“At Yellen’s Last Meeting, Rates left unchanged…..”

At Yellen’s Last Meeting, Rates left unchanged

The policy meeting held on Wednesday was the last one for Janet Yellen as Fed Chair and head of the central Bank. The Committee had unanimously selected Jerome Powell to succeed Yellen, effective 3^rd February.  Powell who is a Fed governor has worked closely with Yellen, was nominated by President Donald Trump and confirmed by the US Senate.  He is expected to adhere to the policies embraced by Yellen, who has adopted the gradual move away from the near-zero interest rates.   In the same meeting the Federal Reserve left rates unchanged at the end of the two-day policy meeting, keeping them in the range between 1.25 percent and 1.5 percent.  Furthermore, the Federal Reserve indicated that it will push ahead on its monetary tightening policy as economic activity continued rising at a solid rate, while inflation remained low but expected to increase in the coming months.   This upbeat outlook on inflation comes as data on Monday showed that the Core PCE Price Index, which is the Fed’s preferred measure of inflation, rose 1.5 percent in December.  Referring to solid gains in employment, household spending and capital investment, the Fed said it expected the economy to expand.

Catalonia

Spain’s constitutional court ruled on Saturday that Mr Puigdemont must be present at parliament to be chosen as chief of the region.  It also said he must ask for a judge’s permission to do so.  The ruling by the court has put an end to the plan by the Catalan separatist politicians to try to re-elect Mr Puigdemont without him being physically present.  Furthermore the court also ruled the investiture of Mr Puigdemont would be suspended without the previous authorisation of a judge, “even if he is physically in the chamber”.  Joan Tarda, the separatist Republican Left party said their supreme goal is to have a pro-independence government in place by next Wednesday to avoid a new election.  He further added that “if we have to sacrifice Puigdemont, then we will have to sacrifice him”.

Bond Yields

After a Governing Council Member commented that there is no reason for the quantitative easing to continue, the German five year bond yield broke above zero percent for the first time since December 2015.  Considered widely as one of the safest assets to own, German bunds have sold off this year as the ECB is seen to be drawing closer to its first interest-rate increase since 2011.  Bond yields in major global markets are rising.  The Federal Reserve, the ECB and the Bank of England are planning to withdraw the extraordinary monetary stimulus which were set in place to revive inflation.     There are expectations that Europe will phase out its asset purchase program before the end of this year and raise its benchmark rates for the first time since 2011.  Short term yields have remained negative in European government debt markets, Germany, Italy and Spain, as more cash was pumped up in the financial system via asset purchases and as the benchmark interest rates were left at levels below zero.  The trend seems to be reversing as markets are now pricing an increase of almost 14 basis points in the monetary authority’s deposit rate March 2019.  Meanwhile the benchmark US 10 year Treasury yield rose above 2.7 percent for the first time since 2014 on Monday creating some nervousness in the global equity markets.  The MSCI Asia Pacific Index followed the lower US stocks by slipping 1.2 percent.

UK – Brexit

Theresa May is confronted with rebellion from members of her party who want her to deliver a quick, clean break from the European Union while others say she is failing as a leader and must be replaced.  May’s party is split over how to leave the EU as time is running out to finalise the UK’s policy.  Those who are opposing to retaining EU trade rules after a divorce, want her to fire the Chancellor of the Exchequer Philip Hammond.     Furthermore US Donald Trump offered a critical assessment of May’s handling of Brexit and said he would have taken a “tougher stand.”  Talks are about to begin in Brussels on the transitional phase, which hopefully will give businesses more certainty that nothing will change for up to two years after Brexit.

Europe – GDP Day

The euro-area economy ended up last year with another quarter of robust growth, with gross domestic product rising 0.6 percent in the three months through December.  French and Spanish economies, the biggest two economies both recorded similar solid rates of growth.  The economic expansion of the euro region marked 2.5 percent better than anticipated by the European Central Bank and the fastest since before the 2008 financial crisis.  The positive momentum is set to continue with economic confidence remaining close to the 17 year high in January.  The stimulus measures taken by the European Central Bank has turned the European economy as the pillar of the global economy.  This pickup is in line with solid momentum in other parts of the world.  This development as Christine Lagarde referred to it in her speech at Davos is a “sweet spot” that should be celebrated. The French economy expanded 0.6 percent in the quarter delivering its best full-year results since 2011 as the election of President Emmanuel Macron helped bolster confidence and investment.  Meanwhile Spain has succeeded to overcome the crisis caused by Catalonia late into last year with growth of 0.7 percent.  Inflation remained subdued despite the economic upswing, an indication that it is too early to unwind the stimulus measures.  The economy might be experiencing price pressures as manufacturers face bottlenecks as production capacity approaches an all time low.  A gauge of output expectations signals strong momentum ahead.

Euro – Area Inflation

The start of the year have seen inflation slowing as consumer prices rose 1.3 percent in January, slowing from a 1.4 percent pace in December according to Eurostat.  This is still a challenge for the European Central Bank as it falls below the 2 percent target.  Although economic growth in the 19 euro area region is at its strongest and unemployment declined, price pressures have not picked up to a similar extent despite the stimulus measures taken by the ECB. Core inflation which strips out volatile elements such as food and fuel, increased to 1 percent in January from 0.9 percent.  The rate has not been close to 2 percent since 2008.  Unemployment is still high in most of southern Europe and wages have not yet sufficiently risen.  A Eurostat release shows that the unemployment rate in Europe stayed at 8.7 percent in December while, unemployment remains well above 10 percent in Spain and Greece.

Euro zone Manufacturing

IHS Markit’s January final manufacturing Purchasing Manager’s Index for the euro zone was 59.6 below the 60.6 in December (which was the highest since the survey began in June 1997).  According to Chris Williamson, chief business economist at IHS Markit, “the euro zone’s manufacturing boom continued in full swing in January.”  The PMI readings of Germany and Italy remained close to record highs whilst that of France the best for 17 years and that of Spain a decade.

German Factory Growth

Markit Purchasing Manager’s Index (PMI) for manufacturing which accounts for about a fifth of the economy fell to 61.1 from 63.3, a record high in December.  This is far above the 50 line that separates growth from contraction.  

Asian Factories

Asia factories got off to a strong start in 2018 with manufacturing activity in many countries gaining momentum and hitting multi-year highs as global demand for hi-tech products remain strong.   Inflation in South Korea posted its lowest inflation rate in 17 months and prices are growing less than expected in Australia and New Zealand.  The strongest manufacturing readings in Asia on Thursday came from tech exporters as the robust semiconductor cycle driven by upgrades in smartphones, industrial robots, cars and the recent demand of computing machines used to mine cryptocurrencies like bitcoin.  In Japan, the Markit Purchasing Managers Index rose to 54.8 in January the highest in four years.  For Taiwan the reading rose to its highest since April 2011 while that of South Korea bounced back into expansion as domestic and export orders picked up.   In China although authorities are cracking down on air pollution and excessive financial risks, factory growth last month appeared generally resilient.   

Cryptocurrency

According to Russia’s Finance Ministry, Russia is working on legislation to regulate cryptocurrency transactions without fully banning them or legalising digital FX as a means of payment in Russia.  The ministry said it had prepared a Bill that would allow trade in cryptocurrencies through digital exchanges which met certain conditions and would also cover ICOs (Initial coin offerings).  This will reduce the risk of fraud and make it possible to tax cryptocurrency transactions. The Minister highlighted that digital currencies and tokens would not be allowed to replace the Russian rouble.  Chinese authorities have banned initial coin offerings and shut down local trading platforms, while South Korea is working on plans to ban virtual coin exchanges.

Apple

On Thursday Apple said it sold fewer Iphones in the last quarter compared to a year ago.   This came as a surprise during a critical period for the company as it began selling the highly anticipated iPhone X.  Although there was a decline in phone sales, Apple reported record profit in the important holiday season.

‘Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Timberland Finance has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd.’