· The dollar rallied from three-month lows on Thursday, extending gains against the euro and yen, after Federal Reserve Chairman Jerome Powell said the U.S. central bank intends to further shrink the balance sheet, suggesting it is not done tightening monetary policy just yet.
The greenback hit session highs against the euro, yen, and Swiss franc following Powell’s comments. The Fed chairman also said he sees no near-term risk of a U.S. recession and expects continued momentum in economic data. However, he reiterated that the Fed can be patient on monetary policy and can move “flexibly and quickly” if economic data warrants it.
In afternoon trading, the dollar index rose 0.3 percent to 95.535, after earlier dropping to a three-month trough. The euro, meanwhile, dropped 0.4 percent to $1.1498, while the dollar rose 0.3 percent versus the yen to 108.42 yen
· Charles Evans, president of the Federal Reserve Bank of Chicago, another FOMC voter in 2019, repeated his view on Thursday that the Fed has “good capacity to wait” before delivering what he expects will be three more rate hikes.
· Richmond Federal Reserve President Thomas Barkin was also cautious on Thursday, saying his contacts are worried about how long strong U.S. economic growth can continue.
· With U.S. growth likely to slow this year, the U.S. Federal Reserve has come to the “end of the road” on its current interest-rate hike cycle, St. Louis Federal Reserve Bank President James Bullard said on Thursday.
“I am concerned we are on the precipice of a policy mistake,” Bullard told reporters after an event in Little Rock, Ark. “We are good where we stand right now... What I don’t want to do is project that further increases are needed, that we are somehow short of our goal.”
· Federal Reserve Chairman Jerome Powell is concerned about the ballooning amount of United States debt.
“I’m very worried about it,” Powell said at The Economic Club of Washington, D.C. “From the Fed’s standpoint, we’re really looking at a business cycle length: that’s our frame of reference. The long-run fiscal, nonsustainability of the U.S. federal government isn’t really something that plays into the medium term that is relevant for our policy decisions.”
The Fed chief’s comments came as the annual U.S. deficit reaches new sustained highs above $1 trillion, a fact many economists worry could spell trouble for future generations. Annual deficits have topped $1 trillion before, but never during a time of sustained economic growth like now, raising concern about what would happen if a recession hits.
Total U.S. debt is about $21.9 trillion, of which $16 trillion is owed by the public. In part because of continued rate increases under Powell, the interest cost on that debt could start to become a bigger and bigger burden.
· The Federal Reserve should be prepared to adjust its policy to protect the U.S. economy from any sustained pressure from a global economic slowdown and volatility in financial markets, the Fed’s second-in-command said on Thursday.
The speech by Fed Vice Chairman Richard Clarida reinforced a message of patience and possible re-calibration given by several of his colleagues in recent days, including Chairman Jerome Powell who earlier in the day said the U.S. central bank would be watching to see whether such risks become reality.
· Wall Street weighed the possibility of a prolonged U.S. federal government shutdown. Earlier on Thursday, President Donald Trump tweeted he would skip the annual World Economic Forum in Davos due to the shutdown.
President Donald Trump said on Thursday the United States was having tremendous success in its trade negotiations with China, a day after U.S. and Chinese officials concluded three days of talks in Beijing.
He added that he found China to be in many ways “far more honorable” than congressional Democratic leaders Senator Chuck Schumer and House Speaker Nancy Pelosi.
“I think that China is actually much easier to deal with than the opposition party,” he said.
· U.S. Treasury Secretary Steven Mnuchin said on Thursday that Chinese Vice Premier Liu He will “most likely” visit Washington later in January for trade talks.
“The current intent is that the Vice Premier Liu He will most likely come and visit us later in the month and I would expect the government shutdown would have no impact,” Mnuchin said, speaking to reporters on Capitol Hill.
“We will continue with those meetings just as we sent a delegation to China.”
· Oil prices ticked higher on Thursday, extending a winning streak into a ninth session, with gains capped by the lack of any clear resolution to U.S.-China trade talks and weak Chinese economic data.
U.S. West Texas Intermediate (WTI) crude oil futures ended Thursday’s session up 23 cents at $52.59 per barrel. The modest gain was enough to push WTI to a five-week closing high.
International Brent crude futures were up 30 cents, at $61.74 per barrel around 2:30 p.m.
Both benchmarks rose by around 5 percent the previous day, capping off a week-long climb that marked oil’s longest sustained rise since last summer.
· Global financial markets had surged on hopes that Washington and Beijing may soon end their dispute and avert an all-out trade war between the two biggest economies.
But the rise in global markets began to dwindle after the two sides issued vaguely positive statements that lacked concrete details.
· On Thursday, U.S. President Donald Trump told reporters the countries were having “tremendous success” in their discussions, but offered no other details.
· Disappointing data from China added to concerns about the global economy. China’s producer prices in December rose at their slowest pace in more than two years, a worrying sign of deflationary risks.
· Barclays forecast that Brent will remain range bound at $55 to $65 per barrel as inventories build in the coming months, while it expects “the market will return to a balanced state” by the second half of 2019.
· U.S. bank Morgan Stanley cut its 2019 oil price forecasts by more than 10 percent on Wednesday, pointing to weakening economic growth expectations and rising oil supply.
Reference: CNBC, Reuters
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