Thursday, June 16, 2016

‘Brexit’ would leave Japan with an intractable problem

Sustained strength in the yen would be a major stumbling block for Japan’s struggling economy

Japanese Prime Minister Shinzo Abe needs “Brexit” like he needs a hole in his head.

The Japanese yen is once again outperforming all of its G-10 rivals, driven by anxieties that U.K. voters might elect to leave the European Union during next week’s referendum—an outcome many believe would spark a massive selloff in global markets while potentially plunging the U.K. into a recession.
This is unwelcome news for Japanese officials, who are struggling to revive Japan’s economy after two decades of stagnation. Those officials found respite in May, when the Federal Reserve warned that a rate increase could happen as soon as this summer, causing the dollar to strengthen broadly against its rivals, including the yen.
But those expectations have since faded, and the U.K.’s possible exit from the European Union threatens to send the yen, a popular haven during times of global market unrest, to new highs.
Japan’s economy has contracted during five of the last 10 quarters—though many economists said the 0.5% growth rate during the first quarter was surprisingly strong, giving officials some cause for optimism.
Still, they fear that sustained strength in its currency could hamper growth, analysts said.
TimeJapanese YenJul 15Sep 15Nov 15Jan 16Mar 16May 16
The impact of the stronger yen on Japan’s economy is twofold, said Doug Borthwick, head of currency trading at Chapdelaine & Co.
On the plus side, a strong yen makes imported goods cheaper for Japanese consumers. But it also makes goods produced in the country more expensive on the global market, potentially hurting exporters.
Japan’s longstanding status as one of the world’s largest net creditors—meaning Japanese investors own far more foreign assets than foreigners own Japanese assets—is one key reason the currency is often sought as a haven during times of economic distress.
The yen strengthened sharply against the dollar in the opening months of the year, causing tensions in Japan to flare before the currency trimmed its gains somewhat in May.
One dollar USDJPY, -1.77%  bought ¥105.91 Wednesday, hovering just above its weakest level against the Japanese currency in more than 18 months. By comparison, it traded at ¥106.02 late Tuesday in New York, and It remains more than 12% weaker against the yen.
The strengthening yen has heightened political pressures on Prime Minister Shinzo Abe, whose Liberal Democratic Party faces a tough challenge this summer in key elections for Japan’s Upper House.
Recently, Abe said he’d delay a planned increase in Japan’s sales tax until 2019, which was widely seen as an effort to shore up support for his Liberal Democratic Party ahead of key summer elections for Japan’s Upper House.
If Britons vote in favor of leaving the EU at a referendum scheduled for June 23, investors worry that it could spark a massive selloff in global markets. According to recent polls, support for the leave camp has grown over the past few weeks, helping to spur a round of haven buying. In addition to the yen, other assets viewed as safe, like gold and government bonds, have seen prices surge.
Read: Japan and the U.S. are headed for a showdown over currency manipulation
Read: BOJ under pressure to act this week, but Brexit could be a blocker
Risks also abound heading into a policy announcement from the Bank of Japan on Thursday.
A team of rates and currency strategists at Bank of America said the dollar could break below ¥105 if the Bank of Japan stands pat at its policy meeting on Thursday. Economists overwhelmingly expected the BOJ to expand its easing efforts at its prior meeting in April. When it didn’t, the dollar shed more than 2% of its value against its Japanese rival
Despite repeated warnings from Japanese officials that they would take action to combat “one-sided” moves in the yen, Borthwick said the Bank of Japan has little choice but to sit on its hands.
The international community said little when the Bank of Japan expanded the money supply and cut interest rates with the goal of weakening its currency. Critics of Abe’s administration see the weakness in the yen as one of its few concrete accomplishments. The dollar traded below ¥80 as recently as late 2012, shortly before Abe was elected.
But their attitude has undergone a recent shift. Earlier this year, the U.S. Treasury Department placed Japan on a newly created watch list for monitoring alleged currency manipulators.
“Back then, G-20 was happy to allow Japan to do that as long as it was to stimulate their internal economy,” Borthwick said. “These days, the view has changed considerably. The latest G-20 meeting in Japan, they turned around and said competitive devaluation is no longer an option.”

Gold just scored a ticket to ride higher from Fed’s Yellen

$1,300 may be ‘new floor’ for gold next week: analyst

Warner Bros/Courtesy Everett Collection
Are gold futures the golden ticket? (CHARLIE AND THE CHOCOLATE FACTORY, Philip Wiegratz, Franziska Troegner, 2005, ? Warner Bros. / Courtesy Everett Collection)

The Federal Reserve officials left interest rates unchanged Wednesday and cut their expectations for rate hikes in the next two years, brightening the outlook for gold and prompting prices to tap a high of $1,300 an ounce in electronic trading.
Futures prices GCQ6, +1.81%  hadn’t traded above the key $1,300 level on an intraday basis since early May, and haven’t settled above that level since late January 2015, according to FactSet data. After settling at $1,288.30 an ounce on Wednesday to log a six-straight session climb, the August contract continued to march higher to sit comfortably above the $1,300 on Thursday. In early trade, gold was up 1.9% at $1,312.20 an ounce.

Time (EDT)Gold - Electronic Aug 20168:0016 Jun4:008:0012:004:00
The Federal Open Market Committee’s “move to lower their long-term rate forecasts more in line with the market’s expectations highlights a clear road higher for gold,” said Brien Lundin, editor of Gold Newsletter. “With so much of the world now operating in a negative-rate environment, and now the path to higher rates in the U.S. being moderated, the outlook for gold is very bright.”
The Fed on Wednesday held interest rates steady and expects to raise rates twice in 2016. But the central bank trimmed expectations for rate hikes and now sees only three rate hikes in 2017 and 2018, down from a projection of four in both years.
Read: Fed holds rates steady as more officials move into one-hike camp
“Everything about this decision is dovish,” said Chris Gaffney, president of EverBank World Market.

Ned Schmidt, editor of the Value View Gold Report, said the $1,300 level may become a “new floor” for gold next week.
The “FOMC just gave gold a brilliant, green light” with no possibility of a rate increase before September, he said. Prices may even top $1,900 in early 2017 if the dollar falls dramatically over the next six months.
At a news conference after its policy statement, Fed boss Janet Yellen said “vulnerabilities in the global economy remain,” and acknowledged that the pending U.K. vote, known as Brexit, which will help to determine whether Britons remain a member of the European Union, was a factor in its monetary-policy plans
“Brexit is a real concern capable of disrupting foreign exchanges in the short term,” said Julian Phillips, founder of and contributor to—and that makes the dollar’s exchange rate “vulnerable.”
Read: Watch gold jump to $1,400 if U.K. votes to Brexit
Gold futures had suffered a monthly drop of 6% in May, pressured by expectations for higher U.S. interest rates and a stronger dollar DXY, -0.20% Higher interest rates lift the appeal of holding dollars. That also means that a stronger buck undercuts the worth of holding gold that doesn’t offer a yield and is traded in dollars.
But a weaker dollar and unrest sparked by the potential disruption of a British exit from the EU, ultimately offers a bullish path for gold to rise.

The Central Banks Will Replace Your Money In Banks With Future Dated Government Bond:David Quintieri

Neiman Marcus profits plummet 81%

(NEW YORK)  U.S. luxury fashion retailer Neiman Marcus Group Ltd LLC [NMRCUS.UL] reported its third straight quarterly drop in sales at established stores and a nearly 81 percent fall in profit amid a slowdown in apparel spending.
Apparel retailers are struggling to attract customers as online shopping becomes increasingly popular. Also, unseasonably cool weather dampened sales of spring wear at major apparel retailers in the latest quarter.
“The prevailing sentiment across retailing is that the customer has less interest in shopping in stores, whether it be traditional department stores or other luxury specialty stores,” Chief Executive Karen Katz said.
Sales at stores open for more than a year fell 5 percent for the third quarter ended April 30.
Sales were hurt by international tourists spending less because of a strong dollar, while economic uncertainty due to stock market volatility and the upcoming presidential elections tempered domestic spending, Katz said.
Rivals Macy’s Inc , which runs the luxury Bloomingdale’s chain, and Nordstrom Inc also reported lower same-store sales in the quarter.
Neiman Marcus, which also operates the Bergdorf Goodman stores and, said it was working with its suppliers to reduce inventory by cancelling orders, returning excess inventory and negotiating for additional markdown allowances.
The retail slowdown has spooked suppliers such as Michael Kors Holdings Ltd and Coach Inc , which is pushing department store operators to cut back on promotions.
Neiman Marcus’ net income fell to $3.8 million from $19.8 million a year earlier, while revenue dropped 4.2 percent to $1.17 billion.
The 108-year-old retailer, owned by Ares Management and Canadian Pension Plan Investment Board, had filed for an initial public offering in August last year. Reuters reported in October that the IPO had been pushed to 2016 due to volatile stock markets.

European stocks may tumble 20% if ‘Brexit’ happens: Morgan Stanley

Investors may be underestimating British resolve to leave the European Union, and that could firmly plunge Europe’s stocks into a full-blown bear market.
That’s according to a Monday note on so-called Brexit worries written by a group of Morgan Stanley economists led by Jacob Nell. The note suggests that European stock investors may be caught flat-footed in the event the U.K. votes in favor of exiting the EU.
Morgan Stanley said European stocks are susceptible to pitching lower because they already had been under pressure due to concerns about sluggish eurozone growth. Combine that with European equities’s tendency to be more volatile than their U.S. counterparts and it is a recipe for a potentially steep Brexit-fueled selloff, Morgan Stanley said.
The Stoxx 600 Europe Index is already down 18% compared with this time last year, and 12% off year to date. Meanwhile, the S&P 500 index is down 1% from this time last year, and up 1% year to date.
“At our European equity conference last week, only 5% expected the UK to vote for Leave,” Morgan Stanley said. “Maybe it is exhaustion over ‘political false alarms’ in Europe, or confidence that this is an issue that markets can take in their stride.”
In a poll of 42 clients, Morgan Stanley found a majority expect an up to 10% decline in European stocks three months following a Brexit, with a third of respondents expecting a drop of up to 20%. When Morgan Stanley took their poll, 60% of investors they surveyed estimated that 55% or more of Britons would vote to remain in the EU.
That kind of safety margin has slipped away as the U.K. referendum scheduled for June 23 approaches. One recent poll shows 47% back an exit, while 40% wish to remain. Another poll showed 46% supporting an exit, up from 42% the previous week, while only 39% supported staying, and a Guardian/ICM poll showed 53% support for leaving.
Should the U.K. vote to ditch the EU, known as Brexit, Morgan Stanley expects a 10% to 20% decline in European stocks, but sees that playing out over a longer time frame than three months. A so-called bear market in an asset is traditionally defined as drop of 20% or more from a recent peak.
“Within the European market, we would not expect to see a material divergence between UK or eurozone equities,” Morgan Stanley noted.
“However, we do believe that large-cap stocks in both regions would outperform,” the firm added. “At the sector level, internationally exposed defensive sectors such as Staples and Pharmaceuticals would likely outperform at the expense of Financials and domestically focused cyclicals.”
Should the U.K. decide to stay in the EU, then the form expects a relief rally in the mid-single digits for European stocks.
Source: MarketWatch

Brexit Would Be a Victory for Racists

As the date of the EU referendum vote draws closer and closer, polls are worryingly beginning to show the Brexit campaign stretching out in front. But do we truly understand the intentions behind the Leave campaign and the knock-on impacts a Brexit vote will have on our country?
Whilst issues such as sovereignty and the economy are bandied about in worn out campaign rhetoric, there is no doubt that the primary issue and cause célèbre of the referendum movement is immigration and its perceived impacts on society.
It is important we remember that this is a referendum that has only been made possible due to a long, hard-fought campaign by those on the far-right and political movements ridden with allegations of bigotry, xenophobia, and racism.
Nigel Farage - the UKIP leader who once said that his party “would never win the nigger vote”, refers to Chinese takeaways as “a chinky”, and said people would feel “concerned” to live next to Romanians - is the man who should take a significant chunk of the credit for us having this referendum. It was his party’s success in the European Parliament elections, as well as defections which he brokered from the Conservative Party, which has led us to this point today.
Even if you are a Leave supporter without a hateful bone inside you, you should be under no doubt that voting for Brexit would mean handing over a massive win to some of the most racist people in our society.
Some of the names and groups which are backing a Leave vote include the English Defence League; Britain First; the British National Party; Tommy Robinson; Nick Griffin; Marine Le Pen; and Donald Trump.
As a country whose strong economy is, in part, built upon centuries of disregarding the sovereignty, people, and borders of other nations during the era of the British Empire - we should, in my opinion, be a country which is more, not less, open to immigrants and integration.
However, despite studies showing the positive economic impact EU immigration has had on the UK, many in the Leave campaign continue to happily blame the ills of society on immigrants (EU or not), rather than on politicians.
Boris Johnson - the Leave campaigner accused of “dog-whistle racism” for criticising Obama based on his “part-Kenyan” ethnicity - said that the EU is a problem for the UK because “it has led to the absurd situation in which we stop highly qualified people coming from around the world who could contribute enormously to our society because we cannot stop millions of unskilled people coming here from the EU.”
This is a view shared by most of the other key Leave campaigners including Mr Farage who has repeatedly advocated an “Australian-style points-based immigration system.”
In doing so, they are sending out a message that so-called “unskilled” migrants offer nothing to our country, whereas in reality, the opposite is true.
Some of the best doctors, nurses, and teachers (amongst other valued public servants) are the children of so-called “unskilled” migrants. Arguing that we should leave the EU because there are “unskilled” migrants coming to this country serves only to divide and turn people against each other.
And I question the idea that our country is somehow turning away at the door “highly qualified” migrants from outside of the EU. The non-EU citizens who are actually locked out the most from our immigration system are those who are deemed to be “unskilled”.
In my mind, the issue around sovereignty is a red-herring and the arguments on the economy are settled.
As Hillary Benn nicely put it on Question Time, you have to be “pretty confident” that you are right, if you are disagreeing with the likes of the IFS, the OECD, the IMF, the Treasury, and the Bank of England on the economy.
Personally, I think the success of the single market economy is dependent on having a collaborative set of regulations which enables businesses to sell one version of goods and services across 28 countries rather than having to create 28 versions of those goods and services to meet individual rules.
However, while to some the campaign for Leave may simply be a vehicle to manoeuvre their way into Number 10 Downing Street, I worry that for others it is a vehicle to drive forward their agenda against “the other.”
This, in many respects, has been evidenced by the level of fear-mongering espoused by the Leave campaign which has included everything from “Paris and Orlando-style terrorists attacks” to “immigrant sex attacks on British women.”
The way I see it, this is more of a campaign for immigrants to leave the UK, than it is for the UK to leave the EU.
Today it’s those from Europe, but when people realise that housing shortages, unemployment, and pressures on the NHS still exist in a post-Brexit Britain, ask yourself - who will be the next “other” to blame?

Bank of America cuts more jobs, 70,000 lost since 2010

Bank of America announced this week an unspecified number of layoffs in Charlotte and elsewhere, as the company continues to shed jobs in an effort to lower overall costs and streamline operations.
In Charlotte and some other U.S. markets, the eliminated positions are in the bank’s global technology and operations unit, in addition to a unit created to handle distressed residential mortgages. They mark the latest cuts under CEO Brian Moynihan, who continues to wring out costs as the Charlotte-based bank remains under pressure from investors to boost profitability.
“Limited position eliminations have been ongoing and reflect our previously announced efforts to reduce complexity and simplify our company for our customers and clients,” spokesman Dan Frahm said Friday. He declined to disclose layoff numbers.
Moynihan has been pushing for efficiencies in an ongoing program called Simplify and Improve. In a CNBC interview Thursday, Moynihan said the bank will “absolutely” keep reducing costs.

Fed tells market: We're taking summer off

The Federal Reserve sent a strong signal that it now expects only one interest rate hike this year, and the market now sees less than a 50 percent chance of even one rise by year-end.
The Fed's post-meeting statement and new forecast did not contain many surprises, and stocks held steady, but the two-year Treasury note, most sensitive to Fed news, rallied hard. The dollar fell slightly.
The U.S. central bank continued to lean toward hiking rates, but the Fed's "dot plot," which contains the interest rate forecasts of Fed officials, shows that six members now believe there will be just one rate rise this year, up from one member in March. Even though the central bank's official forecast still shows two rate hikes, Fed watchers took the increase in sentiment for one hike as a more important indicator.
"It should point to a weaker dollar, and the thing is, now the next event is Brexit, so it's hard to see a lot of people fighting the moves that are now underway," said John Briggs, head of strategy at RBS. "As much as anything, it kind of validates where the market is, but doesn't mean (bond yields can't fall further) if we get more worried about Brexit."
The Fed also lowered its outlook for rate hikes into the future. Central bank officials are now looking for the funds rate to rise to 1.6 percent in 2017, as opposed to the 1.9 percent estimate from March, and to 2.4 percent in 2017, from a 3.0 percent estimate previously.
Fed watchers continues to expect a hike, more likely now for September or December than July. According to RBS, futures markets now indicate just a 44 percent chance of a rate hike by the December meeting.
"I think the consensus has been moving that way for some time. You have one more rate hike, and then it just becomes a guessing game," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "I think the Fed needed to, and they accomplished with the language of the press release that they're keeping a July rate hike on the table."
However, Clemons said he believes September is much more likely for the next hike.
"There's not enough inflationary pressures to make them do it" sooner, said Clemons. "Time is their friend."
Fed watchers had seen the weak May jobs report, with only 38,000 nonfarm payrolls, as the main reason the central bank did not hike rates this week. But there has also been an increase in market worries about Brexit — the U.K. referendum, scheduled for next week, on whether to leave the European Union.
The Fed modified its statement to show "the pace of improvement in the labor market has slowed while economic activity appears to have picked up." It also pointed to growth in household spending.
Treasury yields have plumbed new levels as global bond markets have reacted recently to both Brexit and the easing of foreign central banks. The German 10-year bund this week fell below a zero yield for the first time ever. The U.S. 10-year on Wednesday was yielding 1.58 percent, still above its February low of 1.53 percent.
"In sum, the policy statement embodied no new information about the timing of the next rate hike in the normalization process, but leans very dovish," noted Ward McCarthy, chief financial economist at Jefferies.
"(Fed Chair) Janet Yellen may change our opinion, but right now we think that it is highly probable that there is again one rate hike in 2016, with December again being the most likely date," he wrote.
Respondents to CNBC's June Fed survey this week identified the jobs report as the biggest obstacle to a June hike, with global growth concerns second, and Brexit the third. The Fed did not point to Brexit in its statement but Yellen said in a briefing that it was something Fed officials considered.
Fifty-five percent said the jobs report was a statistical blip, but 35 percent said it was evidence of a new trend of lower employment growth. Forty percent said job growth was depressed because the economy is close to full employment, while 58 percent said they think employers are uncertain about the future.

London traders brace for biggest night since 'Black Wednesday'

By William James, Freya Berry and Patrick Graham
LONDON, June 15 (Reuters) - The world's biggest banks including Citi and Goldman Sachs will draft in senior traders to work through the night following Britain's referendum on EU membership, set to be among the most volatile 24 hours for markets in a quarter of a century.
A vote to leave the European Union on June 23 would spook investors by undermining post-World War Two attempts at European integration and placing a question mark over the future of the United Kingdom and its $2.9 trillion economy.
Citi, Deutsche Bank, JPMorgan, Goldman Sachs, HSBC, Barclays, Royal Bank of Scotland and Lloyds are among those banks planning to have senior staff and traders working or on call in London as results start to dribble in after polls close at 2100 GMT, according to the sources.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co, told employees on a visit to Britain this month that if the vote was to leave the EU, the bank would have to have "teams of people thrown on what that means".
"We won't know what it means: there is a wide range of outcomes," Dimon, a supporter of Britain's membership who has warned of job cuts at JPMorgan in Britain if there is an Out vote, said in the broadcast speech.
A vote to leave could unleash turmoil on foreign exchange, equity and bond markets, spoiling bets across asset classes and potentially testing the infrastructure of Western markets such as computer systems, stock exchanges and clearing houses.
Federal Reserve Chair Janet Yellen has cautioned that a Brexit vote could shake financial markets and potentially push back the timing of the next rise in U.S. interest rates.
Bank of England Governor Mark Carney has said sterling could depreciate, "perhaps sharply" and some major banks have forecast an unprecedented fall to parity with the euro and as low as $1.20 in the days following any vote to leave the bloc.
The Bank of England will be staffed overnight, with senior policymakers on call if markets go into meltdown. The finance ministry would not comment on its staffing plans.
The official Vote Leave campaign argues there is no evidence that leaving the EU would weaken sterling long term, while Nigel Farage, leader of the UK Independence Party has said that even if the currency did fall, it would simply boost British exports.
Sterling - the world's fourth most traded currency - has moved sharply in recent weeks, often on the back of opinion polls.
Depending on the results from across the United Kingdom, the night of June 23 and early morning of June 24 could rank as one of the most volatile nights in the history of the London market.
"We've all seen U.S. elections, UK general elections, we've had the Scottish referendum, the collapse of Lehman and QE (Quantitative Easing) but this is by far and away the biggest risk event that has presented itself to the UK," said Chris Huddleston, head of money markets at specialist bank Investec.
London accounts for 41 percent of global turnover in the $5.3 trillion-a-day foreign exchange market, more than double the turnover in the United States and far more than the 3 percent of its closest EU competitors, France and Switzerland.
"All the traders are going to be in ... They don't like missing big moments, if there's going to be one, they want to be at their desk," said a senior source at a major bank based in the Canary Wharf financial district of London.
Some banks are planning the night down to the smallest detail to keep their traders on top form - laying on all night catering and booking nearby hotels to offer temporary respite.
"It is the biggest planned risk event that anyone can remember, so everyone is going to be involved. The question is just when you try and get some sleep," said one senior foreign exchange trader.
No exit polls are planned by British broadcasters so the first numbers from the counts will be turnout results from 382 different areas followed by totals for 'Remain' and 'Leave' in each area.
Polls have given contradictory pictures of British public opinion, keeping markets guessing on the final outcome.
That has left sterling, currently priced at $1.41, far away from either of its likely resting places after the final result is known - seen by banks as around $1.50 in the event of a remain vote, or $1.30 or lower if Britain votes to leave.
That almost-certain rapid repricing could set the scene for one of the rockiest sessions since traders wrestled down the value of sterling on Black Wednesday, September 16, 1992, when Britain crashed out of the European Exchange Rate Mechanism.
"If it's Brexit, then we're looking at something that's at least on the scale of Black Wednesday," said Nick Parsons, global co-head of FX strategy at National Australia Bank and a veteran of the 1992 sterling crisis.
Prices for derivatives used to mitigate the risk of sharp swings in sterling point to a period of intense volatility.
Officials and bank managers planning for the event draw comparisons with the 40 percent surge in the Swiss franc in January 2015, which bankrupted dozens of small investment funds and cost banks including Citi hundreds of millions of dollars.
Traders and analysts told Reuters they would expect a Brexit vote to cause sterling to 'gap', or plummet lower - as orders to sell the currency met an absence of willing buyers, leaving a blank spot on the price charts snaking across traders' screens.
Gaps can inflict huge losses on banks and traders, forcing them to bail out of trades at prices far below the automatic sell orders, or 'stops' they normally use to limit losses.
Currency market participants have urged the Bank of England to call on U.S. Federal Reserve if the turbulence gets really bad. The BoE could buy sterling with dollars borrowed directly from the U.S. central bank under arrangements first used in response to the global financial crisis in 2008.
Carney has said the Bank would not stand in the way of any exchange rate adjustment but would take the necessary steps to ensure markets remained orderly. It has not commented on whether or how the bank might intervene.
A senior source at one London bank said his firm had been building big reserves of sterling to lend out to any clients who get caught short by swirling asset valuations that require them to post extra security deposits with their trading partners.
Foreign exchange brokers such as PhillipCapital UK and Saxo Bank have raised the security deposit they demand from clients in order to trade, a step designed to offset the increased risk that customers get caught out by sharp moves.
One asset manager who declined to be named said his firm had run a test to see if it could cope with a 30 percent fall in sterling. The fund had increased its cash holdings and would have traders working overnight, ready to sell other assets in case it needed to raise more cash in a hurry.
Volatile markets not only put traders under pressure: they test the limits of the technology that underpin the market.
A source at the London Stock Exchange said volatility could spike on June 24 and that it was putting in emergency capacity for transaction reporting to cope with any spike in trading volumes that might otherwise overwhelm its systems.
A spokesperson for LSE declined to comment.
Despite facing a battle against surges in trading volumes, volatile prices and, at times, the absence of enough buyers or sellers to meet demand, some traders are rubbing their hands at the prospect of a night and day of high drama.
"You look forward to days like this," said one bond trader at a major London bank. "There's money to be made and lost ... You've just got to hope you're on the right side of it, not the one being carried out the door."
(Additional reporting by Jamie McGeever, Anirban Nag, John Geddie, Dhara Ranasinghe, William Schomberg, Anjuli Davies, Andrew Macaskill, Lawrence White, Simon Jessop, Marc Jones and Maiya Keidan, Editing by Guy Faulconbridge and Philippa Fletcher)

Two killed, 100 stores looted during riots in Venezuela

Photo Credit PanAm Post
Photo Credit PanAm Post
(VENEZUELA)  Following riots on Tuesday in Cumaná city, north-eastern Sucre state, opposition congresswoman Milagros Paz regretted that violence was “a replica” of the riots that took place in Cariaco last Friday, when security agents cracked down on a number of people demonstrating for food.
“Over 100 stores, mainly grocery stores, were looted; two people were shot dead, 25 were injured and 150 detained,” Paz said in an interview with private radio station Unión Radio.
The lawmaker blamed the riot on the government of Sucre state. She added that relevant authorities “have not admitted the food distribution emergency (…) They have not taken on the responsibility they have in economic matters.”
Further, the official reported that a Congress taskforce is expected to be appointed to start investigations.

FED DOES NOTHING, STOCKS FALL INTO THE CLOSE: Here’s what you need to know

Screen Shot 2016 06 15 at 3.55.05 PM
Google Finance
This looks worse than it is.


The Federal Reserve kept interest rates steady on Wednesday and in response the stock market did, well, not much, ultimately finished the day down slightly after nose-diving following the conclusion of Chair Yellen’s press conference. The big movers were Treasuries and gold, both of which rallied.


  • Dow: 17,629, -45, (-0.3%)
  • S&P 500: 2,070, -5, (-0.3%)
  • Nasdaq: 4,830, -12, (-0.3%)
  • WTI crude oil: $47.50, -2.1%
  • 10-year Treasury: 1.58%
  • Gold: $1,296, +0.7%

Federal Reserve

The Fed did nothing.
On Wednesday the latest monetary policy statement from the Fed kept interest rates pegged at 0.25%-0.50%, as expected. Along with its policy statement the Fed also released projections for inflation, GDP growth, and a forecast for the future of interest rates.
The Fed’s latest “dot plot” showed that all Fed officials expect one more rate hike this year. After that, fortunes diverge for the Fed with one official expecting no more rate hikes while the longer-run expectations for interest rates are now down to around 3% from 4% roughly a year ago.
The most important passages from the Fed’s statement were its acknowledgement that it is still monitoring international developments and that, “most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.”
Last week, Neil Dutta at Renaissance Macro said the inclusion of this final sentence would be an indication that the Fed is too hawkish relative to the economic fundamentals. This, in turn, would be a signal to sell stocks.
But in a note Wednesday, Dutta said the inclusion of the word “most” indicates a dovish shift for the Fed, writing: “This is an important caveat. Inserting the word ‘most’ reflects the fact that not all measures of inflation expectations are little changed. After all, a popular measure just fell to record lows. We suspect the minutes will reveal a bit more consternation around this point.”
Overall, the market reaction to the Fed’s statement was muted.
Stocks didn’t do much. Treasuries were bid, gold was stronger. On balance, not a major event.
No Fed officials dissented.

Press Conference

Following the release of the Fed’s statement, Chair Janet Yellen held a roughly hour-long press conference.
Yellen emphasized, as she has several times now, that every meeting is a “live” meeting (meaning the Fed could elect to raise interest rates at any of its meetings) and said it is not impossible a policy change could happen at the July meeting.
Markets aren’t pricing in any rate hikes through at least February 2017. The chances the Fed cuts rates at future meetings are now up into the 3%-4% range for all upcoming meetings after having fallen to 0% following the release of the minutes from the Fed’s April meeting.
During the press conference Yellen said she was surprised at the market’s reaction to these minutes, which were taken as a very hawkish signal from the Fed. Of course, the idea the Fed was going to raise interest rates went out the window with the soft May jobs report we got on June 3, though confidence the Fed was going to act to raise rates in June or July had already been waning.
Elsewhere in the press conference, widely-followed Fed watcher Tim Duy, an economist at the University of Oregon, noted that Yellen used the phrase “new normal” two times during the press conference.
In economic circles, “new normal” is often a phrase associated with “secular stagnation,” a broad catch-all suggested the economy is experiencing a demand shortfall that will lead to disappointing economic growth for the foreseeable future.
Yellen was also asked about the impending “Brexit” vote in the UK, which will see Britons vote to either stay or leave the European Union, and said this event was a factor in the Fed’s decision to keep interest rates on hold.
Speaking to the strength of the US economy, Yellen acknowledged that momentum seems to have slowed but demurred when asked to give a time frame on how long the Fed would need to see momentum pick back up for before raising interest rates again.

Economists React

Neil Dutta, Renaissance Macro:
The statement was largely a mark to market affair. The Fed acknowledged the slowing in the labor market but recognized that household spending strengthened. In the second paragraph, the FOMC reiterated its expectation that labor market indicators will strengthen. The language on inflation showed subtle changes in a more dovish direction, in our view.
Ian Shepherdson, Pantheon Macro:
In one line: Convictions crumble, again.
The Fed left rates on hold on a unanimous vote. The dotplot shows a median of two hikes this year, unchanged from March, but next year’s median has dipped to three hikes from four.
The statement says nothing controversial.
BNP Paribas’ US economics team:
The Fed’s communication was more dovish than expected, despite virtually no change in the economic forecasts, implicitly acknowledging increased downside risks (despite no explicit statement on that balance). There was a larger than expected shift down in the 2016 interest rate dots and no hawkish dissent. Six participants now foresee only one hike this year (compared with one participant in March). This suggests a desire for considerably more evidence before the next move.
Ward McCarthy, Jefferies:
The most important messages from the policy statement and [economic projections] are:
1. The fed funds rate Dot Plot projections were lowered once again.
2. The median 2016 year-end fed funds rate projection remained at 7/8%, implying two rate hikes, but is three votes away from a 5/8% median and one 2016 rate hike.
3. The 2017 and 2018 median fed funds rate projections were lowered substantially.
4. The FOMC did not elevate “global economic and financial developments” as again posing risks despite Brexit, but will continue to monitor “global economic and financial developments.”
5. There were no hints relating to the specific timing of the next rate hike in the normalization process.
6. The first paragraph description of the economy was more optimistic about growth but described job gains as “diminished.”
7. Esther George did not dissent.
Chris Rupkey, Bank of Tokyo-Mitsubishi:
The Fed took no action on policy today. That was not unexpected. What was unexpected is that they reduced their forecasts for how quickly they could raise rates over the coming years. And we do mean years. [...]
Net net the Fed is telling us that the economy is not strong enough for rates to be raised at even a gradual pace. They now look to raise rates only cautiously and gradually. They injected a note of caution today and are less certain of the outlook. It looks like the two month slowdown in payroll jobs has really gotten under their skin. Given them goosebumps such that even the hawks have stopped dissenting for more. The markets are right to ask what does the Fed see that you don’t see. They see a world of increasing risk make no mistake about it. They are more worried than their words can say. Bet on it.
Don Rissmiller, Strategas Research Partners:
In a unanimous decision with no dissents, the Fed held rates steady today. The FOMC noted that the “pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.” The chance of a July hike remains low after this statement as well – there was no “balance of risks” statement in today’s text. This makes sense in light of the coming BREXIT vote in the U.K., as well as uncertainty over the last U.S. payroll employment report. [...]
The FOMC may aspire to raise rates twice this year, but that’s looking more and more difficult. The Fed still wants to normalize (they would like the fed funds rate closer to the inflation rate), but they have slowed down considerably.


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