- Bank of Japan’s Dovish Bent Reinforces Asia’s Policy Divergence
The Bank of Japan’s determination to press on with its unprecedented monetary stimulus leaves it out of step with developed world peers, which are either raising rates or debating how to start normalizing policy.
Yet in its own region — Asia — the BOJ is far from alone. While the People’s Bank of China is turning to open market-operations and lending tools to curb excessive leverage in parts of the financial system, it’s holding benchmark rates at all time lows to keep growth humming. Slowing inflation in India has put the prospect of more easing back on the table, and the regions’ smaller central banks are also signaling no rush to raise borrowing costs.
HSBC Holdings Plc sees no tightening in Asia through to the end of 2018. That’s in contrast to the U.S., where interest rates are already on the way up (though how quickly remains an open question) and Canada, where the central bank last week raised rates for the first time in seven years. And while monetary accommodation remains in place for now in Europe, the debate on how to rein in stimulus is underway.
“This is a major decoupling of Asian central banks from the Fed,” said Robert Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings Inc. in Singapore.
In Japan, the world’s petri dish for central bank experiments, the BOJ Thursday kept its monetary stimulus program unchanged even as it pushed back the projected timing for reaching 2 percent inflation for a sixth time.
The BOJ now expects to hit its price goal around the fiscal year starting April 2019, versus a previous projection of around fiscal 2018. It also cut its inflation estimates for the current and next fiscal years.
“Risk to both economic activity and prices are skewed to the downside,” the BOJ said in its outlook.
That leaves the prospect of a steep reduction of its balance sheet or a shift to steering the economy through conventional monetary policy appearing as remote as ever.
Not only is the BOJ nowhere close to exiting its massive stimulus program, it may yet need to unleash even more if it is to ward off deflation, said Shane Oliver, chief economist at AMP Ltd. in Sydney. “The BOJ may yet be forced to experiment with even newer tools,” he said.
Unlike the Fed’s Janet Yellen, Kuroda hasn’t signaled any plans to shrink the 500 trillion yen ($4.5 trillion) balance sheet, which is almost the entire size of the nation’s economy, the world’s third-largest, and the highest ratio against GDP among major nations.
It’s a similar status quo across the region.
Australia’s central bank has kept interest rates at a record-low 1.5 percent since August as it tries to smooth the economy’s transition away from mining investment-led growth. Underscoring the Reserve Bank of Australia’s policy pickle, the mere mention of a theoretical nominal neutral interest rate of 3.5 percent in minutes of last month’s meeting released Tuesday was enough to send the Australian dollar to a two year high — a development the RBA has long warned risks undermining the economy’s transition.
“They are in a bind where they have one eye on the labor market, one eye on growth rates, one eye on property and one eye on the Australian dollar,” said Richard Holden, a professor of economics at the UNSW Business School in Sydney. “If you are trying to target four things with one policy tool, that is essentially impossible to do.”
India’s central bank is also in a quandary. Tipped by some analysts to lower interest rates again, it’s also being forced to suck liquidity out of the banking system after a government decision last year to cancel almost 86 percent of currency in circulation resulted in a flood of money into the nation’s banks, which is still being mopped up.
“It’s like a doctor giving medicines to control diabetes and then recommending that the patient be given lots of glucose,” said Rupa Rege Nitsure, chief economist at L&T Finance Holdings Ltd.
The risk of an inflation outbreak in Asia can’t be fully ruled out given its vulnerability to swings in food and energy prices and investment flows.
“Inflation will surely return,” Shang-Jin Wei of Columbia University and previously Chief Economist of the Asian Development Bank.
But one reason Asia isn’t scrambling to normalize is that monetary policy in many economies never became quite as abnormal in the first place (Japan being the region’s outlier). Asia’s buffers are in good shape too, with most economies boasting plentiful reserves, solid external positions and favorable investment flows, meaning there’s no imperative to keep policy in step with the U.S. for now.
The world’s fastest growing region appears to have the lowest odds of rate increases and that outlook is unlikely to change soon, said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong.
“Policy rates will remain nailed to the floor for a long while,” he said.
Global Markets Near Record Peaks and Will Get Stronger: deVere CEO
As the FTSE 100 hits 7,000 points for the first time since the Covid pandemic, global stock markets are poised to “get even stronger”, says the CEO of one of the world’s largest independent financial advisory and fintech organisations.
The observation from Nigel Green, the chief executive and founder of deVere Group, comes as London’s index jumped over the important threshold in early trading in London, gaining over 0.5% to 7024 points.
Mr Green notes: “London’s blue-chip index is up 40% since the worst lows of the pandemic.
“This landmark moment represents the wider optimistic sentiment gripping global markets which are near record peaks.
“We can expect global stock markets to get even stronger as investors look to seize the opportunities from economies reopening.
“They are looking towards economies rebounding in a post-pandemic era due to the monetary and fiscal stimulus, pent-up cash and demand, and strong corporate earnings.
“The current ultra-low interest rate environment and the under-performance of bonds will also act as a catalyst for stock markets.”
However, the CEO’s bullish comments also come with a warning.
“I would urge investors to proceed with caution as there are some headwinds on the horizon, including relations between the U.S. and China, the world’s two largest economies, which could be coming to a tipping point in coming weeks.
“As such, in order to capitalise on the opportunities and mitigate risks, investors must ensure proper portfolio diversification.”
Mr Green concludes: “A variety of factors are going to drive global stock markets. Investors will not want to miss out and should work with a good fund manager to judiciously top-up their portfolios.”
Refinitiv Expands Economic Data Coverage Across Africa
Building on its commitment to drive positive change through its data and insights, Refinitiv today announced the expansion of its economic data coverage of Africa. The new data set allows investment managers, central bankers, economists, and research teams to use Refinitiv Datasteam analytical data for detailed exploration of economic relationships and investment opportunities among data series covering the African continent.
Securing reliable, detailed, timely, locally sourced content has not been easy for economists who have in the past had to use international sources which often can take many months to update and opportunities to monitor the market can be missed. Because Africa is a diverse continent, economists and strategists need more timely access to country-specific data via national sources to create tailored business, policy, trading and investment strategies to meet specific goals.
Africa continues to develop critical infrastructure, telecommunications, digital technology and access to financial services for its 1.3bn people. The World Bank estimates that over 50% of African inhabitants will be under 25 by 2050. This presents substantial opportunities for investors who can spot important trends and make informed decisions based on robust and timely economic data.
Stuart Brown, Group Head of Enterprise Data Solutions, Refinitiv, said: “Africa’s growing, dynamic and fast evolving economies makes it a focal point for financial markets today and in the coming decades. As part of LSEG’s commitment to empowering the global markets with accurate and timely data, we are excited about making these unique datasets available via the Refinitiv Data Platform. Our economic data coverage of Africa will provide our customers with deeper and broader inputs for macroeconomic analyses and enable more effective investment strategies and economic research.”
Refinitiv Africa economic data coverage:
- Africa economics content comprises around 500,000 nationally sourced time series data covering 54 African nations
- Content is sourced from national statistical offices, central banks and other key national institutions
- The full breadth of economics categories in Datastream including national accounts, money and finance, prices, surveys, labor market, consumer, industry, government and external sectors
- International sources including OECD, World Bank, IMF, African Development Bank, Oxford Economics & more provide comparable data & forecasts across the continent
Refinitiv® Datastream® has global macroeconomics coverage to analyze virtually any macro environment, and better understand economic cycles to uncover trends and forecast market conditions. With over 14.2 million economic times series map trends, customers can validate ideas and identify opportunities using Refinitiv Datastream. Access its powerful charting tools, 9,000 pre-built chart templates and chart studies for commonly used valuation, performance, and technical and fundamental analysis.
Refinitiv continually grows available data – the China expansion in 2019 covered a unique combination of economic and financial indicators. Refinitiv plans to expand Southeast Asia covering Thailand, Vietnam, Philippines and Malaysia with delivery expected in 2021. This ensures that Refinitiv will have much needed emerging market economic content.
Oil Rises on Drawdown in U.S. Oil Stocks, OPEC Demand Outlook
Oil prices rose in early trade on Wednesday, adding to overnight gains, after industry data showed U.S. oil inventories declined more than expected and OPEC raised its outlook for oil demand.
Brent crude futures rose 28 cents, or 0.4%, to $63.95 a barrel at 0057 GMT, after climbing 39 cents on Tuesday.
U.S. West Texas Intermediate (WTI) crude futures similarly climbed 28 cents, or 0.5%, to $60.46 a barrel, adding to Tuesday’s rise of 48 cents.
Oil price gains over the past week have been underpinned by signs of a strong economic recovery in China and the United States, but have been capped by concerns over stalled vaccine rollouts worldwide and soaring COVID-19 infections in India and Brazil.
Nevertheless, the Organization of the Petroleum Exporting Countries (OPEC) tweaked up its forecast on Tuesday for world oil demand growth this year, now expecting demand to rise by 5.95 million barrels per day (bpd) in 2021, up by 70,000 bpd from its forecast last month. It is banking on the pandemic to subside and travel curbs to be eased.
“It was a welcome prognosis by the market, which had been fretting about the impact the ongoing pandemic was having on demand,” ANZ Research analysts said in a note.
Further supporting the market on Wednesday, sources said data from the American Petroleum Institute showed crude stocks fell by 3.6 million barrels in the week ended April 9, compared with estimates for a decline of about 2.9 million barrels from analysts polled by Reuters.
Traders are waiting to see if official inventory data from the U.S. Energy Information Administration (EIA) on Wednesday matches that view.
Market gains are being capped on concerns about increased oil production in the United States and rising supply from Iran at a time when OPEC and its allies, together called OPEC+, are set to bring on more supply from May.
“They may have to contend with rising U.S. supply,” ANZ analysts said.
EIA said this week oil output from seven major shale formations is expected to rise by 13,000 bpd in May to 7.61 million bpd.
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