RBA’s Kent Says Rate Cuts, Currency Drop Are Providing Stimulus

(Bloomberg) — Australia’s back-to-back interest-rate cuts are flowing through the financial system and into the economy, while the falling currency should provide a similar stimulus to sustained declines of previous years, a senior Reserve Bank official said.

“The transmission of monetary policy in Australia to financial conditions is working in the usual way,” Christopher Kent, assistant governor for financial markets, said in Sydney Tuesday. “In particular, the change in the stance of policy has underpinned the decline in risk-free rates along the yield curve. It has also contributed to a decline in the cost of funding in corporate bond markets, supported equity prices, and lowered the cost of funding for banks.”

Kent also said in his speech to the Finance & Treasury Association that much of the reduction in banks’ funding costs has been passed through to business and household borrowers. The cash rate currently stands at 1%, with traders pricing in another quarter-point cut this year and a further one in 2020.

Kent noted that a spike in commodity prices over the past year had impacted the currency less than in the past, due to expectations that the supply-driven gains were likely to be short-lived. He estimated that, in trade-weighted terms, the dollar was down about 7% over the past year; it was trading at 67.57 U.S. cents at 10:52 a.m. in Sydney, near the lowest level since 2009.

Some Support

“Notwithstanding an easier stance of monetary policy globally, the decline in interest rates in Australia has contributed to the depreciation of the Australian dollar,” he said. “That broad-based easing in financial conditions in Australia will provide some additional support to demand in the period ahead.”

Asked after the address whether the currency would deliver the same impetus to the economy as on previous occasions, given changes in the industrial base, Kent was categorical in his response: “Absolutely.”

“Education and tourism benefit just as much through a depreciation in terms of their competitiveness as any other industries which are no longer so prominent,” he said. “So yes I think it’s going to have about the same sort of effect in terms of the stimulus.”

Kent was also asked whether the central bank’s focus was still inflation or perhaps unemployment or even under-employment now. He reiterated the bank’s line that there was more spare capacity in the economy than had been anticipated, as strong hiring had been met by a “substantial increase” in the participation rate.

“We’re certainly not unemployment rate targeters, we still are inflation targeters,” he said. “But it’s a dual mandate, we care about inflation, we care about full employment. We care about the general welfare of the populace.”

(Updates with Q&A currency comments from first paragraph.)

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Dollar regains footing as bets on aggressive U.S. rate cuts fade

By Stanley White

TOKYO (Reuters) – The dollar traded near a three-week high on Tuesday against its peers, as investors reduced bets on aggressive U.S. interest rate cuts ahead of the Federal Reserve chairman’s testimony to Congress on the economy.

Sterling was pinned near a six-month low versus the dollar on speculation the Bank of England will soon join other major central banks in easing monetary policy in response to growing worries about the global economy and Britain’s exit from the European Union.

Fed chief Jerome Powell’s comments in two-day testimony to Congress beginning on Wednesday will be closely watched to determine whether traders will continue to pare bets for deep interest rate cuts, which could help the dollar continue its rebound against major currencies.

“The dollar is bouncing back, so there are some downside risks for the euro and cable,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“There is a risk the Fed will not be as dovish as people thought. Central banks ahead of the curve in this cycle are Australia and New Zealand. The Fed is following, but the European Central Bank and the Bank of England are laggards.”

The () versus a basket of six major currencies was little changed at 97.374 on Tuesday, which was close to a three-week high of 97.443 hit on Friday.

The greenback was steady at 108.75 yen , near a six-week high of 108.81 yen reached on Monday.

Investors will closely analyze Powell’s comments when he delivers his semi-annual monetary report before Congress to gauge how far the U.S. central bank will lower interest rates.

A sharp rebound in U.S. job growth in June reduced expectations that the Fed will cut interest rates by 50 basis points when it meets at the end of July.

A week ago, the market forecast an 80.1% chance of a 25-basis-point cut, and a 19.9% chance of a 50-basis-point cut, according to CME Group’s FedWatch tool. The chances are now 98% and 2%, respectively.

The British pound was last quoted at $ 1.2515, within striking distance of $ 1.2481, its lowest since the “flash crash” on January 3 when the pound dropped to $ 1.2409.

Data on UK gross domestic product and industrial output are due Wednesday, while the Bank of England will release its financial stability report on Thursday, which could help traders gauge whether the BoE will take a more dovish view of the economy.

The euro () traded at $ 1.1216, near a three-week low of $ 1.1207.

The Turkish lira was steady in early trade in Asia after weakening sharply following President Tayyip Erdogan’s dismissal over the weekend of the central bank governor, sparking worries about the bank’s independence.

The lira at one point slid to a two-week low of 5.8245 to the dollar and was last quoted at 5.7291.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Deutsche Bank U.S. Cuts May Go Deeper Than Equities, Rates

© Bloomberg. People enter Deutsche Bank AG headquarters on Wall Street in New York, U.S., on Thursday, April, 26, 2018. Deutsche Bank AG is planning to cut more than 10 percent of U.S. jobs as it withdraws from businesses where it can't compete, a person briefed on the matter said. © Bloomberg. People enter Deutsche Bank AG headquarters on Wall Street in New York, U.S., on Thursday, April, 26, 2018. Deutsche Bank AG is planning to cut more than 10 percent of U.S. jobs as it withdraws from businesses where it can’t compete, a person briefed on the matter said.

(Bloomberg) — Deutsche Bank (DE:) AG’s job cuts across the U.S. will probably go far beyond equities and interest-rate derivatives trading, which have been marked as major targets, according to people with knowledge of the matter.

The German lender plans to start informing U.S. workers of the reductions beginning Monday provided its restructuring plan is adopted over the weekend, the people said, asking not to be identified because the matter is private. They didn’t give further details on which businesses may be affected.

Chief Executive Officer Christian Sewing is poised to adopt a sweeping restructuring plan focused on as many as 20,000 job cuts worldwide and a pullback from large areas of investment banking, the people have said. The bank may shutter U.S. equities trading entirely and a number of senior executives including U.S. chief Tom Patrick are leaving the bank, they said. The bank hasn’t yet detailed the cuts or how they’ll be distributed.

A Deutsche Bank spokesman declined to comment.

Germany’s largest lender employed 9,253 people in the U.S. at the end of 2018, down more than 10% on the previous year on the back of a restructuring Sewing introduced a little more than a year ago. Though the regional unit made a small profit last year, it racked up billions of dollars in losses in the preceding years. It has also been repeatedly under fire from U.S. regulators even though it recently passed the Fed’s stress test.

European operations are expected to fare much better. Deutsche Bank’s Nordic region chief Jan Olsson predicted that the overhaul will have little impact on the businesses he oversees. The area is “an integral part of the strategy at Deutsche Bank,” he said in an interview on Thursday.

Sewing has repeatedly said that Deutsche Bank remains committed to its U.S. presence, as the company wants to ensure it can continue to cater to the capital markets needs of large European companies. The lender may finalize the restructuring when the board meets this weekend.

(Updates with Nordic region CEO in sixth paragraph.)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Forex – Dollar Weakens Further as Market Positions for Rate Cuts

© Reuters.  © Reuters.

Investing.com — The dollar continued its decline in early trading in Europe Tuesday, with the yen and euro strengthening as traders anticipate the erosion of the interest rate premium on dollar assets.

Overnight, the dollar fell to a 14-month low of 106.79 against the , before recovering slightly to trade at 106.97 by 3.45 AM ET (0745 GMT). The , which measures the greenback against a basket of developed-market currencies, also hit a three-month low of 95.468 before bouncing to 95.488.

The , meanwhile, hit a three-month high of $ 1.1413 before consolidating just under $ 1.1400, due partly to a weaker-than-expected in France. That follows a day after a similarly gloomy reading from the research institute on German business sentiment.

Caution remains the watchword of the day after Iran responded to U.S. sanctions on its supreme leader Ayatollah Khamenei by saying that the diplomatic channel for communications had been “closed forever”. Even so, the largely symbolic sanctions announced on Monday haven’t been enough to trigger any major inflows into safe assets.

There is little incentive for traders to take new positions ahead of the crucial G20 summit at the weekend, where U.S. President Donald Trump and his Chinese counterpart Xi Jinping are due to meet. A between the two sides’ chief trade negotiators late Monday yielded no new detail but at least avoided a public breakdown of communication.

The currency market’s focus later Tuesday is likely to be on Federal Reserve Chairman , who is due to speak at 1 PM ET (1700 GMT). Powell came in for fresh criticism from Trump on Monday, who accused

the Fed of acting like a “stubborn child” for not cutting interest rates at its meeting last week.

Elsewhere, the continued its recent recovery on reports that Conservative Party lawmakers were making plans to from taking the U.K. out of the European Union without a deal on Oct. 31 if, as expected, Johnson wins the ongoing party leadership contest.

In other news, the struggled to build on its sharp gains of Monday. It was little changed at 5.8197 to the dollar.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Dollar sags as U.S. yields slide, Aussie steady after RBA cuts rates

© Reuters. Illustration photo of a U.S. Dollar note © Reuters. Illustration photo of a U.S. Dollar note

By Shinichi Saoshiro

TOKYO (Reuters) – The dollar struggled to shake off a harsh overnight session, slipping to a five-month low against the yen on Tuesday, hurt by a sharp slide in U.S. Treasury yields thanks to rising bets for a near-term rate cut by the Federal Reserve.

The benchmark fell to its lowest level since September 2017 overnight, coming within reach of the 2% threshold after St. Louis Federal Reserve President James Bullard said a rate cut “may be warranted soon” given the rising risk to economic growth posed by global trade tensions as well as weak U.S. inflation.

Treasury yields had already been on a steep decline as investors have been piling into safe-haven government bonds in the face of escalating trade tensions between Washington and its trade partners.

The dollar traded down 0.1% at 107.980 yen after brushing 107.860, its lowest since Jan. 10.

The against a basket of six major currencies was steady at 97.153 after shedding 0.6% the previous day.

“The dollar is even falling against currencies such as the euro. Participants have found an incentive to finally cover euro shorts on the sharp fall in U.S. yields,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The dollar has been a safe-haven during the current ‘risk off’ phase, but it’s strength is waning as the unexpected pace of the drop in U.S. yields has become too much to ignore.”

The euro nudged up 0.1% to $ 1.1251 after rallying roughly 0.7% overnight to $ 1.1262, its highest since May 13.

The single currency has drawn support from a weaker dollar but analysts remain cautious on its longer term prospects.

“Considering the euro zone’s close ties with the Chinese economy, the euro is one of the currencies that stands to be most affected by a Chinese economic downturn – a risk associated with the escalating U.S.-China trade war,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

AUSSIE STEADY AFTER RBA CUTS RATES

The Australian dollar held steady at $ 0.6974, giving up brief gains of 0.2% to a three-week peak of $ 0.6975 after the nation’s central bank cut rates in a widely anticipated move.

The Reserve Bank of Australia (RBA) cut its cash rate on Tuesday to an all-time low of 1.25% from 1.50%, but it did not give a clear indication of plans for further cuts.

The pound was flat at $ 1.2666, having crawled off a five-month trough of $ 1.2560 set on Friday thanks to the dollar’s underperformance.

Sterling had sunk to the five-month low, weighed by the prospect of Britain choosing a eurosceptic prime minister who could take a hard line on Brexit.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Treasuries Rally Rolls on as Bets Build on 2019 Fed Rate Cuts

© Reuters.  Treasuries Rally Rolls on as Bets Build on 2019 Fed Rate Cuts © Reuters. Treasuries Rally Rolls on as Bets Build on 2019 Fed Rate Cuts

(Bloomberg) — Investors are plowing into Treasuries, favoring shorter maturities in particular, on growing conviction that the Federal Reserve will cut borrowing costs this year to contain the fallout from trade tensions.

Two-year yields dropped to their lowest level since 2017 amid a five-day slide that’s the longest since January. China’s move to extend retaliatory tariffs on American imports helped ignite the rally, and a report showing weakness in U.S. manufacturing added to the grim mood. St. Louis Fed President James Bullard accelerated the haven demand with comments that a rate cut may be needed “soon” amid the trade war.

Trade friction and a darkening growth outlook have traders betting that the Fed will slash its target rate by more than a half percentage point by year-end, and further in the first quarter of 2020. Short-dated Treasuries, which are more sensitive to Fed expectations, will likely outperform as investors price in policy easing, according to Bank of America Corp (NYSE:).’s Mark Cabana.

“The market is increasingly convinced the Fed will cut,” the bank’s head of U.S. interest-rate strategy said via email. “The only question is how soon, and by how much.”

Yields on two-year Treasuries slumped as much as eight basis points Monday to 1.84%. Meanwhile, benchmark 10-year yields dropped to 2.07%, the lowest since September 2017. Yields in the euro area also broke new ground, with the rate on briefly falling to a record low of about minus 0.22%.

The outperformance of two-year Treasuries relative to 10-year notes increased the yield premium of the longer note over the shorter to as much as 25 basis points, the most in about a month, in a move known as “bull-steepening.” The yield curve is closely monitored for its reliability in predicting recessions.

“Bull-steepenings generally take place when the market starts to see the risk of recession prompting the Fed to act,” said Seema Shah, a global investment strategist for Principal Global Investors. It “reflects the rush of negative sentiment over the weekend which, if it isn’t arrested by positive developments on the trade front, has the potential to take the market much lower.”

Banks such as JPMorgan Chase & Co (NYSE:). and Barclays (LON:) have updated their calls to project cuts in 2019. JPMorgan has also downgraded its Treasury yield forecasts, citing a “deteriorating growth outlook” alongside escalating trade tensions.

“The latest developments this week are likely to have lasting damaging effects on business confidence,” JPMorgan analysts led by Matthew Jozoff and Alex Roever wrote in a note. “Growth concerns are unlikely to dissipate over the near term, and could in fact build further.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Goldman Sachs cuts 2Q GDP tracker to 1.5% from 1.6%

Lowers GDP estimate for 2Q growth

Goldman Sachs has cut its second-quarter GDP tracker to 1.5% from 1.6%.  That is still above the Atlanta Fed GDPNow estimate at 1.2%. The Atlanta Fed will update their GDP tracker tomorrow.  

The NY Fed will also update their GDP estimate tomorrow. Last week, there estimate came in at 1.8% down from 2.2% in the previous week.

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Forex – New Zealand Dollar Falls as RBNZ Cuts Rates to Historic Low

© Reuters.  © Reuters.

Investing.com – The New Zealand dollar fell on Wednesday in Asia after the Reserve Bank of New Zealand cut interest rates to a fresh record low.

The central bank lowered the official cash rate (OCR) to 1.5%. It also hinted of one more reduction this year.

“The Monetary Policy Committee decided a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit,” the Reserve Bank. “A lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates.”

According to the central bank’s projection, the average OCR by the end of this year is 1.48% and 1.36% by the third quarter of 2020.

The pair fell 0.4% to 0.6575 by 11:30 PM ET (03:30 GMT). It was trading near 0.6602 immediately before the release of the statement.

The pair rose 0.1% to 0.7018. Australia’s central bank kept interest rates on hold, upending bearish speculation that it could ease policy after a weaker-than-expected inflation reading.

Meanwhile, the edged up today, recovered slightly from losses this week as traders await further news on the Sino-U.S. trade front.

The U.S. confirmed this week that it planned to raise tariffs on $ 200 billion of Chinese goods this Friday. Citing people familiar with the matter, Bloomberg said China is considering retaliatory tariffs on U.S. imports.

Chinese Vice Premier Liu He is travelling to Washington to resume trade negotiations with the U.S. on Thursday and Friday, according to a statement on the Chinese Ministry of Commerce website. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will attend the talks.

The pair fell 0.2% to 109.98.

The which measures the greenback against a trade-weighted basket of six major currencies fell 0.2% to 97.220.

The dollar rose earlier in the day after upbeat job data provides further evidence that the labour market remains robust.

The U.S. Labor Department’s latest Job Openings and Labor Turnover Survey report, a measure of labour demand, showed job openings in March improve to about 7.49 million from 7.14 million in February, beating expectations of 7.350 million.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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China central bank likely to pause reserve cuts, but policy easing on track: sources

© Reuters. FILE PHOTO: China Development Forum in Beijing © Reuters. FILE PHOTO: China Development Forum in Beijing

By Kevin Yao

BEIJING (Reuters) – China’s central bank is likely to pause to assess economic conditions before making any further moves to ease lenders’ reserve requirements, after better-than-expected growth data reduced the urgency for action, policy insiders said.

Although the central bank’s easing bias remains unchanged, it sees less room this year for cutting reserve requirement ratios (RRRs) – the share of cash banks must hold as reserves – as fiscal stimulus plays a bigger role in spurring growth, according to government advisers involved in internal policy discussions.

The People’s Bank of China (PBOC) is also worried that pumping too much cash into the economy could reignite bubbles over time, the policy insiders said, and wants to save some of its policy ammunition.

“In the short term, it’s not necessary to use RRR cuts to boost economic growth,” one policy adviser told Reuters. “Monetary policy should leave some room – if economic uncertainties rise or economic conditions deteriorate, the central bank could ease policy.”

The chance of a cut in benchmark interest rates, meanwhile, has further diminished, as the central bank focuses on reforming its interest rate regime this year, the policy insiders said.

LESS ROOM FOR RRR CUTS

China’s economy grew a steady 6.4 percent in the first quarter, defying expectations of a further slowdown, with factory output, retail sales and investment in March all growing faster than expected following a raft of expansion-boosting measures in recent months.

Still, economists do not expect a sharp recovery in the world’s second-largest economy, as many private firms grapple with high funding costs, while external demand may weaken in the coming months as the world economy loses steam.

Optimism is rising, however, that China and the United States will reach a trade deal in coming weeks.

“The possibility of seeing big policy changes is not big. We may maintain the strength of policy support but it could become more structural,” said a second policy source.

The PBOC did not immediately respond to Reuters’ request for comment.

The PBOC has cut RRRs five times since the start of 2018, lowering the ratio to 13.5 percent for big banks and 11.5 percent for small-to medium-sized lenders.

Central bank Governor Yi Gang said in March that there was still some room to cut RRRs, but less so than a few years ago.

The PBOC is likely to cut RRRs for small banks to encourage more lending to small and private firms – which are vital for economic growth and job creation – said the policy insiders, who have penciled in at least one such “targeted” RRR cut this year.

“Monetary policy will maintain counter-cyclical adjustments and keep liquidity ample as interest rates should go lower for the real economy,” said one of the policy insiders.

A Reuters poll, conducted before the first-quarter data release on April 17, showed economists expected the central bank to deliver three more RRR cuts of 50 basis points in each of the remaining three quarters of 2019.

But the stronger-than-expected growth data compelled some economists to trim their forecasts for RRR cuts. UBS now expects another 100 bps cuts this year, with the next one likely in June-July, instead of the 200 bps it had forecast earlier.

ECONOMIC UNCERTAINTIES LINGER

A statement on Friday from the Politburo, a key decision-making body of the ruling Communist Party, said China would maintain policy support for the economy, which still faced “downward pressure” and difficulties.

Authorities would strike a balance between stabilizing economic growth, promoting reforms, controlling risks and improving livelihoods, the Politburo said, adding that China would move forward with structural efforts to control debt levels and prevent speculation in the property market.

First-quarter economic growth was backed by record new bank loans of 5.81 trillion yuan ($ 865.61 billion) and local government special bond issuance of 717.2 billion yuan, which rocketed ninefold from a year earlier.

Beijing has ramped up fiscal stimulus, unveiling tax and fee cuts amounting to 2 trillion yuan to ease burdens on firms, while allowing local governments to issue 2.15 trillion yuan of special bonds to fund infrastructure projects.

Chinese leaders have pledged to ensure economic stability in a year that will mark the 70th anniversary of the founding of the People’s Republic, while vowing not to adopt “flood-like” stimulus that could worsen debt and structural risks.

The government’s target range for 2019 growth is 6-6.5 percent but growth of about 6.2 percent is seen needed this year and the next to meet the party’s longstanding goal of doubling GDP and incomes in the decade to 2020.

China’s growth slowed to a 28-year low of 6.6 percent last year, and further cooling is expected this year.

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Oil price forecast cuts (ICYMI)

This crossed from BNO on crude but only positing it now …. my bad but here goes:

Cut their oil price outlook, average 2019 price now at 68/bbl (Brent)

  • 61/bbl WTI

Previously at 76 and 69 respectively

More:

  • See tight supply in H1 of 2019 boosting prices
  • H2 prices to slip on slower economic activity, growing crude exports from the US

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