Powell meets Trump in rare sit-down


US stocks edge higher to fresh records
Newsfeed19 Nov 2019
Photo credit: AFP Photo


Market news selected by the DBS Chief Investment Office


US

Federal Reserve Chairman Jerome Powell met with US President Donald Trump and Treasury Secretary Steven Mnuchin Monday (18 November) to discuss the economy, marking a second face-to-face sit-down this year amid relentless White House criticism of the US central bank.

Powell’s comments “were consistent with his remarks at his congressional hearings last week (ended 15 November),” the Fed said in a statement released after the meeting at the White House, adding that the gathering was at the president’s invitation.

The meeting comes amid a steady stream of criticism of the Fed by Trump as the president makes his economic record the centre of his bid for re-election next year. His attacks, including an August tweet asking “Who is our bigger enemy, Jay Powell or Chairman Xi?”, referring to China’s president, have shattered a decades-long White House tradition of avoiding public comment on monetary policy out of respect for the Fed’s independence.

Trump subsequently tweeted that they had a “very good and cordial meeting” and had discussed a range of issues including “interest rates, negative interest, low inflation, easing, Dollar strength and its effect on manufacturing, trade with China, European Union and others, etc.”

Powell last week called the US economy a “star” performer and voiced solid confidence that its record expansion will stay on track. He and other Fed officials have consistently said that European or Japan-style negative interest rates would not be appropriate in the US. The chairman’s remarks on the economy reinforced a sense that officials judge they have done enough to keep the economy on track after three rate cuts this year, and monetary policy is now on a prolonged hold as long as the outlook remains favourable.

The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite indices all fluctuated throughout Monday, but ended up eking out a gain. Defensive shares such as Consumer Staples and Utilities performed best. Word that White House would extend a license to allow US companies to do business with Chinese telecom firm Huawei Technologies Co Ltd competed with reports that said Beijing was sceptical about reaching a broad deal anytime soon.

US equities are showing their sensitivity to any developments on trade after months of closely followed negotiations. Monday’s records extended gains from last week, when White House economic adviser Larry Kudlow’s had said that US-China talks were nearing the final stages. – Bloomberg News.

The S&P 500 rose 0.05% to 3,122.03. Both the Dow and the Nasdaq Composite gained 0.11% to 28,036.22 and 8,549.94, respectively.



JAPAN

Masayoshi Son, after backing start-ups around the world, is engineering a complex deal on his home turf to create a national champion that can more effectively compete with global rivals like Google and Amazon.com Inc.

Son’s SoftBank Group Corporation plans to combine its Yahoo Japan Internet business with Line Corporation in a deal that values the country’s leading messaging service at USD11.5b. SoftBank and South Korea’s Naver Corporation will take Line private and then fold Line and Yahoo Japan into a new joint venture. The deal requires shareholder approvals and is scheduled to close by October 2020.

The two companies said the combination is driven by a sense of crisis that global giants are increasing their grip on the technology industry and countries like Japan risk falling behind. Together, Line and Yahoo Japan, which now operates as Z Holdings Corporation, will be able to share engineering resources, access broader sets of data and invest more in areas like artificial intelligence, the chief executive officers (CEOs) said in a Tokyo press conference.

“The Internet industry often operates on the winner-takes-all principle and the strong only get stronger,” said Line co-CEO Takeshi Idezawa. “Even combined, our market capital, business scale, and research and development expenditures are dwarfed by the global technology giants.”

At the event, the CEOs gave unusual emphasis to their corporate vulnerabilities and the incumbent risks for Japanese consumers, perhaps to pre-empt government scrutiny of a deal that will combine two of the country’s largest internet companies. The chiefs said they need to join forces to mount a serious challenge to much larger rivals from the US and China. – Bloomberg News.

The Nikkei 225 Index fell 0.22% to 23,364.48 on Tuesday (19 November) morning. The benchmark rose 0.49% 23,416.76 the previous session.


EUROPE

Germany’s economy will probably stagnate in the fourth quarter, the Bundesbank predicted, signalling that while the nation has averted a recession, there is little sign of a rebound any time soon.

There are cautious signs the country’s manufacturing slump could be easing, according to the central bank’s monthly report. Domestic demand should also continue to provide support, even as the “significant downturn” starts to impact the still-robust labour market.

“The weak phase of the German economy is expected to extend into the final quarter of the year,” the Bundesbank said Monday (18 November). “But it will probably not worsen significantly. From today’s perspective, total output could just about stagnate.”

Europe’s largest economy reported a surprise expansion in the third quarter, dodging what would have been its first recession in six years. That does not change the fact that the country is going through a torrid period sparked by global trade tensions and geopolitical uncertainty that has turned it from the Euro Area’s traditional growth engine into a source of weakness.

The Bundesbank highlighted some promising signs of stabilisation: Manufacturers’ business expectations have improved and order inflows have been constant in the previous months, helping rein in spill overs from export-reliant industries to domestic demand.

Private consumption should continue to bolster economic growth in the fourth quarter thanks to a strong labour market and rising wages, while expansionary fiscal policy should also provide a boost.

“For the most part, the economy probably trod water in the second half of the year,” the Bundesbank said. “There’s currently no reason to fear Germany will slide into a recession.” – Bloomberg News.

The Stoxx Europe 600 Index closed little changed at 405.99 on Monday.


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