economy Archives - The Industry Spread

US Dollar Weaker Across the Board Following Sino-U.S. Trade Truce

December 18, 2018 by Karthik Subramanian Leave a Comment Filed Under: Industry News Tagged: Brexit, Capital Markets, Crude Oil, economy, EURUSD, Financial markets, investors, regulators, Sino-U.S., trade truce

The question now is how long will the positive rally hold out? Precious metals & Crude oil rise on a weaker dollar as emerging markets can actively participate owing to low exchange rate when the US Greenback is weak.

Summary: The US Dollar is underbid significantly as risk appetite increased in equity and forex markets following headlines that indicated China & U.S. were able to come to an understanding during the sideline talks in G20 summit which resulted in both parties agreeing to temporary ceasefire for next 90 days while they begin negotiations anew and come to a deal. However, investors continue to maintain caution as the ceasefire is a temporary measure that could easily be erased from the US government, given President Trump’s tantrums in the past. The reason for caution being a no-progress regarding key issues that resulted in tariff war – such as forced technology transfer. As a result, Trade-exposed currencies led the early gains amid a weak USD.

The Dollar Index (USD/DXY) which measures the strength of US Greenback against six major global currencies is trading at 96.73 down by 0.37% on the day as of writing this article.
While Crude oil price gained in broad market with US spot crude moving up over 5% during Asian market hours, crude oil investors continue to maintain caution ahead of the OPEC meeting scheduled to occur on Dec 6 when members involved are expected to cut production by over 1 million bpd.
Precious Metals also gained positive momentum despite lack of demand for safe-haven assets as both sides of dollar-denominated precious metal pair saw low price making it an attractive opportunity for investors to stock up small volumes on hopes of short-term profit opportunities.
European markets continue to exercise caution as today’s positive price action lacked fundamental support and moved on broad-based US dollar’s weakness amid unresolved Brexit & Italian Budget concerns.

On the Lookout:

Sino-U.S. Trade Truce – There are already very different official takes on what was achieved at the meeting as deeply contentious thornier structural issues such as forced technology transfer remains unresolved. This US-China agreement is thus better characterized as a “mini-breakthrough” that puts a momentary pause on trade tensions rather than a comprehensive policy deal.
Crude Oil – Investors continue to maintain cautious investor stance ahead of the official OPEC meeting which is expected to see participants involved agree on production cuts. However Crude oil market opened positive for the week as Canada made an unprecedented move by announcing that Alberta province will force producers to cut output by 8.7 % or 325,000 barrels per day, to deal with a pipeline bottleneck that has led to crude building up in storage owing to majority of Alberta’s oil mainly being exported to the United States.
Political Woes – Key markets across the globe continue to experience a bearish pull from unresolved issues such as the Brexit deal in the UK and Italian Budget woes in EU Region. The Brexit deal is likely to see high resistance in parliamentary approval which if fails, will see PM May face a no-confidence vote while EU region waits for an update on some sort of solid progress between EU & Italy during budget plan related negotiations. Investors also await further updates from the US to see if they will impose any sort of sanction or tariffs on the European auto market.
Economic Data Release & Events – European macro data was in line with expectations while UK’s manufacturing PMI saw better than expected outcome. During American market hours, US markets will see the release of ISM Manufacturing PMI, ISM Manufacturing Employment Data & Speech by FOMC Members Kaplan & Brainard.

Trading Perspective:

AUD/USD – The Australian Dollar was strongly bid on Asian trading hours as the market opened for the week. This up move was supported by positive investor sentiment influenced by headlines from the weekend which saw Sino-U.S. Presidents agree to a 90-day trade truce. The Aussie which is widely viewed as a china-proxy was further supported by better-than-expected Caixin PMI from China resulting in the pair hitting three-month highs.
EUR/USD trading bullish
EUR/USD – The common currency which is viewed as the leader of major global currencies is trading positive against its major counterpart US Greenback supported by broad-based risk appetite and weak US Greenback, but the upside is limited due to lack of fundamental support for EUR bulls amid unresolved Italian budget woes.
S&P 500 – S&P 500 futures were trading up by 1.9% on the day over positive investor sentiment as markets opened for the week. Asian and European market hours are seeing major US futures and key Asian/European indices trade positive as temporary ceasefire eased worries of global economic slowdown and has initiated a positive rally across key global markets which would pass on positive cues to the American equity market.

Intercontinental Exchange Announces Launch of Marine Fuel Contracts in Advance of IMO 2020

December 18, 2018 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: economy, ICE, ICE Brent, IMO 2020, Intercontinental exchange, marine fuel, Marine Fuel Contracts, market, market participants

LONDON & NEW YORK–(BUSINESS WIRE)– Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced plans to launch new Marine Fuel contracts in advance of the implementation of the 0.5% sulphur cap by the International Maritime Organization (IMO) in 2020. The new contracts are expected to launch on February 4, 2019, subject to completion of relevant regulatory processes.

ICE’s new futures contracts will settle against S&P Global Platts physical marine fuel 0.5% assessments. The contracts are as follows:

Fuel Oil Outright – Marine Fuel 0.5% FOB Rotterdam Barges (Platts) Future
Fuel Oil Outright – Marine Fuel 0.5% FOB Singapore (Platts) Future
Fuel Oil Diff – Marine Fuel 0.5% FOB Rotterdam Barges (Platts) vs 3.5% FOB Rotterdam Barges (Platts) Future
Fuel Oil Diff – Marine Fuel 0.5% FOB Singapore (Platts) Future vs 380 CST Singapore (Platts) Future
Fuel Oil Outright – Marine Fuel 0.5% FOB USGC Barges (Platts) Future
Fuel Oil Diff – Marine Fuel 0.5% FOB USGC Barges (Platts) vs USGC HSFO (Platts) Future

The new contracts have been developed in response to significant market demand in advance of the IMO regulation limiting sulphur emissions from shipping bunker fuel from January 2020. The new regulation requires that ships will only be able to use fuel oil with a maximum sulphur content of 0.5% (mass/mass) outside designated emission control areas.

“Our customers have expressed a strong desire for Marine Fuel 0.5% specific derivative contracts and our new contracts will allow market participants to hedge forward positions in an industry which today consumes more than three million barrels per day of high sulphur fuel oil,” said Jeff Barbuto, Vice President of Oil Markets at ICE. “The contracts will operate alongside ICE’s benchmark Low Sulphur Gasoil futures, fuel oil and LNG markets providing customers with a range of hedging tools to assist with the transition to the new regulations in 2020,” Barbuto added.

ICE Low Sulphur Gasoil is the key refined oil benchmark in Europe and Asia. Gasoil futures and options grew 11% in the period January to November 2018 versus the same period in 2017. The contract has become the go-to price marker for the middle part of the refined barrel and the world’s leading middle distillate benchmark for the oil market. ICE Low Sulphur Gasoil is an important and efficient hedging and trading mechanism, providing market participants with access to a range of products in a single contract and plays the same role for middle distillate oil that ICE Brent Crude plays for the crude oil market.

ICE is home to a global natural gas complex, which includes ICE JKM LNG (Platts), which has become the benchmark for natural gas in the Asian region. ICE offers the broadest range of natural gas benchmarks across the US, Canada, Europe and Asia. Half of the world’s oil and refined futures are traded on ICE’s markets, including futures and options on the global benchmark ICE Brent, the U.S. benchmark West Texas Intermediate (WTI) crude, ICE Permian WTI Futures , the Asian benchmark Platts Dubai crude, Heating Oil and RBOB Gasoline, as well as more than 500 additional grades and oil products.

Global Equity Markets Turn Dovish Over Weak Macro Data

December 14, 2018 by Karthik Subramanian Leave a Comment Filed Under: Market News - US Open Tagged: Brexit, Capital Markets, ECB, economy, financial institutions, Financial markets, foreign exchange, global equity markets, monetary policy, trade war, trading

Global Equity Markets Dovish Over Weak Macro Data

Global Equity markets which saw considerable positive price action this week have suffered significant downward price action on last trading session of the week pressured by geopolitical woes and weak macroeconomic data which hints at a global economic slowdown.

Summary: Stocks worldwide tumbled in Asian and early European market hours after weak economic data from China and Europe fanned concerns of a global economic slowdown and left investors fretting over the wider impact of a still-unresolved Sino-U.S. trade dispute. Eurozone business ended the year on a weak note, expanding at the slowest pace in over four years as new order growth all but dried up, hurt by trade tensions and violent protests in France, a survey showed. Data out of Europe added to weak readings from China, where November retail sales grew at the weakest pace since 2003, and industrial output rose the least in nearly three years underlining risks to the economy as Beijing works to defuse a trade dispute with the United States.

Although hopes of progress in U.S.-China talks and cheap valuations are supporting the market, for now, we have lots of potential pitfalls. Analysts and Investors alike believe that the recent inversion curve in the US treasury yield hints at a slowdown in the economy which will be confirmed if the US Fed decides to stop the rate hike for 2019. The macro data outcome provides clear signs that economic growth is slowing down in Asia and Europe which goes to show that the global economy, on the whole, is losing growth pace thereby inspiring cautious investor sentiment. This combined with local and international political woes across major global markets has resulted in equity markets across the globe turning dovish on the last trading session of the week.

The dollar index DXY which is used to measure the strength of US Greenback against a basket of six major global currencies is currently at 97.54 up by 0.46% on the day as the rout in the equity market has boosted demand for USD in broad market as safe haven instrument.
Asian and European equity markets face dovish influence not just from local macro data but on international frontiers as well. Investor sentiment is turning dovish in Asia as political tension between Canada and China escalate owing to China’s retaliation in form of arrest of Canadian businessman on suspicion of harming China’s security, while European markets are affected owing to France protest-related headlines and ECB President Draghi’s dovish comments cautioning slowdown in economy with risk skewed to downside.
Oil prices fell as investors cashed in gains of more than 2% made during the previous session on concerns that demand may decrease amid slowing economic growth, but analysts still expect that the recent supply cuts from the producer cartel will support price action in the broad market.
Precious metals trade range bound as demand for safe-haven assets owing to risk-averse investor sentiment keeps the volatility in favor of bulls, but upside move is capped as USD demand is also boosted owing to Greenback being considered as a primary safe-haven asset in the current market.

On The Lookout:

Brexit deal stalls
Brexit & EU Summit – PM May’s attempts to renegotiate the Brexit deal during EU summit yesterday failed as representatives were clear with their intentions stating there is no more room for further negotiations or another deal leaving approval of Brexit draft to hardline Brexiteers. Meanwhile, early today morning President of the European Commission Jean-Claude Juncker announced that the European Union would begin publishing all information concerning a no-deal Brexit scenario and preparations for such an event will begin on December 19^th, 2018 making his stance clear that this deal is best that the UK is going to get on their table.
French Woes – According to macro data released today French business activity plunged unexpectedly into contraction this month, retreating at the fastest pace in over four years in the face of violent anti-government protests. Meanwhile, another yellow vest protestor died today in an accident caused by the protestors roadblock making it the sixth death in relation to yellow vest protest. While French President Macron has taken some measures to calm down protestors and ease public worries, many protesters have expressed disappointment at the measures and are proposing more protests across France on Saturday.
EM Currencies – Emerging market currencies are suffering significantly owing to economic slowdown woes. This was further aggravated on weak Chinese economic data and increasing demand for USD as a safe-haven asset on equity routs. Korean won poised to lose nearly 1 percent this week and Indian rupee on track for the second week of heavy declines, while Philippines Peso weakened after the central bank left its benchmark interest rate on hold at 4.75%.
Economic Data Release and Events – European markets saw the release of Eurozone, French and German Manufacturing, Markit Composite & Services PMI data all of which had a bearish outcome. Moving forward, US markets will see release of Retail sales data, Industrial and manufacturing production data, Manufacturing & Services PMI data updates during North American market hours.

Trading Perspective:

EURUSD – EUR/USD is currently trading near the 1.1300 handle after hitting an intra-day low of 1.12864. The pair which was already under pressure following European Central Bank President Mario Draghi’s dovish comment was further pushed into sharp bearish slide following the dovish outcome of Eurozone, French and German Flash PMI data release. In regards to the near future, the pair faces no technical support as low as the 1.1260 level. Also, the continuation of Brexit turmoil is set to beat the Euro down ahead of US FOMC update suggesting that short-term picture is dovish for the common currency.
USDJPY – The USD/JPY pair edged lower during the Asian session, as risk aversion took over the FX board. However, as both currencies are perceived as safe-havens in times of turmoil, the pair held within familiar levels locked inside an intraday range between 113.41 and 113.64. While the price action shows consolidation near the upper end of the weekly range dollar’s broad strength is being neutralized by increased demand for US government bonds. The 4 hours chart shows that the price is continuing to developing well above 100 and 200 SMA’s which run parallel around 113.20. The Momentum indicator continued retreating which suggests the lack of follow-through hinting at an upcoming slide, while the RSI indicator consolidates around 59 all of which maintains the downward limited. To the upside, a recovery past 114.00 could send the pair up to the 114.40/50 price zone.
AUDUSD – The Australian dollar was sharply lower in Asian and European market hours pressured by weaker than expected China’s IP and retail sales data that pressured riskier assets. Australian mining-based economy is quite dependent on the Asian giant, which consumes most of its production resulting in the Australian economy suffering significantly whenever the Chinese market is hit. The pair is now on track for the second consecutive bearish weekly close, after last week’s weekly bearish engulfing pattern generated a strong bearish signal.

Asian Markets take a hit after Economic Data

December 14, 2018 by Nikolas Papas Leave a Comment Filed Under: Market News - European Open Tagged: Asian Markets, Bank of China, Capital Markets, ECB, economy, EUR-USD, European trading, European Union, Financial markets, financial services, Forex, GBPUSD, monetary policy, trade war, trading session, trading volume

Asian Markets take a hit after two days of gains as macro data from China disappointed investors. China’s industrial-production growth slowed to 5.4% in November, the lowest number since the start of 2016 and the retail-sales increase was 8.1%, the least in 15 years. China’s National Bureau of Statistics (NBS) is reporting that global economic growth continues to decline, with an increasing number of uncertainties impacting the impetus for growth, and that weaker industrial production, and slowing retail growth shows that downward pressure on China’s domestic economy continues to increase largely due to the US-China trade war.

In Tokyo, the Nikkei225 index ended down 2.2% with Topix index declining -1.40% for Friday trading session. Singapore STI index joins others in falling 1.3% and the Hang Seng index fell 1.6%.

European markets and U.S. equity futures followed Asian stocks lower after data showed continued weakness in China’s economy. London stocks fell in early trade on Friday, the FTSE was 0.70% the DAX30 losing 1.50% and CAC40 started 1.32% lower.

ECB yesterday lowered its growth projections for 2018 to 1.9% vs +2.0% previous and 1.7% for 2019 vs +1.8% prior. Meanwhile, the yearly inflation rate for 2018 was revised higher to 1.8% from 1.7% previous but was largely offset by a weaker outlook for 2019, now seen at 1.6% vs. 1.7% prior.

EUR/USD making new monthly low breaking the 1.13

EURUSD started the European trading session making new monthly low breaking the 1.13 as German and French PMI’s missed analyst’s expectations, The slowdown of the economic activity in the Eurozone was broad-based with new business inflows almost stalling, job creation slipping to a two-year low and business optimism deteriorating. Mario Draghi reaffirmed a dovish shift by the ECB, forcing investors to scale back expectations for a rate hike next year, a key point that we mention in our yesterday’s daily report. According to the Eurozone money market futures, investors are now pricing in roughly 60% probability for the ECB to hike rates next year, which marks a heavy drop from around 75% probability seen yesterday.

EUR/USD currently trading at 1.1290 breaking the support at 1.13 and the 50h moving average, now a level for traders to watch is 1.1275. A clear break of that level will drive the price down to yearly low at 1.1215. On the flipside, the 1.1375 yesterday’s high is the immediate resistance point. Karen Jones, analyst at Commerzbank, suggests that the EUR/USD remains underpinned very near term by the 1.1321 support line and further gains to the November high at 1.1500 are on the cards and 1.1530/1.1622 (the 2018 downtrend and 16th October high). “This will need to be overcome to negate downside pressure. Dips lower will ideally be contained by 1.1300 and while above here the market will be viewed as bid. This guards the 1.1216 November low.

Below the 1.1216 November low lies the 61.8% Fibonacci retracement of the 2017-18 advance at 1.1186. Failure there would put the late May and June 2017 lows at 1.1119/10 on the cards.”

GBP/USD

GBPUSD today canceled the positive momentum that built yesterday as the rally stalled at 1.2670 area. The break of 100h moving average (red line) earlier today accelerated the selling pressures for sterling sending the price down to 1.2580. The 1.2560 is the first support for the pair today a break below that level will give bears the control and the pair can end at the 1.2485 level. The volatility is likely to remain over the coming days as Theresa May updated Brexit plan was swiftly rejected by the European Union.

Another victim of weak China macro data was AUDUSD which penetrated the 100d moving average entering the bearish phase.

Gold is trading lower for the second consecutive day at $1238 as retracement from 5 month top continues. The bullish momentum for the precious metal is still intact but we can’t rule out a move down to 1234 horizontal support. On the flip side, the $1242 level now seems to act as first resistance, which if cleared might lift gold back towards $1249-50 highs.

IMF commends Hong Kong’s strong buffers and robust policy frameworks despite increasing global risks

December 13, 2018 by Reg Hub Leave a Comment Filed Under: Regulatory Annoucements Tagged: banks, Capital Markets, economy, financial institutions, Financial markets, financial services, financial stability, Hong Kong, Hong Kong Monetary Authority, monetary policy, regulators

An International Monetary Fund (IMF) Staff Mission has commended the Hong Kong Special Administrative Region (HKSAR) in its latest assessment, noting that many years of prudent macroeconomic policies have endowed the city with strong buffers to navigate through challenges and ensure continued stability despite increasing risks confronting global growth.

The assessment was made in the Concluding Statement of the IMF Mission published today (December 12), following the 2018 Article IV Consultation with the HKSAR.

The Financial Secretary, Mr. Paul Chan, said, “I welcome the IMF’s reassuring forecast for Hong Kong and reaffirmation of our strong buffers and robust policy frameworks. While we are well placed to navigate the challenges ahead, the Government will stay vigilant in monitoring risks, and spare no efforts in boosting economic vibrancy and promoting economic growth.

“To support long-term growth, the Government is working to increase labour force participation and further enhance Hong Kong’s competitiveness. I welcome the Mission’s acknowledgement of the steps we have taken, including capitalising on the development of the Guangdong-Hong Kong-Macao Greater Bay Area and rapid advancement in the field of innovation and technology.”

The Chief Executive of the Hong Kong Monetary Authority (HKMA), Mr. Norman Chan, said, “I welcome the Mission’s reaffirmation that the Linked Exchange Rate System (LERS) remains the appropriate arrangement for Hong Kong, which serves as an anchor of stability for the economy. Amid episodes of outflow from the Hong Kong dollar earlier this year, the LERS has operated smoothly and in accordance with its design. This reflects confidence in the LERS, a regime that is clear, transparent and proven to work well for Hong Kong.

“I also note the Mission’s assessment that tight macroprudential regulations have helped contain systemic risks and should remain in place. Our banks are highly capitalised and subject to robust regulation. The HKMA will remain vigilant to the risks to banking stability amid growing volatility in global financial markets.”

The Concluding Statement notes that Hong Kong’s economy has benefitted from a strong cyclical upswing and the growth momentum continued through the first half of 2018 as a result of the global recovery, continued solid growth in Mainland China, and increased consumer confidence. Hong Kong’s real Gross Domestic Product growth is projected to remain robust in 2018. As with the global outlook, risks have shifted to the downside for the economy, and such include risks of escalation in trade tensions, sharper-than-expected tightening of global financial conditions, a sharp slowdown in the property market, and a sharper-than-expected slowdown in the Mainland economy.

The Mission assesses that many years of prudent macroeconomic policies and robust financial regulation and supervision will help Hong Kong weather possible domestic and external shocks. The strong buffers Hong Kong enjoys include large foreign exchange reserves, a current account surplus, one of the world’s largest net international investment positions, large fiscal reserves, and a well-capitalised banking system with high asset quality.

The Mission reaffirms its support for the LERS, acknowledging that it remains the appropriate exchange rate arrangement for Hong Kong. The LERS has served as an anchor of stability, helping to ensure sustained growth, competitiveness, and the smooth functioning of the extensive financial services industry.

The Mission notes that Hong Kong has been considered one of the most competitive economies in the world for many years, and is rightly taking steps to maintain competitiveness. These steps include further development of the bond market, the introduction of various green finance initiatives, and development in innovation and technology as attested by the launch of eTradeConnect and the Faster Payment System. The Mission also notes that the development of the Greater Bay Area creates opportunities for Hong Kong over the medium term, given Hong Kong’s unique position as the gateway to the Mainland and as a global financial centre with renowned professional services.

The Mission visited Hong Kong from October 29 to November 9 for the 2018 Article IV Consultation with the HKSAR. It held discussions with government officials, regulators and private sector representatives. The Concluding Statement is attached in the Annex. The full report of the Article IV consultation will be discussed by the IMF Executive Board in January 2019.

Basel Committee publishes updated Basel III disclosure requirements

December 13, 2018 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements Tagged: banks, Basel Committee, Basel III Standards, Capital Markets, economy, financial institutions, Financial markets, financial services, monetary policy, regulators

basel The Basel Committee on Banking Supervision has published today updated Pillar 3 disclosure requirements. These requirements, together with the updates published in January 2015 and March 2017, complete the Pillar 3 framework.

Pillar 3 of the Basel framework seeks to promote market discipline through regulatory disclosure requirements. The revised Pillar 3 framework reflects the Committee’s December 2017 Basel III post-crisis regulatory reforms and pertains to the following areas:

credit risk, operational risk, the leverage ratio, and credit valuation adjustment (CVA) risk;
risk-weighted assets (RWAs) as calculated by the bank’s internal models and according to the standardised approaches; and
an overview of risk management, RWAs, and key prudential metrics.

In addition, the updated framework sets out new disclosure requirements on asset encumbrance and, when required by national supervisors at the jurisdictional level, on capital distribution constraints.

The standard incorporates feedback collected during the February 2018 public consultation from Pillar 3 preparers and users. In particular, the CVA disclosure requirements have been substantially streamlined.

The implementation deadline for the disclosure requirements related to Basel III is 1 January 2022, which accords with the implementation of the Pillar 1 (minimum capital requirements) framework. The implementation deadline for the disclosure requirements for asset encumbrance, capital distribution constraints and the prudential treatment of problem assets has been extended by one year to end-2020, taking account of feedback received from the consultation.

The Committee thanks all those who contributed time and effort to express their views during the consultation process.

219th Meeting of the Monetary Policy Committee (“Copom”) of the Central Bank of Brazil Press Release

December 13, 2018 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements Tagged: bank of brazil, banks, Brazil, Capital Markets, economy, Financial markets, financial stability, monetary policy, regulators, selic rate

copom The Copom unanimously decided to maintain the Selic rate at 6.50% p.a.

The following observations provide an update of the Copom’s baseline scenario:

Recent data on economic activity continue to indicate a gradual recovery of the Brazilian economy;

The global outlook remains challenging for emerging economies. The main risks are associated with an increase in risk aversion in global financial markets, with normalization of interest rates in some advanced economies, and with uncertainty regarding global trade.

The Committee judges that various measures of underlying inflation are running at appropriate or comfortable levels. This includes the components that are most sensitive to the business cycle and monetary policy.

Inflation expectations for 2018, 2019 and 2020 collected by the Focus survey are around 3.7%, 4.1%, and 4.0%, respectively. Expectations for 2021 are around 3.75%.

The Copom’s inflation projections in the scenario with interest rate and exchange rate paths extracted from the Focus survey stand around 3.7% for 2018, 3.9% for 2019, and 3.6% for 2020. This scenario assumes a path for the Selic rate that ends 2018 at 6.5% p.a., increases to 7.5% p.a. over the course of 2019, and reaches 8.0% p.a. by 2020. It also assumes a path for the exchange rate that ends 2018 at R$/US$ 3.78, and ends both 2019 and 2020 at R$/US$ 3.80. In the scenario with a constant interest rate, at 6.5% p.a., and a constant exchange rate, at R$/US$ 3.85*, the projections for 2018, 2019, and 2020 stand around 3.7%, 4.0%, and 4.0%, respectively.

The Committee emphasizes that risks around its baseline scenario remain in both directions, but with larger weight on the last two risks. On the one hand, (i) the high level of economic slack may lead to a lower-than-expected prospective inflation trajectory. On the other hand, (ii) frustration of expectations regarding the continuation of reforms and necessary adjustments in the Brazilian economy may affect risk premia and increase the path for inflation over the relevant horizon for the conduct of monetary policy. This risk intensifies in case (iii) the global outlook for emerging economies deteriorates. The Committee judges that risk (i) has increased, whereas risk (ii) has moderated.

Taking into account the baseline scenario, the balance of risks, and the wide array of available information, the Copom unanimously decided to maintain the Selic rate at 6.50% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation and the associated balance of risks, and is consistent with the convergence of inflation to target over the relevant horizon for the conduct of monetary policy, which includes 2019 and, with a smaller weight, 2020.

The Copom reiterates that economic conditions prescribe stimulative monetary policy, i.e., interest rates below the structural level.

The Copom emphasizes that the evolution of reforms and necessary adjustments in the Brazilian economy is essential to maintain low inflation in the medium and long run, for the reduction of its structural interest rate, and for sustainable economic recovery. The Committee stresses that the perception of continuation of the reform agenda affects current expectations and macroeconomic projections.

In the Copom’s assessment, the evolution of the baseline scenario and of the balance of risks prescribes keeping the Selic rate at its current level. The Copom emphasizes that the next steps in the conduct of monetary policy will continue to depend on the evolution of economic activity, the balance of risks, and on inflation projections and expectations.

The following members of the Committee voted for this decision: Ilan Goldfajn (Governor), Carlos Viana de Carvalho, Carolina de Assis Barros, Maurício Costa de Moura, Otávio Ribeiro Damaso, Paulo Sérgio Neves de Souza, Reinaldo Le Grazie, Sidnei Corrêa Marques, and Tiago Couto Berriel.

*Value obtained according to the usual procedure of rounding the average R$/US$ exchange rate observed on the five business days ending on the Friday prior to the Copom meeting.

Note: This press release represents the Copom’s best effort to provide an English version of its policy statement. In case of any inconsistency, the original version in Portuguese prevails.

Reform of interest rate benchmarks in South Africa: Market Practitioners Group

December 12, 2018 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements Tagged: banks, Capital Markets, economy, foreign exchange, fsca, monetary policy, regulators, South Africa

The South African Reserve Bank (SARB) embarked on a public consultation process on 30 August 2018 to solicit input on proposals for the reform of key interest rate benchmarks used in South Africa. The ‘Consultation paper on selected interest rate benchmarks in South Africa’ (Consultation Paper) was open for public comment until 30 November 2018.
The SARB’s initial assessment of the comments received is that there is broad-based in-principle support for the recommended reforms, and valuable input has been received in respect of the composition and/or the calculation methodology of some interest rate benchmarks. These comments include the following:

There is general agreement that the current calculation of the Johannesburg Interbank Average Rate (Jibar) be phased out over time, and that interest rate benchmark calculations should be based on actual transactions.

There is a general acceptance that risk-inclusive reference rates should be used for the pricing of unsecured on-balance sheet (Jibar-linked) items and that risk-free reference rates should be used for derivative contracts.

There is support for the reform of the South African Benchmark Overnight Rate (Sabor), including the proposed Sabor Money Market as well as the introduction of the South African Rand Interbank Overnight Rate (ZARibor).

There appears to be limited support for the government bond repurchase rate as the secured overnight rate for the derivative market, due to current two inefficiencies/deficiencies in the domestic market for buy- and sell-back transactions.
As part of developing an implementation paper to be released during the second quarter of 2019, the SARB will consider all the responses in detail in consultation with the Market Practitioners’ Group (MPG).

The MPG is a public-private sector body, comprising members of the SARB, the Financial Sector Conduct Authority, the Banking Association of South Africa, the Association of Corporate Treasurers of South Africa and the Association of Savings and Investment South Africa. The primary purpose of the MPG will be to facilitate final decisions on the choice of interest rate benchmarks to be used as reference interest rates for financial and derivative contracts, as well as to provide input to the SARB and the FSCA on the operationalisation of the interest rate benchmark proposals.

The SARB today published the Terms of Reference (ToR) of the MPG.

The Reserve Bank of New Zealand Senior Leadership Team Appointment

December 12, 2018 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements Tagged: banks, Capital Markets, economy, Financial markets, financial stability, monetary policy, RBNZ, regulators

RBNZ The Reserve Bank of New Zealand (RBNZ) has appointed Patrick Hoerler to its Senior Leadership Team – as Assistant Governor and General Manager of Business Operations.

Mr. Hoerler joined the Reserve Bank in January 2017 and was most recently the Bank’s Head of Risk and Audit.

As Assistant Governor and General Manager of Business Operations, Mr. Hoerler will be leading the Bank’s Digital Services, Property Assets and Security teams and have responsibility for the Bank’s business continuity office in Auckland.

Prior to joining the Reserve Bank, Mr. Hoerler was the Risk Assurance Officer for Mercury Energy and was previously its Treasurer. He has a background in corporate treasury, finance, and international banking. Patrick is Swiss and spent time working in Switzerland, New York, and Singapore before moving to New Zealand.

In November, the Reserve Bank announced plans to introduce a senior leadership team to better help it achieve its vision of ‘Great Team, Best Central Bank’.

Recruitment continues for the remaining two vacant positions on the Senior Leadership Team – Assistant Governor/GM Governance, Strategy and Corporate Relations, and Assistant Governor/GM Economics, Financial Markets and Banking.

Warwick Business School and the BoE are partnering to launch a new online postgraduate programme

December 12, 2018 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements Tagged: Bank of England, banks, Capital Markets, Central Bank, economy, Financial markets, monetary policy, regulators

Warwick Business School and the Bank of England are partnering to launch a new online postgraduate programme, the MSc Global Central Banking and Financial Regulation.

The qualification blends the latest thinking in research and practice, being co-designed and delivered by world-leading academics, central bankers and regulators.

The modular nature of the programme allows students to study an individual module for an Award, or complete the MSc in three years. This part-time course is flexible enough to fit around busy working lives across the globe and is designed for participants to apply what they have learned directly to their organisation.

Mark Carney, Governor of the Bank of England, said: “Building on the success of our Central Banking Qualification we are excited to be partnering again with WBS on this new qualification. In a world with an increasingly interconnected global financial system, it is right that we invest in and train practitioners, regulators and central bankers of the future.”

The course will cover topics including Comparative Central Banking, Financial Regulation, Monetary Policy, Big Data, Behavioural Finance as well as Financial Conduct, combining research and insights from academics at one of the world’s leading business schools alongside policymakers and regulators at the Bank of England.

By using the platform that has powered the Distance Learning MBA provided by Warwick Business School to number one in the world in the Financial Times’ latest ranking, participants will be able to use a virtual classroom to listen to lectures, take part in group work and seminars, and access rich interactive learning resources.

The MSc consists of six modules from a choice of seven, each taking 17 weeks to complete, plus a dissertation, but time-pushed participants can choose just one module and earn themselves a Postgraduate Award qualification.

Course director John Thanassoulis, Professor of Financial Economics and also a member of the Competition and Markets Authority panel, said: “The face of monetary policy and financial regulation has changed significantly since the global financial crisis of 2008 and is currently being disrupted again.

“The need to manage financial stability as well as inflation, the expectation that ethical standards in Finance must improve, the advent of big data, and the need to conduct monetary policy close to the zero lower bound on interest rates are all changing the nature of central banking.

“It is in this climate that, in partnership with the Bank of England, we have developed the MSc Global Central Banking and Financial Regulation, which offers valuable knowledge and skills for banking professionals around the world.”

The first cohort will start the course in October 2019 and online access can be via a PC, tablet or smartphone with careers support also on offer.

Andy Lockett, Dean of Warwick Business School and Professor of Strategy and Entrepreneurship, added: “I am delighted that Warwick Business School is partnering with the Bank of England to develop and deliver this exciting new programme.

“A lot of work has gone into designing the MSc Global Central Banking and Financial Regulation and in using the latest digital technology to deliver it to homes and offices across the globe.

“This is a truly bold new step for financial education as we try to bring world-class research and insights from expert central bankers to students and professionals in all parts of the world.”