Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.
Asia stocks lower as dollar rebound weighs on commodities, oil (CNBC) Asia markets stumbled on the final trading day of the week, as a stronger dollar weighed on commodity prices overnight and snapped Wall Street's three-day winning streak. In Australia, the ASX 200 was off by 0.92%, led by more than 1% declines in the financials, energy and materials sub-indexes as banks and resources producers came under pressure. Analysts said the weakness was likely due to the hit that commodity prices took overnight as a result of the stronger dollar. Most commodity prices are denominated in dollars.
Oil falls on stronger dollar; high refinery demand lends support (Reuters) Oil prices fell on Friday, as a stronger dollar pulled crude off the 2016 highs hit this week, although strong refinery demand and global supply disruptions lent some support. International Brent crude oil futures were trading at $51.59 per barrel at 0537 GMT, down 36 cents from their last settlement. U.S. West Texas Intermediate (WTI) futures were down 38 cents at $50.18 a barrel. Analysts said that a rebound in the dollar had dented oil prices by making fuel imports for countries using other currencies more expensive.
Gross Says Negative Rates Are Like 'Supernova' That Will Explode (Bloomberg) Bill Gross, the manager of the $1.4 billion Janus Global Unconstrained Bond Fund, warned central bank policies that pushed trillions of dollars into bonds with negative interest rates will eventually backfire violently. However, see also next article. Gross, 72, wrote Thursday on the Janus Capital Group Inc. Twitter site:
"Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day."
Negative Interest Rates Are Nothing to Fear (Bloomberg View) Narayana Kocherlakota, Lionel W. McKenzie professor of economics at the University of Rochester and former president of the Federal Reserve Bank of Minneapolis from 2009 through 2015, says cash is costly to store and costly to secure, so people will accept negative interest on other investments -- as low as minus 0.75% -- for prolonged periods of time. He says that negative rates "can give people and companies an added incentive to spend money now before its value erodes, potentially providing a temporary boost to the economy". Econintersect: We just don't buy this argument. It seems to be based on the loanable theory of funds model of banking. Low or negative interest rates do little to encourage lending by banks - banks lend based on the ability of the borrower to repay with interest the sum of the lender's profit and compensation for risk of default. When interest rates are low banks are disincentivized to extend credit because both profit and margin against default risk are lowered. Demand for credit may increase at very low rates but supply may be significantly reduced.
The 'Yellen Call' Makes July a Live Meeting, Says Goldman (Bloomberg) With the S&P 500 within shouting distance of its all-time high, Goldman Sachs Group Inc. has a warning for investors: Federal Reserve Chair Janet Yellen is here to limit your gains. The U.S. central bank's gyrations from hawkish to dovish and back again, according to Chief Credit Strategist Charles Himmelberg, have been heavily influenced by fluctuations in financial conditions. Financial conditions, in this case, refers to the level of the dollar, 10-year U.S. Treasury yield, credit spreads, and stock prices, which have an impact on the nation's growth outlook.
House passes Puerto Rico rescue (The Hill) The House on Thursday passed legislation to tackle Puerto Rico's debt crisis, as Congress took a large step towards addressing the economic and humanitarian crisis enveloping the island. The carefully crafted compromise passed 297-127, earning majorities in both parties. The passage of the carefully crafted compromise is a significant win for Speaker Paul Ryan (R-Wis.), who was an early and active supporter of the legislation, and Minority Leader Nancy Pelosi (D-Calif.) and the White House, which also pushed the package. The island faces a default on $2 billion of debt payments on July 1. The crisis has been created by years of economic decline and an exodus of Puerto Ricans to the U.S. mainland, leaving the island with a shrinking pile of revenues. See next article.
Puerto Rico not sovereign, Supreme Court says (USA Today) Puerto Rico has its own Constitution and elects its own leaders, but it remains under the thumb of Congress as a U.S. territory, the Supreme Court ruled Thursday in a 6-2 decision. The case involved a simple criminal prosecution for firearms sales, but the broader dispute focused on the commonwealth's autonomy. Lawyers for Puerto Rico argued that it should be able to try two men who already had pleaded guilty in federal court. Justice Elena Kagan, writing for the majority, said that would amount to double jeopardy. The case was the first of two involving Puerto Rico to come before the high court this term. The justices also are weighing the commonwealth's effort to restructure part of its $70 billion public debt, an issue that is also before Congress. A federal appeals court blocked the restructuring because of conflicts with U.S. bankruptcy laws.
UK bank investors may have ignored Brexit risk: Citigroup (The Business Times) Britain's biggest banks, down 28% on average in the past year, have even further to fall if UK voters opt to leave the European Union this month, according to Citigroup Inc analysts. Barclays Plc, HSBC Holdings Plc, Standard Chartered Plc, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc have slumped in the last 12 months primarily because of "weak" earnings and investors haven't taken the risk of a so-called Brexit fully into account, analysts led by Andrew Coombs wrote in a note to clients on Thursday.
120,000 UK jobs lost from the oil price crash (City A.M.) Over 120,000 jobs are expected to have been lost between 2014 and the end of this year because of the severe hit inflicted on the UK oil industry from tumbling global prices. The strain of low oil prices has caused massive layoffs and cost-cutting across the sector and in related industries over the last 24 months. New employment figures released today by industry trade body Oil & Gas UK forecast 40,000 job losses in 2016 alone. Last year, around 84,000 jobs were cut.
Pound tumbles as much as 1.1% after polls show Brexit favoured (The Business Times) The pound slumped as much as 1.1% after weekend polls showed Britons favour exiting the European Union, spooking some investors who have been betting the UK would vote to stay. Sterling weakened against all its 16 major peers after two surveys showed more voters were willing to vote to leave the EU than those ready to stay. The US dollar rebounded and the Australian and New Zealand currencies retreated.
Officials: White House OKs expanded Afghanistan airstrikes (Associated Press) After months of debate, the White House has approved plans to expand the military's authority to conduct airstrikes against the Taliban when necessary, as the violence in Afghanistan escalates, senior U.S. and defense officials said Thursday. Several officials said the decision was made in recent days to expand the authority of U.S. commanders to strike the Taliban and better support and assist the Afghan forces when needed in critical operations, using the U.S. troops already in the country. There is a broad desire across the Obama administration to give the military greater ability to help the Afghans fight and win the war. The 9,800 U.S. troops still in Afghanistan, however, would still not be involved in direct combat.
Now, fund houses can't restrict redemptions (Business Standard) To protect small investors from tricky choices made by mutual fund managers, the market regulator Securities and Exchange Board of India (Sebi) has introduced new redemption rules. Now, mutual fund houses cannot restrict redemptions unless there's a crisis that can affect the industry at large. Even in such cases, investors will be able to withdraw up to Rs 2 lakh (about $3,000 U.S.).
China's Factory-Gate Deflation Eases in Capacity-Cut Drive (Bloomberg) Deflationary pressures in China's industries eased further in May, while consumer price gains continued to be subdued enough to offer the central bank scope for more easing if needed. Amid a drive by the Communist Party leadership to cut excess capacity, producer prices fell 2.8%, the least since late 2014 and less than the 3.2% decline economists had estimated in a Bloomberg survey. The consumer price index rose 2% from a year earlier, less than the median forecast of 2.2%.
Peru election: Kuczynski wins, but Fujimori has yet to concede (BBC News) With all votes counted, the economist Pedro Pablo Kuczynski appears to have won the majority of votes in Peru's cliff-hanger presidential election. The electoral commission said he received 50.12% of votes, against 49.88% for his rival, Keiko Fujimori. About 50,000 ballots must first be settled by an electoral court before a winner can be officially declared. The closeness of the result came as a surprise after polls in the run-up to the election had suggested Ms Fujimori had a comfortable lead. Analysts said corruption scandals in Ms Fujimori's Popular Force Party may have dented her support since April, when she comfortably won the first round of voting. She is the daughter of Peru's former President, Alberto Fujimori, who is in jail for crimes against humanity.
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