Bloomberg Markets Overview Asia Edition: It is not QE
U.S. travel bans slapped on Chinese officials, Powell sees the Fed resuming balance-sheet growth, and Brexit turns – again. Here are some of the things people in markets are talking about today.
The Trump administration is slapping visa bans on Chinese officials linked to the mass detention of Muslim Uighurs in Xinjiang province. It’s the latest in an escalating series of U.S. steps to pressure China over what Secretary of State Michael Pompeo has called “the stain of the century.” The news rattled American equity investors already on edge over signs tensions between the two countries are rising ahead of the trade talks, with the S&P 500 tumbling from session highs to trade lower by almost 1% Tuesday. The move came after eight major Chinese technology companies linked to the oppression of Uighurs were placed on a U.S. blacklist on Monday, as the trade war takes on a curiously moral dimension. China has said “stay tuned” for retaliation over that development.
Markets to Drop
Stocks in Asia looked set to decline following a drop in U.S. equities and gains for sovereign bonds Tuesday amid concern that U.S.-China tensions are growing just days before high-level trade talks are due to take place. The S&P 500 Index sank 1.6% after the news of U.S. travel bans on Chinese officials linked to the mass detention of Muslims in Xinjiang province, which came after China said it strongly opposed a U.S. move to blacklist some of its technology firms and Bloomberg reported the White House is moving ahead with discussions about restricting capital flows to China. The yuan dropped in offshore trading. Ten-year Treasury yields fell to 1.53% and the dollar edged up after comments by Federal Reserve Chairman Jerome Powell that the central bank will seek to calm money markets without QE. Elsewhere, the pound weakened after Boris Johnson told German Chancellor Angela Merkel a Brexit deal is essentially impossible. Meanwhile, West Texas crude fell toward $52 a barrel.
It’s Not Quite QE
Federal Reserve Chairman Jerome Powell said the central bank will resume purchases of Treasury securities in an effort to avoid a repeat of recent turmoil in money markets, while leaving his options open on interest rates weeks ahead of policy makers’ next meeting. But it’s not QE, he said. “Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy,” he said said in a speech to the National Association for Business Economics in Denver. He suggested that the purchases would be made up of Treasury bills and stressed the buying should not be seen as a return of the crisis-era quantitative easing programs that the Fed engaged in a decade ago to boost the economy.
Historically speaking, the U.K. and Ireland seem an unlikely duo when it comes to finding common ground. But there appears to be one thing agreed upon by both sides of the Irish sea: A Brexit deal is looking near impossible. Irish Prime Minister Leo Varadkar said it’s hard to see the impasse over Brexit breaking before next week, amid a stand-off over U.K. proposals over how to keep the Irish border invisible after it leaves the European Union. British Prime Minister Johnson, meanwhile, has blamed German Chancellor Angela Merkel of making an agreement effectively impossible, after she reportedly told him that Northern Ireland must remain part of the European Union’s customs union, to which Johnson is diametrically opposed, if he wants to secure a divorce deal.
UN’s Credit Crunch
Even the United Nations is facing finance fears. UN Secretary-General Antonio Guterres warned that the global body is facing its worst cash crisis in about a decade and runs the risk of defaulting on payments to staff and vendors. Many members are behind on their payments, forcing the UN to cut back on travel, purchases of goods and services and conferences, Guterres said. This year, 129 of the UN’s member states have paid $2 billion toward the organization’s 2019 regular budget, the UN said. But about $1.4 billion remains outstanding. Among the 64 nations that have yet to pay their 2019 dues in full are Argentina, South Korea, Israel, Saudi Arabia, Senegal and the U.S. The cash crunch is “undermining the implementation of mandates decided by inter-governmental bodies,” he added in a statement on Tuesday.
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