Norges Bank Sees Rates At Zero For Next Couple Of Years

Trading 18 juin 2020 Commentaire »

Norway's central bank left its key interest rate unchanged at zero on Thursday after a surprise cut in May and signaled that it is set to remain at the current level over the next few years.

The Monetary Policy and Financial Stability Committee unanimously decided to keep the policy rate unchanged at zero percent, Norges Bank said in a statement. That was in line with economists' expectations. In May, the rate was cut from 0.25 percent after a cumulative 125 basis points reduction in two extraordinary sessions in March from 1.50 percent.

"The Committee's current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at today's level for some time ahead", Norges Bank Governor Oystein Olsen said.

"The policy rate forecast implies a rate at the current level over the next couple of years, followed by a gradual rise as economic conditions normalise," Norges Bank said. The central bank said activity has picked up faster than expected since its May policy session.

Unemployment has fallen more than anticipated and oil prices have risen, the bank said. However, activity remains substantially lower than at the start of the year. "There is considerable uncertainty surrounding the path to recovery," the bank said. Low interest rates are helping to accelerate the return to more normal output and employment levels and thus, reduce the risk of unemployment becoming entrenched at a high level and of inflation becoming too low further out.

That said, a long period of low interest rates could increase the risk of a build-up of financial imbalance, the bank pointed out.

In the Committee's assessment, the outlook and balance of risks imply a very expansionary monetary policy stance, the Norges Bank said.

The central bank also advised the Ministry of Finance to keep the countercyclical capital buffer rate for banks unchanged at 1.0 percent.

The rate was lowered from 2.5 percent to 1.0 percent in March. A lower buffer rate reduces the risk that tighter lending standards could amplify an economic downturn, the central bank said.


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Indonesia Cuts Interest Rates For Third Time This Year

Trading 18 juin 2020 Commentaire »

Indonesia's central bank slashed its key interest rate for a third time this year on Thursday in a bid to support the economy that has been severely hit by the coronavirus, or Covid-19, pandemic.

The Board of Governors agreed to lower the BI 7-day reverse repo rate by 25 basis points to 4.25 percent, the Bank Indonesia said in a statement. Economists had expected the bank to leave the rate unchanged. The bank had kept interest rates unchanged in the previous two sessions. The last change in the rate was a 25 basis points reduction on March 19.

The central bank also lowered the deposit facility rate and the lending rate by 25 basis points each to 3.50 percent and 5.00 percent, respectively. "The decision is consistent with efforts to maintain economic stability and nurture economic recovery momentum in the COVID-19 era," the central bank said.

Bank Indonesia still sees room to lower interest rates in line with mild inflationary pressures, maintained external stability and the need to stimulate economic growth. "Policy to stabilize rupiah exchange rates and quantitative easing will be continued," the bank said. Further, Bank Indonesia said it has decided to implement requirement remuneration for banks meeting daily and average rupiah reserve requirements of 1.5 percent per year based on 3 percent of deposits, effective August 1. "With well-behaved inflation and the currency enjoying some stability, we expect governor Warjiyo to cut policy rates further in 3Q with the economy sorely in need of additional stimulus from both fiscal and monetary authorities," ING economist Nicholas Mapa said. The central bank expects economic output to decline in the second quarter, though latest data signal milder pressures, and that the economy hit a low and is now entering a recovery phase. Bank Indonesia expects the economic recovery process to gain momentum in the third quarter after the government relaxes large-scale social restrictions in the middle of June 2020, coupled with the policy stimuli already implemented.

The central bank projected 0.9-1.9 percent GDP growth for this year and sees the figure rebound to 5.0-6.0 percent in 2021 on the back of global economic gains as well as monetary and fiscal policy stimuli. The current account deficit forecast was cut to around 1.5 percent of GDP in 2020, much lower than the 2.5-3.0 percent of GDP projected previously. The shortfall is seen below 2.5-3.0 percent of GDP in 2021.


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GBP/USD. Pound knockdown

Trading 18 juin 2020 Commentaire »

So, contrary to conflicting rumors, the Bank of England still implemented the dovish scenario today. Although the regulator left the interest rate unchanged, and the asset buyback program was expectedly expanded by £100 billion, the pound was still knocked down, primarily due to subsequent comments by BoE Governor Andrew Bailey.

On the eve of the June meeting, experts voiced different opinions regarding possible decisions of the English regulator. So, according to some analysts, the central bank should have taken a wait-and-see attitude - that is, limited itself to expanding the asset buy-back program without announcing further steps to mitigate monetary policy. At the same time, supporters of the hawkish version (if the term can be used at all in the current conditions) admitted that regulator members would "close their eyes" to catastrophic macroeconomic reports that reflected the peak of the coronavirus crisis. By and large, the data for April was actually published in June, when Britain was quarantined. Therefore, BoE members could only note a record slowdown in the economy, but at the same time shift the emphasis of their rhetoric on the prospects for the recovery process (as did, for example, members of the Reserve Bank of Australia).

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But the BoE decided to go its own way, taking a more dovish position. Commenting on the latest macroeconomic reports, Bailey mentioned the "prevalence of negativity" - both in the labor market and in relation to inflationary trends. Moreover, according to him, labor market indicators "are more relevant for assessing inflation risks." Let me remind you that the latest data showed that the number of applications for unemployment benefits jumped to 528,000, while salary data came out in the red zone - both in annual and monthly terms. Including premiums, this indicator slowed down to 1%, excluding bonuses - up to 1.7% (for comparison, in March this indicator was at the level of 2.7%). Also, Bailey reiterated that the British economy slowed down by 20% in the first quarter, and apparently, the same value will slow down in the second quarter.

If Bailey limited himself to only the above comments, the pound would hardly have reacted with such a sharp decline. However, the head of the English regulator curtailed the GBP/USD bears, talking about the prospects of negative rates. This is a very painful topic for the pound, which he had previously repeatedly raised, provoking volatility. This time, Bailey said that central bank economists are "trying to figure out the implications for the UK economy from the experiences of other countries with negative rates."

Here you have to go a little deeper into the background of the issue. For the first time, rumors that the BoE could introduce a negative rate appeared in early May, when more operational macroeconomic indicators signaled the extent of the economic catastrophe. At first, these conversations seemed empty - after all, Bailey himself, who had just been appointed then to the position of head of the central bank, initially rejected this idea. But that was back in March, when Britain just met the coronavirus. And when Covid-19 actually closed the country (and with it almost the whole world) for a month and a half, Bailey's position changed dramatically. Speaking to members of the Lower House of the British Parliament, he said that the central bank "is actively considering the option of reducing the rate to zero." Such a statement sounded like a bolt from the blue, so it is not surprising that the GBP/USD pair then slumped to two-month lows in a matter of hours, that is, to the middle of the 20th figure.

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But then the market came to the reasonable conclusion that the head of the central bank did not have the power to solely lower or raise the rate, while the rest of the Committee did not declare such intentions. The market has been hesitating for a long time on this issue, but then the BoE Chief Economist Andrew Haldane put a point in this discussion. According to him, the English regulator "didn't even come close to the decision to switch to negative interest rates." He also mentioned the negative effects of negative rates on UK banks and lenders who will experience margin pressure. In addition, Haldane noted that a similar move by the central bank "will affect confidence in the economy as a whole."

After that, the issue of reducing interest rates was discussed only in the context of a possible reduction to zero. But even such an option seemed unlikely to many experts, given the weakening of quarantine (in Britain and in most countries of the world) and a restart of the economy.

That is why Bailey's words sounded so "loud" today. The head of the BoE tried to maintain a balance in his rhetoric, noting that the issue of negative rates "is complicated", and if they are introduced, "there may be problems with their implementation and communication policy." But the market, as they say, heard only the first half of the phrase - that the central bank is considering the likelihood of "going to zero."

Resumed talk of a negative rate has become the main driver of the GBP/USD decline. And in my opinion, the pound has not yet fully won back this fundamental factor: if the bears can overcome the support level of 1.2410 in the near future (the upper border of the Kumo cloud on the daily chart, which coincides with the Kijun-sen line), then they can reach the bottom of the 23rd figure, where the lower border of the above cloud is located. Short positions in the pair are still relevant given the outcome of today's meeting, as well as the high degree of uncertainty with the Brexit issue.

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Dollar in the process of forming a growth trend

Trading 18 juin 2020 Commentaire »

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All the actions and comments of officials of the Federal Reserve indicate that the economic recovery from coronavirus is not going as fast as we would like. Putting on a V-shaped recovery is at least a mistake, especially now that the number of infected people has begun to increase. People are talking about the second wave of the pandemic, but it is worth noting that the first one has not yet been overcome.

A dangerous increase in coronavirus diseases is observed in the United States, a worrying situation in Germany, a new outbreak in China. All this has cooled the ardor of investors who are now taking note of the real world situation and who previously ignored these risks.

Wall Street has been trading negative for the second day, playing back, among other things, the Fed's negative forecasts and Jerome Powell's pessimistic statements. This year, the fall in US GDP could reach 6.5%. Therefore, unemployment in the country will increase, despite all the encouraging results from drug developers against COVID-19. At this time, authorities and employers will try to find more effective methods of employment that will allow the use of a smaller staff.

The data on initial applications for unemployment benefits in the United States once again showed how long and time-consuming the process of economic recovery will be.

The number of applications for unemployment benefits in the US for the week decreased by only 58,000 and reached 1,508,000, the Ministry of Labor reported on Thursday. At the same time, the markets hoped for a more significant decrease in the indicator. According to their estimates, it was supposed to decrease by 242,000 to 1.3 million. Wall Street suffered another disappointment today, while the dollar perked up a bit.

Demand for protective assets grew, and the dollar, which has the status of a safe haven currency, received another chance for growth. But whether it will turn out to be used is not yet entirely clear. This week, the dollar index rebounded from lows, but you can't call this promising, since overall US economic data are recovering, like the stock market, despite the current correction.

Dollar growth is also limited by promises by the US monetary authorities to provide the economy with even more incentive to recover. The long-term outlook for the dollar remains negative, most investors get rid of positions to increase it.

Nevertheless, an upward trend is now taking place in the greenback. The dollar index crossed the border of 97.10, and thus an impulse to buy was formed.

USDX

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Treasury Announces Details Of 2-Year, 5-Year And 7-Year Auctions

Trading 18 juin 2020 Commentaire »

The Treasury Department announced the details of this month's auctions of two-year, five-year and seven-year notes on Thursday.

The Treasury revealed it plans to sell $46 billion worth of two-year notes, $47 billion worth of five-year notes and $41 billion worth of seven-year notes.

The results of the two-year note auction will be announced next Tuesday, the results of the five-year note auction will be announced next Wednesday and the results of the seven-year note auction will be announced next Thursday.

Last month, the Treasury sold $44 billion worth of two-year notes, $45 billion worth of five-year notes and $38 billion worth of seven-year notes.


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U.S. Leading Economic Index Jumps More Than Expected In May

Trading 18 juin 2020 Commentaire »

After reporting sharp declines in leading U.S. economic indicators in the two previous months, the Conference Board released a report on Thursday showing its reading on leading indicators rebounded by more than expected in the month of May.

The Conference Board said its leading economic index jumped by 2.8 percent in May after plunging by 6.1 percent in April and 7.5 percent in March. Economists had expected the index to climb by 1.7 percent.

Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board, noted the rebound by the leading index was primarily due to initial jobless claims pulling back well off the record high set in late March.

"The improvements in labor markets, housing permits, and stock prices also buoyed the LEI, but new orders in manufacturing, consumers' outlook on the economy, and the Leading Credit Index still point to weak economic conditions," Ozyildirim said.

He added, "The breadth and depth of the decline in the LEI between February and April suggest the economy at large will remain in recession territory in the near term."

The report said the coincident economic index increased by 1.1 percent in May following the 10.4 percent nosedive in April.

Meanwhile, the Conference Board said the lagging economic index slumped by 1.9 percent in May after jumping by 1.7 percent in April.


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Philly Fed Index Unexpectedly Indicates Expansion In June

Trading 18 juin 2020 Commentaire »

Philadelphia-area manufacturing activity unexpected expanded in the month of June, according to a report released by the Federal Reserve Bank of Philadelphia on Thursday.

The Philly Fed said its diffusion index for current general activity skyrocketed to a positive 27.5 in June from a negative 43.1 in May, with a positive reading indicating an expansion in regional manufacturing activity.

Economists had expected the index to show a much more modest increase to a negative 23.0, which would have still indicated a contraction.

The unexpected jump by the headline index came as the new orders soared to a positive 16.7 in June from a negative 25.7 in May and the shipments index spiked to a positive 25.3 from a negative 30.3.

The number of employees index also climbed to a negative 4.3 in June from a negative 15.3 in May, although a negative reading still indicates a loss of jobs.

"The Pennsylvania economy reopened, most companies saw increased orders and shipments and yet more companies plan to cut employees than add them," said Chris Low, Chief Economist at FHN Financial.

"The apparent disparity is explained by the fact that 1. The index offers no sense of how big the increases are, and 2. Almost every company saw declining orders and shipments in April and May," he added. "Activity is rising off a very low level."

The report also said the prices paid index jumped to 11.1 in June from 3.2 in May, while the prices received index surged up to a positive 11.0 from a negative 3.1.

Looking ahead, the Philly Fed said all future indicators improved, suggesting that the firms expect overall growth over the next six months.

The diffusion index for future general activity vaulted to 66.3 in June from 49.7 in May, reaching its highest level in nearly 30 years.

On Monday, the New York Fed released a separate report showing manufacturing activity in New York steadied in the month of June after seeing sharp contractions in April and May.

The New York Fed said its general business conditions index spiked to a negative 0.2 in June from a negative 48.5 in May. A negative reading indicates a contraction in regional manufacturing activity.

The jump by the index far exceeded the estimates of economists, who had expected the index to surge up to a negative 27.5.


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Taiwan Central Bank Holds Rate Unexpectedly

Trading 18 juin 2020 Commentaire »

Taiwan's central bank unexpectedly kept its interest rate unchanged on Thursday and downgraded the growth projections as coronavirus pandemic weighed on exports.

Policymakers decided to hold the benchmark rate at a record low 1.125 percent. The bank was expected to cut the rate to 1.00 percent.

The bank forecast the economy to grow 1.5 percent this year, which was revised down from the previous forecast of 1.9 percent.

Given that unemployment has been hit by Covid-19, and that cases worldwide do not seem to be subsiding quickly, Taiwan's central bank could still cut interest rates to 1 percent at the next policy meeting on September 17, ING economist Iris Pang said.


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*U.S. Leading Economic Index Jumps 2.8% In May

Trading 18 juin 2020 Commentaire »

U.S. Leading Economic Index Jumps 2.8% In May


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U.S. Jobless Claims Drop Much Less Than Expected To 1.508 Million

Trading 18 juin 2020 Commentaire »

A report released by the Labor Department on Thursday showed a continued decrease in first-time claims for U.S. unemployment benefits in the week ended June 13th, although claims fell by much less than expected.

The Labor Department said initial jobless claims dropped to 1.508 million, a decrease of 58,000 from the previous week's upwardly revised level of 1.566 million.

Economists had expected jobless claims to tumble to 1.300 million from the 1.542 million originally reported for the previous week.

Jobless claims fell by much less than anticipated but still pulled back further off the record high of 6.867 million set in the week ended March 28th.

Noting the latest weekly decrease reflects the smallest decline since claims began retreating from their late March peak, economists at Oxford Economics said, "The latest jobless claims data reminds us that significant stress remains in the labor market."

The report said the less volatile four-week moving average slid to 1,773,500, a decrease of 234,500 from the previous week's revised average of 2,008,000.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also dropped by 62,000 to 20.544 million in the week ended June 6th.

The four week moving average of continuing claims tumbled to 20,814,750, a decrease of 1,092,000 from the previous week's revised average of 21,906,750.


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