unseasonably cold weather, which affects such industries as construction and restaurants, afflicted some areas of the country in February. And the 35-day government shutdown that ended in late January likely affected the calculation of job growth.

Still, the hiring pullback comes amid signs that growth is slowing because of a weaker global economy, a trade war between the United States and China and signs of caution among consumers. Those factors have led many economists to forecast weaker growth in the first three months of this year.

Sluggish hiring and job cuts in February were widespread across industries. Construction cut 31,000 jobs, the most in more than five years. Manufacturing added just 4,000 jobs. Retailers cut 6,100. Job growth in a category that includes mostly restaurants and hotels were unchanged last month after adding a huge 89,000 gain in January.

Most analysts expect businesses to keep hiring and growth to rebound in the April-June quarter. It will be harder than usual, though, to get a precise read on the economy because many data reports are still delayed by the partial shutdown of the government.

In the meantime, there are cautionary signs. Consumer confidence fell sharply in January, held back by the shutdown and by a steep fall in stock prices in December. And Americans spent less over the winter holidays, with consumer spending falling in December by the most in five years.

Home sales fell last year and price gains are slowing after the average rate on a 30-year mortgage reached nearly 5 percent last year. Sales of new homes also cratered late last year before picking up in December. And U.S. businesses have cut their orders for equipment and machinery for the past two months, a sign that they are uncertain about their customer demand.

The economy is forecast to be slowing to an annual growth rate of just 1 percent in the first three months of this year, down from 2.6 percent in the October-December quarter. Growth reached nearly 3 percent for all of last year, the strongest pace since 2015.

Still, economists expect a rebound in the April-June quarter, and there are already signs of one: Consumer confidence rose in February along with the stock market.

And more Americans signed contracts to buy homes in January, propelled by lower mortgage rates. Analysts have forecast that annual growth will top 2 percent next quarter.

 
…

U.S. President Donald Trump says he will not sign a trade deal with China unless it is a “very good deal.”

Trump made the comments Friday as he left the White House to tour tornado damage in the southern U.S. state of Alabama. The United States and China have been battling over trade tariffs since last year.

The White House is planning a summit between Trump and Chinese leader Xi Jinping in Florida later this year.

“If this isn’t a great deal, I won’t make a deal,” Trump said. Then he added: “We will do very well either way, with or without a deal.”

The trade dispute between the United States and China has begun to affect China’s economic growth.

China’s exports and imports fell significantly more than expected in the month of February, data published Friday by the country’s customs administration showed.

China’s trade surplus with the U.S. narrowed to $14.7 billion for the month, from $27.3 billion in January.

China’s February exports plummeted 20.7 percent from the same period a year prior, and imports dropped 5.2 percent from a year earlier, considerably more than expected. According to a Bloomberg News poll, the forecast was 5.0 percent and 0.6 percent respectively.   

China economist Chang Liu of Capital Economics in London told VOA that the drop in Chinese exports is due, at least in part, to the tariffs. Last year, he said, “firms were front-loading their shipments [shipped more goods in the first half of the year] to avoid further threat of further tariffs. So that dropped the exports in the second half of last year. … So, literally, that is a tariff effect.”

Recent economic data reveal the difficulties China faced in the fourth quarter of 2018 as its growth rate slowed to 6.4 percent.

In January, an import barometer of prices in the industrial sector neared contraction, while manufacturing activity in February marked the worst performance in three years.

China’s government announced major tax cuts, fee reductions and a looser monetary policy to combat the economic growth slowdown.
…

U.S. President Donald Trump says he will not sign a trade deal with China unless it is a “very good deal.”

Trump made the comments Friday as he left the White House to tour tornado damage in the southern U.S. state of Alabama. The United States and China have been battling over trade tariffs since last year.

The White House is planning a summit between Trump and Chinese leader Xi Jinping in Florida later this year.

“If this isn’t a great deal, I won’t make a deal,” Trump said. Then he added: “We will do very well either way, with or without a deal.”

The trade dispute between the United States and China has begun to affect China’s economic growth.

China’s exports and imports fell significantly more than expected in the month of February, data published Friday by the country’s customs administration showed.

China’s trade surplus with the U.S. narrowed to $14.7 billion for the month, from $27.3 billion in January.

China’s February exports plummeted 20.7 percent from the same period a year prior, and imports dropped 5.2 percent from a year earlier, considerably more than expected. According to a Bloomberg News poll, the forecast was 5.0 percent and 0.6 percent respectively.   

China economist Chang Liu of Capital Economics in London told VOA that the drop in Chinese exports is due, at least in part, to the tariffs. Last year, he said, “firms were front-loading their shipments [shipped more goods in the first half of the year] to avoid further threat of further tariffs. So that dropped the exports in the second half of last year. … So, literally, that is a tariff effect.”

Recent economic data reveal the difficulties China faced in the fourth quarter of 2018 as its growth rate slowed to 6.4 percent.

In January, an import barometer of prices in the industrial sector neared contraction, while manufacturing activity in February marked the worst performance in three years.

China’s government announced major tax cuts, fee reductions and a looser monetary policy to combat the economic growth slowdown.
…

Wall Street has rewarded its most patient investors handsomely over the past 10 years. Is there more to come?

The S&P 500, the U.S. market’s benchmark index, has gained about 309 percent since bottoming out at 676.53 points in March 2009 during the Great Recession, according to FactSet. The index is now 5.4 percent below its recent peak of 2,930.75 set on Sept. 20. 

This bull market’s lifespan, the longest on record, speaks to financial markets’ resiliency in the face of a variety of shocks, including a brutal fourth quarter of 2018.

Whether the bull keeps running hinges on whether companies can continue raking in profits, a key driver of the stock market, and whether the U.S. economy can avoid sliding into a recession. Bull markets tend to wither when fear of a recession kicks in. 

Profits are ‘oxygen’

“As long as corporate profits are growing, that’s usually the oxygen for further gains in the stock market,” said David Lefkowitz, senior Americas equity strategist at UBS Global Wealth Management.

Profit growth for the companies in the S&P 500 averaged 25.6 percent in the first three quarters of last year. That slipped to 13.4 percent in the fourth quarter, but still topped expectations.

But earnings are expected to decline slightly in the first quarter and grow in the mid-single digits for the full year, according to FactSet. And the U.S. economy has been showing signs of slowing and is expected to continue to do so this year. 

“The risk of recession grows,” said Sam Stovall, chief investment strategist at CFRA, noting that the U.S. economy’s current expansion will become the longest in history by the end of July.

“However, we currently see no quarterly GDP declines through the fourth quarter of 2020, let alone back-to-back declines, which have been a rule of thumb for recessions,” he said.  

Meanwhile, the wild card for the market — and the economy — might be the long-running, costly trade conflict between Washington and Beijing. While reportedly on track for a resolution as early as this month, the spat continues to weigh on investors’ nerves and many companies’ plans. 

Concerns in late 2018

The bull market has looked very vulnerable at times during its decade-long run, most recently at the end of last year. That’s when a bevy of concerns, including rising interest rates, the trade spat, slowing global economic growth and some tepid profit forecasts, sent the S&P 500 into a skid that resulted in the index’s worst December since the Great Depression.

That slide culminated on Dec. 24, when the S&P 500 closed 19.8 percent below its all-time high. A drop of 20 percent or more would have ushered in a bear market. 

What we've seen and continue to see is doubts,'' said Ryan Detrick, senior market strategist at LPL.People have doubted it the whole way up.” 

And yet, the bull shrugged that off, too, and now the market is off to its best start to a year since 1991. 

It was a good-sized correction that freaked everybody out,'' Detrick said.Then the realization comes that the economy is on good footing.” 

The Federal Reserve put investors at ease in January when it signaled a prolonged pause in further interest rate hikes. That calmed fears that the central bank would keep raising rates at a pace that could derail the economy. 

One of the key questions in gauging the longevity of the bull market is the outlook for inflation and what action the Fed will take to try to manage it. 

For now, inflation remains below the 2 percent target used by the Fed to determine whether annual price increases are growing too rapidly. It was up 1.7 percent in the 12 months ended in December.

As long as inflation remains at that level, the Fed has less incentive to raise rates. 

Slower growth

The U.S. economy turned in a solid performance in 2018, boosted in part by tax cuts and higher government spending. But economic growth slowed to 2.6 percent in the last three months of the year from 3.4 percent in the third quarter.

Most economists envision a weaker performance for the coming months and probably years. Some expect gross domestic product to drop to a growth rate of 2 percent or less in the current January-March period. 

Investors have grown cautious about business conditions going forward as signs of weakness in the global economy have emerged. Uncertainty over trade has also helped cloud the outlook for company profits this year. 

Still, even modest company earnings growth should keep the bull market rolling. 

We think the bull market is still intact,'' Lefkowitz said.And at some point, we’re likely to see new all-time highs for the broad market gauges.” 
…

Wall Street has rewarded its most patient investors handsomely over the past 10 years. Is there more to come?

The S&P 500, the U.S. market’s benchmark index, has gained about 309 percent since bottoming out at 676.53 points in March 2009 during the Great Recession, according to FactSet. The index is now 5.4 percent below its recent peak of 2,930.75 set on Sept. 20. 

This bull market’s lifespan, the longest on record, speaks to financial markets’ resiliency in the face of a variety of shocks, including a brutal fourth quarter of 2018.

Whether the bull keeps running hinges on whether companies can continue raking in profits, a key driver of the stock market, and whether the U.S. economy can avoid sliding into a recession. Bull markets tend to wither when fear of a recession kicks in. 

Profits are ‘oxygen’

“As long as corporate profits are growing, that’s usually the oxygen for further gains in the stock market,” said David Lefkowitz, senior Americas equity strategist at UBS Global Wealth Management.

Profit growth for the companies in the S&P 500 averaged 25.6 percent in the first three quarters of last year. That slipped to 13.4 percent in the fourth quarter, but still topped expectations.

But earnings are expected to decline slightly in the first quarter and grow in the mid-single digits for the full year, according to FactSet. And the U.S. economy has been showing signs of slowing and is expected to continue to do so this year. 

“The risk of recession grows,” said Sam Stovall, chief investment strategist at CFRA, noting that the U.S. economy’s current expansion will become the longest in history by the end of July.

“However, we currently see no quarterly GDP declines through the fourth quarter of 2020, let alone back-to-back declines, which have been a rule of thumb for recessions,” he said.  

Meanwhile, the wild card for the market — and the economy — might be the long-running, costly trade conflict between Washington and Beijing. While reportedly on track for a resolution as early as this month, the spat continues to weigh on investors’ nerves and many companies’ plans. 

Concerns in late 2018

The bull market has looked very vulnerable at times during its decade-long run, most recently at the end of last year. That’s when a bevy of concerns, including rising interest rates, the trade spat, slowing global economic growth and some tepid profit forecasts, sent the S&P 500 into a skid that resulted in the index’s worst December since the Great Depression.

That slide culminated on Dec. 24, when the S&P 500 closed 19.8 percent below its all-time high. A drop of 20 percent or more would have ushered in a bear market. 

What we've seen and continue to see is doubts,'' said Ryan Detrick, senior market strategist at LPL.People have doubted it the whole way up.” 

And yet, the bull shrugged that off, too, and now the market is off to its best start to a year since 1991. 

It was a good-sized correction that freaked everybody out,'' Detrick said.Then the realization comes that the economy is on good footing.” 

The Federal Reserve put investors at ease in January when it signaled a prolonged pause in further interest rate hikes. That calmed fears that the central bank would keep raising rates at a pace that could derail the economy. 

One of the key questions in gauging the longevity of the bull market is the outlook for inflation and what action the Fed will take to try to manage it. 

For now, inflation remains below the 2 percent target used by the Fed to determine whether annual price increases are growing too rapidly. It was up 1.7 percent in the 12 months ended in December.

As long as inflation remains at that level, the Fed has less incentive to raise rates. 

Slower growth

The U.S. economy turned in a solid performance in 2018, boosted in part by tax cuts and higher government spending. But economic growth slowed to 2.6 percent in the last three months of the year from 3.4 percent in the third quarter.

Most economists envision a weaker performance for the coming months and probably years. Some expect gross domestic product to drop to a growth rate of 2 percent or less in the current January-March period. 

Investors have grown cautious about business conditions going forward as signs of weakness in the global economy have emerged. Uncertainty over trade has also helped cloud the outlook for company profits this year. 

Still, even modest company earnings growth should keep the bull market rolling. 

We think the bull market is still intact,'' Lefkowitz said.And at some point, we’re likely to see new all-time highs for the broad market gauges.” 
…

The International Monetary Fund on Thursday called Venezuela one of the most “complex situations” it had ever seen. 

IMF spokesman Gerry Rice described Venezuela and its economy as a combination of “food and nutrition crises, hyperinflation, a destabilized exchange rate, debilitating human capital and physical productive capacity, and a very complicated debt situation.” 

Rice said tackling this challenge would take “strong resolve” and “broad international support” from all 189 IMF members. 

IMF Managing Director Christine Lagarde told The Economist Radio, a podcast, that the fund would help “as soon as we are asked by the legitimate authorities of that country.” 

“We will open our wallet, we will put our brain to it, and we will make sure our heart is in the right place to help the poorest and most exposed people,” she added, calling the task it faced in Venezuela  “monumental.” 

Rice said Thursday that the IMF had yet to determine whom to recognize as the leader of Venezuela — President Nicolas Maduro or opposition leader Juan Guaido, the self-declared interim president.
…

The International Monetary Fund on Thursday called Venezuela one of the most “complex situations” it had ever seen. 

IMF spokesman Gerry Rice described Venezuela and its economy as a combination of “food and nutrition crises, hyperinflation, a destabilized exchange rate, debilitating human capital and physical productive capacity, and a very complicated debt situation.” 

Rice said tackling this challenge would take “strong resolve” and “broad international support” from all 189 IMF members. 

IMF Managing Director Christine Lagarde told The Economist Radio, a podcast, that the fund would help “as soon as we are asked by the legitimate authorities of that country.” 

“We will open our wallet, we will put our brain to it, and we will make sure our heart is in the right place to help the poorest and most exposed people,” she added, calling the task it faced in Venezuela  “monumental.” 

Rice said Thursday that the IMF had yet to determine whom to recognize as the leader of Venezuela — President Nicolas Maduro or opposition leader Juan Guaido, the self-declared interim president.
…