“Putin Wins Another Six Year Term …..”

Putin Wins Another Six Year Term

The President of Russia Vladimir Putin won a landslide re-election for another six year term.  This victory will extend his total time in office to nearly a quarter of a century until 2024. He is the longest-serving leader since Soviet dictator Joseph Stalin.   He has promised to use his new term to beef up Russia’s defences against the West and to raise living standards.  His victory was expected and was never in doubt.

US – Government Shutdown Nears

Talks were on the way to avoid another third government shutdown this year.  There are disagreements about immigration, border security, tax breaks and a rail tunnel under the Hudson River between New York and New Jersey.  Early Friday, senators kept the government open by passing a $1.3 trillion spending bill that increases military and domestic spending and strengthens background checks for gun buyers.

Short-term Funding Costs Are At A Crisis

The three month London interbank funding rate rose to 2.25 percent on Tuesday which is the highest since 2008.  The explanation behind the surge in recent weeks, may be mostly due to technical factors and  to an inundated amount of Treasury bill issuance since the US debt ceiling was raised in February.  Furthermore the US tax overhaul is also coming into play by spurring expectations that companies will shift funds away from longer-dated commercial paper and other securities as they prepare to repatriate cash.  One cannot not mention as well the fact that the Federal Reserve is tightening policy.  There are concerns that the Libor blowout may continue.  This short term funding costs crisis is becoming a global issue.

FED Meeting On Wednesday

The Fed raised the US interest rates by 25 bps or a quarter of a percentage point on Wednesday and forecasts at least two more hikes for 2018.  Confidence is growing that tax cuts and government spending will boost the economy and inflation, and spur more aggressive future tightening.  In its first policy meeting under new Fed Chief Jerome Powell, the US central bank indicated that inflation should finally move higher after years below its 2 percent target.  In a statement, at the end of a two-day meeting, the Fed said, “the economic outlook has strengthened in recent months”.  It lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.5 percent to 1.75 percent.  According to Jerome Powell the central bank is staying on a path of gradual interest rate increases but needed to be on guard against inflation.  In a press conference Powell added, “we are trying to take the middle ground here.”  He added that there were no signs the economy was on the curp of accelerating inflation.  The dollar recorded its steepest one-day loss in nearly two months against a basket of currencies.  The rate hike was the latest step away from years of stimulating the economy after the crisis of 2007-2009.  The Fed tightened its policy three times last year.

China’s Move To Raise Interest Rates Following the Fed’s Move

China has raised its key short-term interest rate on Thursday following the US Federal Reserve Bank’s move overnight.  The People’s Bank of China said it had increased the rate on 7-day reverse repurchase agreements by 5 basis points to 2.55 percent.  Reverse repos are one of its most common tools to control liquidity in the financial system.  The PBOC’s move had been widely expected and was its first major policy decision under the new Governor Yi Gang, who was appointed by parliament on Monday after a sweeping reshuffle of China’s cabinet under President Xi Jinping.  On Thursday the PBOC has also injected 10 billion yuan into the financial system.

News From The People’s Bank Of China

China promoted Yi Gang, the long-serving deputy governor to run its central bank.  His priorities will include “opening up” the financial sector while maintaining its stability.

Trade battle

President Donald Trump is set to announce $50 billion of tariffs against China over intellectual-property violations targeting more than 100 different types of products.  The trade action is directed to China as Trump blamed the country for effecting the US manufacturing sector and the loss of US jobs.  China urged the United States on Friday to “pull back from the brink” and unveiled its own plans to impose tariffs up to $3 billion of US imports.   In a statement Chinese Commerce Minister said, “China doesn’t hope to be in a trade war, but is not afraid of engaging in one”.   European shares fell on Friday with tech, basic resources stocks and banks bearing the effect of a wide sell-off triggered by concerns that US tariffs on imports from China would escalate into a fully-blown trade war.  In a presidential memorandum signed by Trump on Thursday, there will be a 30 day consultation period that only starts once a list of Chinese goods is published.

The Bank of England

The Bank of England kept the interest rates at 0.5 per cent on Thursday however, kept the door open to an interest rate increase in May to keep a lid on inflation arising from rising wages rather than from a Brexit-related fall in the pound.  Two of the nine members on the Monetary Policy Committee backed an immediate increase to 0.75 percent.   The meeting minutes indicated that despite resisting an immediate hike, a majority is ready to back another rate hike soon.

BREXIT

Britain agreed to a potentially unpalatable deal to avoid a “hard border” for Northern Ireland to win agreement from the EU that it would retain most EU benefits for nearly two years after Brexit.  After a weekend of intensive talks the two sides issued a new draft treaty.  Michel Barnier the EU’s chief negotiator, told a news conference together with Brexit Secretary David Davis that none of this is legally binding until a whole treaty is ratified before Brexit a year from now.  However, he described the agreements as a “decisive” moment for efforts to avoid Britain crashing out without a deal.  Mr Barnier further cautioned that there still remains a lot of work to be done including Ireland and Northern Ireland.  Theresa May has described as unacceptable any possible deal that cuts Northern Ireland off from the rest of the United Kingdom by leaving the British-ruled province subject to EU rules after Brexit.

Facebook

The Menlo Park, California Company whose social network is a venue for social and political life is drawing an unwelcome attention after the disclosure that is released the personal data of 50 million users to an analytics firm that helped in the election of President Donald Trump.  Regulators are examining whether information on millions of Facebook users was illegally held by Cambridge Analytica after it was obtained from a researcher who shared the data without Facebook’s permission.  Meanwhile, Mark Zuckerberg broke his silence on the crisis outlining concrete steps the company is taking to make sure a leak does not repeat itself.

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