A phrase often used by American market commentators over the years is “don’t kill the goose that lays the golden eggs” and while no one has slaughtered global markets yet, feathers have been sharply plucked.
If our bird is the markets, then the trade war is the latest cause of stress and not everyone believes the Federal Reserve can prescribe an antidote this time.
Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Tuesday. Feb. 26, 2019.
Bloomberg | Bloomberg | Getty Images
Hans Redeker, Global Head of FX Strategy at Morgan Stanley said the market was wrong to buy stocks last week after Federal Reserve Chair Jerome Powell hinted at a response to any fallout from trade. Redeker said investors need to watch the warning signs.
One red flag, waving for weeks, is the inverted yield curve. Redeker said many people are simply putting it down to the U.S. repatriating money but ignoring its knock-on effect. Redeker said people should question how U.S. banks might act in future if they suffer limited profitability thanks to low interest rates..
But surely if growth slows and inflation falters, the Fed just steps in to reduce the cost of money? Not so fast.
While the Fed may cut, it’s not a slam dunk that the dollar will fall. The Morgan Stanley team raked over the history books and found in two cases the dollar went down on the back of a rate cut but in three other cases it went up.
Redeker, an FX specialist, warned the dollar which funds 80% of global trade, needs to fall because at current levels it is suppressing growth. The problem is so acute Redeker said, it would not be a surprise if the U.S. led a discussion on FX at the G20 at the end of June.
Perhaps it’s why the ECB’s Mario Draghi didn’t “out dove” Powell last week, weakening the euro.
Other assets standing at an important crossroads for markets last week also weighed economic slowdown against the firepower of the Fed. Michael Howell, CEO at CrossBorder Capital, has warned investors to prepare for a rush to safety and predicted the 10-year US Treasury yield would fall by 100 basis points within 12 months.
Howell said he sees a reduced appetite by investors to gamble on returns. He explained that investors are shuffling down the risk curve into safer assets and shrinking their investing horizons.
More than ten years on from the financial crisis and faith in global growth is worsening.
—Karen Tso is an anchor on Squawk Box Europe, CNBC and you can follow her on Twitter @cnbckaren.
Oracle moving OpenWorld from San Francisco to Las Vegas Caesars Forum
Oracle’s OpenWorld conference, one of the biggest annual technology events in San Francisco, is moving to Las Vegas in 2020 and will remain in Sin City for at least three years.
According to an email that the San Francisco Travel Association (SFTA) sent to its members on Monday, Oracle has signed a three-year agreement to bring its flagship event to the Caesars Forum in Las Vegas.
“Oracle stated that their attendee feedback was that San Francisco hotel rates are too high,” the email, which was viewed by CNBC, said. “Poor street conditions was another reason why they made this difficult decision.”
The SFTA, a private nonprofit organization that promotes San Francisco tourism, said it’s issuing a cancellation bulletin, covering five days and over 62,000 room nights in October 2020, October 2021 and September 2022.
“The estimated economic impact of each of the above is $64,000,000, a huge loss for our city,” the email said.
A spokesperson for Oracle confirmed the move, and highlighted the company’s other connections to San Francisco. Oracle recently won naming rights for the baseball stadium in San Francisco where the Giants play.
“Oracle is excited to offer a modern, state-of-the-art experience for attendees at Oracle OpenWorld and Code One 2020 in Las Vegas,” the spokesperson said in a written statement to CNBC. “The city and its vast amenities are tailor-made for hosting large-scale events, and we look forward to bringing the industry’s most comprehensive technology and developer conference to America’s premier hospitality destination. Oracle continues to enjoy a strong relationship with the City of San Francisco and partners such as the San Francisco Giants and the Golden State Warriors. We look forward to working with our longstanding counterparts in San Francisco on future events.”
Oracle’s first OpenWorld in Las Vegas will also be the first since the death of co-CEO Mark Hurd in October. Hurd, who was appointed CEO in 2014 alongside Safra Catz, took a leave of absence in September for unspecified health reasons. Catz is now the lone CEO, with founder Larry Ellison still serving as chief technology officer and chairman of the board.
Oracle launched OpenWorld in 1996, and the conference has called San Francisco home for about the past two decades. The event attracts more than 60,000 Oracle customers and partners and gives the company a chance to show off its latest technologies. In recent years, the event has been trumped by Dreamforce, Salesforce’s annual conference, which claims over 170,000 attendees.
Both events are known for shutting down a large swath of downtown San Francisco, around the Moscone Center, wreaking havoc on the city’s already congested streets. And as tech companies have started congregating in San Francisco, rather than further south in Silicon Valley, prices have skyrocketed.
According to a survey published in October by Cheaphotels.org, San Francisco is the fourth most expensive city for hotels, behind Nashville, Boston and San Jose. The average double room at San Francisco’s cheapest hotel with at least three stars was $214 in October, the survey showed. Las Vegas was all the way at the other end of the spectrum.
“For cheaper options, the iconic city of Las Vegas emerged as the most affordable destination, with average hotel rates of just $69 per night for a double room,” the survey said.
The Caesars Forum, opening in 2020, will include a 550,000 square foot conference center, with 300,000 square feet of flexible meeting space and “the two largest ballrooms in the world,” according to its website. The $375 million building is located on the Strip near Harrah’s Las Vegas, the LINQ Hotel, Flamingo Las Vegas as well as Caesars Palace and The Venetian.
The Twittersphere may be shaping the Federal Reserve’s thinking more than we know
Jerome Powell, chairman of the U.S. Federal Reserve, left, hands his mobile phone to Michelle Smith, assistant to the board and director at the Federal Reserve, before a House Budget Committee hearing in Washington, D.C., U.S., on Thursday, Nov. 14, 2019.
Andrew Harrer | Bloomberg | Getty Images
Could the Twittersphere be influencing the Federal Reserve on interest rate policy?
Fed Chairman Jerome Powell apparently has picked up tidbits from economic debates on Twitter that he has an interest in. Powell’s use of Twitter was reported by the Wall Street Journal, in a small reference as part of a long article on how the Fed chairman forges a consensus on policy decisions.
“Twitter is a modern communications channel. To the extent the Fed should be cognizant of the debate going on, it makes sense,” said Jon Hill, senior rates strategist at BMO. “Everything is on Twitter, from the president to academics to economists to traders. It’s another information point.”
The Fed reviews reams of economic data in forming its opinions on policy. But Powell’s use of Twitter begs the question of how much weight, if any, #inflation carries versus the Fed’s trusted inflation measure, the PCE deflator. Or does he look for news under #jobs, #tariffs and #trade, topics that he has said are on his mind. Or is he watching how Fed policy is trending in #repo, #QE [quantitative easing], or even #Powell. It’s possible he watches #Econtwitter where his use of Twitter was mentioned Tuesday.
Maybe he’s even following a sports team or two, like everyone else.
Powell, who does not tweet, is not the only central banker on the social media service. European Central Bank President Christine Lagarde has her own Twitter account and she, or staff, tweets. She has more than 589,000 followers and only follows 67 accounts, including the Bank of England, other European central banks that are part of the ECB, the IMF, but apparently not the Fed.
“That would be interesting if one could figure out what he follows, who he follows. No one knows what his handle is,” said Hill. Perhaps he follows the regional Federal Reserve banks, like the New York Fed, the Cleveland Fed, or San Francisco Fed, or individual officials, like Dallas Fed President Rob Kaplan and Minneapolis Fed President Neel Kashkari.
Maybe he also watches President Donald Trump, though Fed watchers don’t believe that he does watch Trump’s account, where the president has repeatedly criticized the Fed chief and the Federal Reserve for interest rate policy.
Diane Swonk, chief economist at Grant Thornton, said it’s been clear to her that the Fed uses Twitter on a regular basis.
“I know they’ve looked at my Twitter account,” she said. “I’ve had many people make comments, Fed governors and Fed presidents about what I’ve actually tweeted. They’re looking for more intel, everything from how policy is being perceived to what’s happening in the economy.”
Swonk said initially she was surprised and it made her think about what she was tweeting.
“It gave me about a 30 second pause, and that’s long in the Twitterspere,” she said.
As the Fed meets Tuesday and Wednesday, it is dealing with the question of when to move off the sidelines and also the repo market, where the Fed is running special operations to guarantee liquidity in the short term funding market over year end.
The Fed stepped in after short term rates in the overnight lending market spiked in September, due to a cash crunch.
Bond market pros have been anticipating further comments from the Fed and Powell on the topic.
“I”d be curious who he follows on repo stuff. How many people are tweeting about repo? If you only pay attention to the people who are publicly talking about what they’re doing, that’s probably a different group than the aggregate market,” said Hill. “Twitter is good to know what’s going on inside the echo chamber…That does not mean what Twitter says is correct.”
A Fed spokesperson said the Fed has no comment on the topic of the chairman and Twitter.
Oil rises but US-China trade war weighs on demand outlook
Workers extracting oil from oil wells in the Permian Basin in Midland, Texas on May 1, 2018.
Benjamin Lowy | Getty Images
Oil prices inched up on Tuesday as OPEC’s deal with associated producers last week to deepen output cuts in 2020 continued to provide a floor for prices, but U.S.-China trade tensions clouded the demand outlook.
The benchmarks fell 0.2% and 0.3% respectively on Monday.
Last week, the Organization of the Petroleum Exporting Countries and associated producers like Russia agreed to deepen output cuts from 1.2 million barrels per day (bpd) to 1.7 million bpd to support prices.
However, a Dec. 15 deadline for the next round of U.S. tariffs on Chinese imports weighed on markets.
“Now that the producers announced a production cut last week, the market is holding just below three-month highs,” said Gene McGillian, director of market research at Tradition Energy. “Without a U.S.-China trade deal, the market is having trouble heading into a new leg in this rally.”
U.S. President Donald Trump does not want to implement the next round of tariffs, U.S. Agriculture Secretary Sonny Perdue said on Monday – but he wants “movement” from China to avoid them.
The Wall Street Journal reported that officials from both sides were laying the groundwork for a delay of a fresh round of tariffs.
Also the growth rate of China’s imports of major commodities has accelerated in recent months, indicating Beijing’s stimulus efforts may be bearing fruit and that the impact of a trade war may not be as bad as feared.
But investors remained on edge ahead of other events this week, with the British election on Thursday and U.S. and European Central Bank meetings.
On Tuesday, U.S. House Democrats agreed to support a separate U.S.-Mexico-Canada trade agreement after a year of negotiations, clearing the way for ratification by the Congress this year. The trade deal must also still be approved by the Canadian parliament.
U.S. crude oil inventories were expected to have dipped last week, while stocks of refined products were seen higher with gasoline stocks set to rise for the fifth straight week, a preliminary Reuters poll showed.
The American Petroleum Institute (API), an industry group, is scheduled to release its data for the latest week at 4:30 p.m. EST on Tuesday, and the weekly EIA report is due at 10:30 a.m. on Wednesday
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