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News headline story
By James Glynn
SYDNEY–Australia’s central bank left interest rates unchanged at its monthly policy meeting Tuesday, waiting to see whether the falling Australian dollar and a change of Prime Minister can do the heavy lifting in reviving the nation’s economy.
The Reserve Bank of Australia left its cash rate target at a record low 2.0%, where it has remained since May. That matched the expectation of economists surveyed by The Wall Street Journal.
Still, financial markets are betting RBA Governor Glenn Stevens will announce a further two cuts over the next year as data point to an economy that is battling headwinds such as falling business investment and weak consumer confidence.
“In Australia, the available information suggests that moderate expansion in the economy continues,” Mr. Stevens said in a statement. “While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year.”
The RBA’s board met to set interest rates for first time since Malcolm Turnbull replaced Tony Abbott as Liberal Party leader and prime minister last month.
Many economists viewed the leadership change as reducing the risk of Australia tumbling into recession for the first time in a quarter of a century. Mr. Turnbull, a former investment banker, has already held a summit to canvass ideas from businesses, unions and the broader community about ways to reinvigorate the economy. In particular, some experts believe the prime minister is more likely to approve higher spending on infrastructure than Mr. Abbott.
Australia posted its slowest quarterly growth in four years in the second quarter, as a fading resources-investment boom and falling export revenue continued to put a brake on the economy.
The resource-rich country’s gross domestic product climbed by 0.2% from the first quarter and rose by 2% from a year earlier, the weakest quarterly performance since March 2011, when heavy floods along Australia’s east coast caused the economy to shrink by 0.4%.
The economy is feeling some benefit of a lower Australian dollar, which has fallen by around 25% in the past year. However, it has also been hit hard by falling commodity prices and a slowdown in China, the country’s largest trading partner.
Interest rates were cut twice in the first half of the year as prices for iron ore and coal–Australia’s two largest exports by value–weakened.
-Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
October 05, 2015 23:34 ET (03:34 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
20151005_DN_12162

By
Sarah Lynch
September 23, 2015
Share:
Washington (Reuters) – Mutual funds and exchange-traded funds will be required to create new programs to better manage their liquidity, under a plan put forth by U.S. securities regulators on Tuesday.
The proposal by the Securities and Exchange Commission is one of several safeguards for the asset management sector that SEC Chair Mary Jo White called for in a major policy speech last year.
The plan comes as asset managers have been facing heightened scrutiny by banking regulators over fears their lending and investing activities could pose broader risks to the marketplace.
The Financial Stability Oversight Council (FSOC), a body of regulators headed by the U.S. Treasury Secretary, has been conducting a review of products and activities in the industry to determine if they may warrant further regulation.
Must Ensure Redemption Demands
Under Tuesday’s plan, mutual funds and ETFs will need to devise plans to ensure they can meet redemption demands from investors during periods of market stress.
These plans will require funds to classify and review the assets in their portfolios based upon how quickly they could be converted into cash.
The plan would also permit, but not require, mutual funds to use “swing pricing,” a process in which a fund’s net asset value reflects the costs associated with trading so those costs can be passed to shareholders.
Swing pricing is meant to protect existing shareholders from dilution that can come from purchases and redemptions, and would only be triggered in certain market conditions.
Classifying Fund’s Liquidity
Finally, Tuesday’s plan calls for additional disclosures related to swing pricing use and how the liquidity of a fund’s assets is classified.
SEC Democratic Commissioner Kara Stein said that requiring these risk management plans is “sensible and long overdue.”
At the same time, however, she questioned whether the plan goes far enough toward addressing some of the more complex ETFs and mutual funds that have risen in popularity.
Currently, there is not an extensive regulatory regime governing fund liquidity.
By law, mutual funds are expected to honor redemption requests within seven days. And while mutual funds are urged by SEC guidance to cap their investments in illiquid securities at 15 percent, this is not a legal requirement.
The last time the SEC issued guidance concerning fund liquidity was more than two decades ago.
Republicans on the commission supported the plan, but raised some concerns about whether swing pricing is the right solution for allocating the costs of purchases and redemptions.

PARIS

The International Monetary Fund is likely to revise downwards its estimates for global economic growth due to slower growth in emerging economies, IMF head Christine Lagarde said in a newspaper interview.

“We are in a recovery process whose pace is decelerating. There is a shift between emerging countries and developed countries. The first ones, who were driving a global recovery not so long ago, are slowing down. The others are seeing their momentum accelerate. This should lead us to revise downwards our growth forecasts,” Lagarde told Les Echos in an interview.

“A forecast of 3.3 percent growth this year is no longer realistic. A forecast of 3.8 percent for next year neither. We will however remain above the 3 percent threshold,” she said.

The IMF is due to release updated economic forecasts in October.

Market Update  Chairman Yellen’s statement Thursday that the Fed was still expecting to hike rates later this year triggered a selloff in Treasuries (10yT up some 10bp to a peak above 2.18%) but coincided with a rally in risky assets worldwide. The conditions for the rate hike still sounded far from being met. But at least it was a nudge in the hike direction and a reminder that the Fed has teeth, lest we forget that after the post-FOMC dovish haze. The stock rally on Thursday and Friday morning (a sell-off in biotech stocks hurt the Nasdaq and S&P in late hours), despite Yellen’s less dovish stance, will vindicate those who argued that by sounding too dovish at the September meeting the Fed hurt confidence and contributed to the risk sell-off. Along the same line, Thursday’s more confident message supposedly supported risk taking. We have little sympathy for that theory. Instead we reckon that the Fed has lost control of risk sentiment. Indeed, we argue that risk sentiment now has a strong impact on Fed expectations, but the Fed itself has a limited impact on risk. The negative correlation between 2-year USD rates and VIX supports that view. If the Fed was in charge, rising (falling) Fed fears would push VIX higher (lower), and the correlation would be positive. Instead, improving (deteriorating) risk sentiment, i.e. a fall (rise) in VIX, pushes 2-year rates higher (lower) – hence the negative correlation. Graph 1: VIX vs. 2y USD rate… negative correlation Source: SG Cross Asset Research/Rates 

News headline story
By Jeremy Page
SEATTLE–China’s President Xi Jinping pledged Tuesday to push ahead with economic reforms, without resorting to competitive currency devaluation, and to work with the U.S. on cybersecurity threats, on the opening day of his first state visit to the U.S.
In a speech at a welcoming dinner in downtown Seattle, Mr. Xi also denied that his sweeping anticorruption campaign, which has seen the detention of several generals and senior civilian figures, reflected a power struggle within the ruling Communist Party.
“In this case, there is no ‘House of Cards,’” Mr. Xi said with a smile, prompting laughter and applause from the roughly 750 guests from the U.S. private and public sectors. Other dignitaries included Henry Kissinger, the former U.S. Secretary of State.
It was Mr. Xi’s first policy address of his seven-day visit, which also covers Washington, D.C., and New York, and comes amid mounting U.S. concerns over the slowing of China’s economic growth, alleged Chinese cyberattacks on the U.S. and Beijing’s island-building in the disputed South China Sea.
The visit has come under criticism, notably from Republican presidential candidates, that President Barack Obama shouldn’t be hosting Mr. Xi in the first place.
The Chinese president began by striking a humble tone, recalling his experiences as a teenager when he was sent to work in the countryside during the 1966-76 Cultural Revolution. He said China would continue its policy of aggressive development to help more people “live a better life.”
He defended his government’s attempt to support Chinese share prices in recent weeks, but said the market had now reached a point of “self-recovery and self-adjustment.”
“Given the economic and financial situation at home and abroad, there is no basis for continuous depreciation of the renminbi,” he said.
U.S. businesses have expressed concern in recent days about China’s commitment to opening its market to more foreign competition, and about new national security legislation they say could restrict their operations in China.
The welcoming dinner was co-hosted by the U.S.-China Business Council, or USCBC, a nonprofit organization of some 220 U.S. companies that do business with China.
USCBC’s president, John Frisbie, warned on Monday of “uncertainty” among U.S. business leaders about China’s slowing economic growth, its leaders’ commitment to reform, and strategic tensions in bilateral relations, especially over cybersecurity.
“The most important thing Xi can do during his visit to the United States is address this uncertainty,” Mr. Frisbie wrote in the USCBC magazine, China Business Review. “Business is looking for tangible signals of reforms, but not getting it.”
Chinese officials have tried to play down such concerns in the run-up to the visit, and to focus public attention instead on the benefits of economic relations between China and the U.S.
Earlier on Tuesday, Mr. Xi met local government officials, including Seattle mayor Ed Murray, to discuss trade and cultural exchanges between China and Washington state.
Mr. Xi and six Chinese provincial governors also met with five U.S. state governors to discuss collaboration on clean technology and economic development.
Mr. Xi is scheduled to address a meeting of U.S. and Chinese chief executives in Seattle on Wednesday before touring Microsoft Corp. and Boeing Co. facilities, and going to a high school in the nearby port of Tacoma that he visited as a local official in 1993.
He is due to meet Mr. Obama for a private dinner in Washington, D.C., on Thursday and for a summit and state banquet on Friday. He then heads to New York to attend United Nations meetings over the weekend.
Write to Jeremy Page at jeremy.page@wsj.com
(END) Dow Jones Newswires
September 22, 2015 22:48 ET (02:48 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.

By Cynthia Lin
U.S. Treasury bonds started the week under pressure, giving back some of the gains made late last week as investors continue to gauge when the Federal Reserve will tighten policy.
In early New York trading, benchmark 10-year notes lost 14/32 in price to yield 2.183%, according to Tradeweb. The 30-year bond declined 1 3/32 to yield 2.985%, while two-year notes pulled back 2/32 to yield 0.71%. Bond yields rise when prices fall.
Monday’s losses came after a sharp rally at the end of last week after the Federal Reserve announced its decision to leave its policy rate near zero.
While investors were divided going into the announcement over whether the central bank would lift rates or stand pat, the surprising aspect of the Fed’s decision was how it was accompanied by increased concerns about global conditions impacting the U.S. economy, many analysts said. That spurred a rally in Treasurys that dragged the 10-year yield as low as 2.125% on Friday.
With the Fed holding off, bond traders say that means another six weeks of gauging economic data and debating when the Fed will lift off. The central bank is scheduled to deliver its next policy statement on Oct. 28.
“Monetary policy expectations continue to be refined,” said Ian Lyngen, a government bond strategist at CRT Capital, adding that this should keep U.S. Treasurys trading in a range.
Indeed, while the Fed’s accommodative policy continues to support Treasurys, a policy tightening this year remains a possibility.
Over the weekend, San Francisco regional Fed President John Williams and St. Louis Fed President James Bullard delivered speeches that suggested last Thursday’s decision not to increase rates was a close call, and that economic conditions could still very well warrant policy tightening before the end of 2015.
Since the Fed’s announcement, the economics teams at J.P. Morgan and Bank of America Merrill Lynch, which previously called for a September rate increase, have shifted their expectations to December, noting that there isn’t enough data between now and the next meeting in late October to gain additional confidence about the U.S. economy.
While the December camp has grown, there are also some market participants who believe the Fed won’t tighten policy until 2016. RBS shifted its call from September to March 2016, saying it “suspects the Fed has missed its window.”
The coming week should offer bond investors more color on policy makers’ thinking, with a heavy lineup of speeches scheduled, including one from Fed Chairwoman Janet Yellen on Thursday.
The Fed “may be going on a communication offensive to help clarify their views on rates and help lift some of the fog lingering in the wake of the September meeting,” said Gennadiy Goldberg, a U.S. rates strategist at TD Securities. “Additional clarification of views could help lift the odds of a 2015 liftoff in rates as many policy makers concede that a 2015 hike remains firmly on the table.”
TD believes the rally in shorter-dated Treasurys sparked by the Fed’s decision may have gone too far, especially if policy makers continue to keep expectations alive for a move this year.
For now, bond traders say the Treasurys market will face pressure from a batch of bond sales. The U.S. government is scheduled to sell two-year notes on Tuesdays, five-year notes on Wednesday and seven-year notes Thursday.
Write to Cynthia Lin at cynthia.lin@wsj.com

By Steven K. Beckner

WASHINGTON (MNI) – The U.S. monetary policy outlook might seem more

uncertain than ever after the Federal Reserve’s decision to stand pat at the

zero lower bound, except there is an inclination to start raising interest rates

– once Fed officials are satisfied recent financial turmoil and global

uncertainty won’t unduly impact the U.S. economy.

The Fed’s rate-setting Federal Open Market Committee made abundantly it

clear unsettled international financial conditions and global economic worries

prevented it from raising the federal funds rate from near zero, as widely

expected not long ago. And Chair Janet Yellen reinforced the message in a press

conference.

But, as shown in the latest funds rate projections, the FOMC majority still

expects to raise rates this year, though not as much as once planned, and Yellen

suggested liftoff is only awaiting clarity about how “financial and

international developments” will affect the U.S. economy.

Although those developments obviously impinged on its decision-making

Thursday, the FOMC’s central focus remains the two liftoff conditions put forth

since March and reiterated in the latest policy statement: “The Committee

anticipates that it will be appropriate to raise the target range for the

federal funds rate when it has seen some further improvement in the labor market

and is reasonably confident that inflation will move back to its 2% objective

over the medium term.”

It would have been surprising if Yellen and her colleagues would have

disregarded wild swings in asset and commodity prices that erupted when China’s

currency devaluation exacerbated fears of a global slowdown.

But that does not mean that those issues will keep the Fed on hold

indefinitely.

Diverging from its usual characterization of the U.S. economy, the FOMC

said “recent global economic and financial developments may restrain economic

activity somewhat and are likely to put further downward pressure on inflation

in the near term.”

And while continuing to call risks to the outlook “nearly balanced,” the

FOMC took the unusual step of adding it “is monitoring developments abroad.”

Yellen’s comments were laced with explanations why the FOMC had to take

into account external factors and their financial reverberations. In her opening

statement, she said, “the outlook abroad appears to have become more uncertain

of late.”

“Heightened concerns about growth in China and other emerging market

economies have led to volatility in financial markets,” she continued.

“Development since our July meeting including the drop in equity prices, the

further appreciation of the dollar, and a widening in risk spreads have

tightened overall financial conditions to some extent.”

Yellen said “these developments may restrain U.S. economic activities

somewhat and are likely to put further downward pressure on inflation in the

near term. Given the significant economic and financial interconnections between

the United States and the rest of the world, the situation abroad bears close

watching.”

Yellen said the FOMC discussed a possible rate hike, but “in light of the

heightened uncertainties abroad and the slightly softer expected path for

inflation, the committee judged it appropriate to wait for more evidence,

including some further improvement in the labor market, to bolster its

confidence that inflation will rise to 2% in the medium term.”

Elaborating, Yellen acknowledged the FOMC had “focused particularly on

China and emerging markets.”

She said the Fed has “long expected… some slowing in Chinese growth over

time as they rebalance their economy,” but said “the question is whether or not

there might be a risk of a more abrupt slowdown than most analysts expect.”

“And I think developments that we saw in financial markets in August in

part reflected concerns that there was downside risk to Chinese economic

performance and perhaps concerns about the deftness with which policymakers were

addressing those concerns,” she said.

“In addition we saw a very substantial downward pressure on oil prices in

commodity markets, and those developments have had a significant impact on many

emerging market economies that are important producers of commodities as well as

more advanced countries including Canada which is an important trading partner

of ours that’s been negatively affected by declining commodity prices, declining

energy prices.”

Yellen observed “we have seen significant outflows of capital from those

countries, pressures on their exchange rates and concerns about their

performance going forward so a lot of our focus has been on risks around China,

but not just China, emerging markets more generally and how they may spill over

to the United States.”

The Fed chief insisted she and her colleagues “don’t want to really respond

to market turbulence” and “it is certainly not our policy to do so.”

“But when there are significant financial developments, it’s incumbent on

us to ask ourselves what is causing them,” she said. “And of course while we

can’t know for sure, it seemed to us as though concerns about the global

economic outlook were drivers of those financial developments.”

But while she repeatedly explained why the FOMC had to “take into account”

global and financial developments, Yellen also took pains to remind reporters

they are not the only things it will be looking at.

“Now, I do not want to overplay the implications of these recent

developments, which have not fundamentally altered our outlook,” she said. “The

economy has been performing well, and we expect it to continue to do so.”

Yellen said “it remains the case that the timing of the initial increase in

the Federal funds rate will depend on the committee’s assessment of the

implications of incoming information for the economic outlook.”

“To be clear, our decision will not hinge on any particular data release or

on day-to-day movements in financial markets,” she said. “Instead, the decision

will depend on a wide range of economic and financial indicators and our

assessment of their cumulative implications for actual and expected progress

towards our objectives.”

Yellen did not predict a rate hike before year’s end, but pointed out that

the 0.4% median funds rate projection for 2015 implies one. And she said the

FOMC need not wait for December – the next time she’ll be giving a press

conference.

“Every meeting is a live meeting where the committee can make a decision to

move to change our target for the Federal funds rate,” she said. “That certainly

includes October (27-28)… October remains a possibility.”

There’s no question Yellen and her colleagues are more concerned about

below-target inflation. As she noted several times, “further appreciation of the

dollar” and lower energy prices have put more downward pressure on prices.

But she also said several times those inflation-dampening forces are

“transitory.” And while she said the 5.1% unemployment rate understates

remaining labor market slack, she emphasized nonetheless there has been much

labor market improvement.

Linking job and inflation objectives, Yellen said, “the labor market has

continued to improve. So a tighter labor market, a labor market moving toward

full employment is one that historically has generated upward pressure on

inflation.”

“So that bolsters my confidence in inflation,” she added.

Yellen wouldn’t take the bait when one reporter tried to get her to say

rate hikes might have to be delayed well beyond year-end. Her message was that,

for now, prudence dictated that the FOMC weigh the implications of financial

turmoil and global headlines, but that it was going to keep its eye on the

domestic ball:

“You know, I want to emphasize, domestic developments have been strong,”

she said. “We see domestic demand growing at a solid pace. The labor market is

continuing to improve.”

“I can’t give you a recipe for exactly what we’re looking to see,” Yellen

said. “But as we say, we want to see continued improvement in the labor market

and we would like to bolster our confidence that inflation will move back to

2%.”

“And of course a further improvement in the labor market does serve that

purpose,” Yellen went on. “There could be other things we would see that could

bolster that confidence. But further improvement in the labor market will serve

to do that.”

Yellen pointed out “you can see from the SEP projections that most

participants continue to think that economic conditions will call for or make

appropriate an increase in the Federal funds rate by the end of this year.”

“Four participants moved their projections into 2016 or later,” she said,

“but the great majority of participants continue to hold that view.”

Yellen said “there will always be uncertainty” that can never be “fully

resolved.”

For the time being, “in light of the developments that we have seen and the

impacts on financial markets,” Yellen said “we want to take a little bit more

time to evaluate the likely impacts on the United States.”

But that does not mean she and the FOMC are willing to wait indefinitely.