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US Federal Reserve: Raises Key Interest Rate

The US Federal Reserve on Wednesday (Dec 14) raised the benchmark interest rate by a quarter percentage point as expected, citing an improving economy with one month to go before President-elect Donald Trump takes office.

The policy-setting Federal Open Market Committee voted unanimously to increase the key federal funds rate to a range of 0.5 to 0.75 per cent, but repeated that it expects the world’s biggest economy will require only “gradual” increases going forward.

Fed chair Janet Yellen said the rate hike can be seen as a “vote of confidence” in the economy.

Federal Reserve Chair Janet Yellen speaks during a press conference in Washington, DC. (SAUL LOEB/AFP)

The rate increase from the previous range of 0.25 to 0.5 per cent is the first hike since December 2015 and only the second in a decade.

The move “should certainly be understood as a reflection of the confidence we have in the progress that the economy has made and our judgment that that progress will continue,” Yellen told a press conference following the meeting.

“And the economy has proven to be remarkably resilient, so it is a vote of confidence in the economy.”

After rallying consistently and hitting multiple new records since Trump’s election on November 8, putting the Dow within striking distance of the 20,000-point mark, US stocks fell in the wake of the Fed announcement.

Yellen declined to comment on the market reaction other than to say that it could be due to expected tax cuts under a Trump administration.

TRUMP SPENDING IMPACT?

Many analysts expect the central bank will have to raise rates faster if Trump’s promised infrastructure spending and tax cuts fuels faster inflation.

Yellen agreed such policies can change decisions by central bankers, but cautioned against any premature guessing games.

“I really can’t tell you what the Fed’s response would be to any policy changes that are put into effect,” she said. “I wouldn’t want to speculate until I were more certain of the details and how they would affect the likely course of the economy.”

However, she said some Fed officials did include expectations for increased government spending in their forecasts.

In their quarterly economic projections, Fed officials anticipate three increases in 2017, putting the rate at 1.4 per cent at the end of the year. It would then rise at the close of 2018 to 2.1 per cent.

Of the 17 officials making predictions, 11 see rates of 1.375 per cent or higher next year.

Yellen repeated her recent statement that government spending on programs that increase the economy’s productive capacity would be useful, such as enhanced education, training and workforce development.

GROWTH AT ‘MODERATE’ PACE

The central bankers project inflation will not hit the 2.0 per cent target until 2018, falling just shy of the mark next year.

The FOMC statement noted that inflation indicators “still are low” relative to the target.

“In light of the current shortfall of inflation from two percent, the Committee will carefully monitor actual and expected progress toward its inflation goal,” it said.

The other key data focus for Fed policy, unemployment, is forecast to remain steady at around 4.5 per cent through 2019, from 4.6 per cent currently.

The committee has been divided this year about the timing of this second rate increase, with some worried about the potential threat of inflation if the Fed failed to act.

But the majority view had been that there was a greater risk of jeopardising the fragile US recovery by moving too soon, especially amid global uncertainties including the slowing of China’s economy and Britain’s vote to leave the European Union.

In addition, signs of inflation or wage pressures were absent from the economic data. But the FOMC notes that inflation has been kept low in part due to the decline in energy prices, which could prove to be temporary.

Yellen denied that she favors “running the economy hot” – keeping rates low for an extended period to boost inflation to the Fed’s target.

On the broader economy, the committee said growth has continued at a “moderate pace” since mid-year, accompanied by moderate increases in household spending, while the labor market “has continued to strengthen.”

However, business investment in new plants has been soft. Risks to the economic outlook “appear roughly balanced,” the committee said.

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Online binary option trading scams; more than S$1m lost to date

SINGAPORE: There has been a “sharp rise” in scams involving online trading in binary options, said the police on Wednesday (Dec 14), with more than 30 reports of such scams lodged to date, and investors losing more than S$1 million to unregulated binary options trading platforms.

Most of these investors are mostly local males aged between 31 and 50, and include finance professionals as well as retirees, police added in a media statement.

Police warned that binary options trading is attractive as it sounds simple and the option providers or platforms often promise high, quick and safe returns.

In reality, binary options are speculative and risky, and many online platforms offering binary options trading are fraudulent, police said.

They said: “Encouraged by initial profits and promises made by the platform staff about financial advice, more bonuses and attractive rewards, most of the investors found it difficult to stop at one small investment and will put in more money.

“In these cases, the investors either lost all their money or could not withdraw the balances in their accounts. Some also had unauthorised withdrawals made using their debit or credit cards after (handing) over their card details for payment.”

ALL OR NOTHING

In explaining how binary options work, the police warned that the risk of losing one’s entire investment is high, because it is difficult to predict short-term price movements correctly.

Traders try to predict whether the price of the underlying asset will be above or below a specified price at a specified point in time. This can range from a few minutes to a few months in the future.

Traders get a fixed pay-off if their prediction is correct, but lose their entire investment if they are wrong.

“That is why binary options are often also called ‘all or nothing’ options,” said police.

“It is difficult to make the correct prediction, especially when the time to expiry of the binary option is short. Due to the short time frame, it is very likely that you cannot change your prediction or re-sell your option once you make your investment. This makes it extremely easy to lose your entire investment.”

Police added that most of the binary options trading platforms encountered are usually unregulated entities based outside Singapore.

The three most common places that they claim to be operating from are the United Kingdom, Cyprus and Hong Kong, and victims usually face difficulties contacting the foreign operators when things go wrong, said police.

THINKING OF TRYING BINARY OPTIONS TRADING?

In their statement, police offered the following advice for prospective traders in binary options:

  • Even when offered by legitimate sellers, binary options trading is a high risk investment where you can easily lose all that you invest.
  • Investments which promise high returns usually come with high risks. Think carefully before making the investment. When in doubt, seek professional advice before engaging in any investment products.
  • Dealing with unregulated entities mean you may have very little recourse if things go wrong. Check the list of capital markets services licence holders and the list of licensed commodity brokers to find out which entities are regulated in Singapore.
  • Some binary options offered by that regulated entity may not be regulated. This means that you may have minimal recourse if things go wrong.
  • Be wary of third party reviews, endorsements or success stories of binary option providers. These reviews and endorsements may have been paid for by the binary option providers.
  • Be cautious of high pressure sales tactics used by representatives of binary option providers. These tactics include promises of quality financial advice or easy profits.
  • Be careful when sending money to overseas bank accounts via fund transfers, debit/credit card payments and any other modes of payment. Always ensure that the end recipient is reliable before making any transfers or payments.
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Pound Looks to UK GDP to Gauge Growth Trends After Brexit Vote

Third-quarter UK GDP figures headline the economic calendar in European trading hours. The release will mark the first look at cumulative growth trends since Brexit referendum. Expectations suggest output added 0.3 percent in the three months through September, amounting to the weakest performance in a year.

UK news-flow has tended outperform relative to consensus forecasts in recent months, suggesting analysts’ models have underestimated the economy’s vigor and opening the door for an upside surprise. Such an outcome could offer a near-term boost to British Pound but follow-through may prove lacking.

Leading survey data suggests that the pace of economic activity growth has fully recovered from a deep slide in the immediate aftermath of the vote to leave the EU, registering at an eight-month high in September. As such, a GDP print that strikes an upbeat tone is unlikely to prove especially surprising.

Sterling may be further capped considering the BOE has maintained a firmly dovish bias even as it admitted that the UK has shown to be more resilient than expected after the referendum outcome. This likely reflects the inherent lag in businesses’ ability to adjust to negativity, meaning the worst may yet loom ahead.

Later in the day, the US Durable Goods Orders report enters the spotlight. A flat result is expected in September, which would put the volatile data series squarely at its 12-month average and offer a relatively lead for Fed rate hike speculation.

With that in mind, the release may mean relatively little for the US Dollar. Indeed, traders may already be reluctant to show directional conviction ahead of Friday’s release of GDP figures. That is projected to show annualized growth accelerated to 2.5 percent, the strongest since the second quarter of last year.

The Australian Dollar declined in overnight trade. The move tracked losses across Asian stock exchanges to suggest souring sentiment as the source of selling pressure facing the risk-sensitive currency. Sterling corrected lower having broadly outperformed against its major counterparts yesterday.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Trade Balance (NZ$) (SEP)

-1436m

-1145m

-1265m

21:45

NZD

Exports (NZ$) (SEP)

3.47b

3.53b

3.38b

21:45

NZD

Imports (NZ$) (SEP)

4.90b

4.68b

4.62b

21:45

NZD

Trade Balance 12 Mth YTD (NZ$) (SEP)

-3404m

-3113m

-3109m

00:30

AUD

Export Price Index (QoQ) (3Q)

3.5%

2.0%

1.4%

00:30

AUD

Import Price Index (QoQ) (3Q)

-1.0%

-0.8%

-1.0%

01:00

CNY

Swift Global Payments CNY (SEP) 2.03%

1.86%

01:30

CNY

Industrial Profits (YoY) (SEP) 7.7%

19.5%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

06:00

CHF

UBS Consumption Indicator (SEP)

1.53

Low

08:00

EUR

Eurozone M3 Money Supply (YoY) (SEP)

5.1%

5.1%

Low

08:30

GBP

GDP (QoQ) (3Q A)

0.3%

0.7%

High

08:30

GBP

GDP (YoY) (3Q A)

2.1%

2.1%

High

08:30

GBP

Index of Services (MoM) (AUG)

0.1%

0.4%

Low

08:30

GBP

Index of Services (3M/3M) (AUG)

0.8%

0.6%

Low

10:00

GBP

CBI Retailing Reported Sales (OCT)

-2

-8

Low

10:00

GBP

CBI Total Dist. Reported Sales (OCT)

17

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0768

1.0839

1.0873

1.0910

1.0944

1.0981

1.1052

GBP/USD

1.2034

1.2126

1.2186

1.2218

1.2278

1.2310

1.2402

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More Republicans expect Clinton, rather than Trump

More Republicans now think Democrat Hillary Clinton, rather than Donald Trump, will win the presidency, as their party’s candidate struggles with difficulties including allegations of sexual misconduct and his suggestion he may not honour the outcome of the election.

A Reuters/Ipsos poll released on Wednesday and conducted from Oct. 20 to Oct. 24 found that 41 percent of Republicans expected Clinton to win the Nov. 8 election, versus 40 percent who picked Trump.

That reflected a sharp decline in confidence from last month, when 58 percent of Republicans said they thought their party’s nominee would win, versus 23 percent who expected Clinton to prevail.

Among Trump’s supporters, 49 percent in the latest poll said they believed Trump would win, down from 67 percent who felt that way at the beginning of the month.

“There’s still hope, I guess. I just don’t have a great deal of faith in a good portion of the American public,” said Bert Horsley, 38, of Belgrade, Montana, who said he planned to vote for Trump even though he believed Clinton would win.

Horsley said he felt the country was leaning increasingly socialist and that voters were more inclined to focus on Trump’s problems than on issues facing Clinton, including allegations she mishandled classified emails while secretary of state.

“The nation’s willing to overlook certain things in some people and not in others,” he said.

Despite the growing pessimism, Trump, who trails Clinton in national opinion polls, still enjoys overwhelming support from members of his party. Some 79 percent of likely Republican voters said they would vote for him. Many said their support was rooted in an expectation he would promote a conservative agenda in Congress and appoint conservative justices to the Supreme Court.

Democrats appear to be strongly anticipating a Clinton presidency. Some 83 percent of Democrats said in the poll they thought she would win, while only 8 percent predicted Trump would become president. Among Clinton’s supporters, 92 percent expected her to win, up from 83 percent a month earlier.

Clinton held a commanding lead in the race to win the Electoral College and claim the presidency, according to results from the Reuters/Ipsos States of the Nation project released on Saturday.

CONFIDENCE DROP THIS MONTH

Trump, a businessman and former reality television star, has alarmed mainstream Republicans throughout his campaign by routinely bashing the political establishment and making a series of provocative statements.

He aroused criticism for belittling the parents of a U.S. soldier killed in the Iraq war, calling for a ban on admitting Muslims to the country and accusing a judge of bias because of his Hispanic heritage. He has also asserted, without showing evidence, that the U.S. electoral system is rigged.

But Republicans remained mostly confident in their candidate’s chances until this month, when a videotape from 2005 was released in which Trump could be heard bragging in vulgar terms about kissing and groping women.

At least 10 women have since accused Trump of making unwanted sexual advances, including groping or kissing, from the early 1980s to 2007, according to reports in various news outlets. Trump has denied the women’s allegations, calling them “totally and absolutely false” and has promised to sue the women after the election.

Trump has also deepened divisions within his party by refusing to promise to accept the outcome of the election. “I will keep you in suspense,” he said when asked about the issue during an Oct. 19 debate with Clinton.

The Reuters/Ipsos poll was conducted online in English with American adults in all 50 states. The latest poll included 648 people who identified as Republicans and 771 people who identified as Democrats. It had a credibility interval, a measure of accuracy, of 4 percentage points.

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