Global optimism, UK spending promises lift long gilt yields to three-month high

© Reuters.  Global optimism, UK spending promises lift long gilt yields to three-month high © Reuters. Global optimism, UK spending promises lift long gilt yields to three-month high

By David Milliken

LONDON (Reuters) – British long-dated government bond yields rose to their highest in more than three months on Thursday as a global improvement in risk appetite and the prospect of big increases in public spending overshadowed a more dovish Bank of England.

Ten-year gilt yields () peaked at 0.814%, up around 9 basis points on the day and the highest since July 16, and 20- and 30-year yields gained a similar amount () ().

By contrast, two-year yields () barely budged — pinned down by an unexpected split vote at the Bank of England — and the two-year/10-year yield curve rose to its steepest since July 15 at 24 basis points.

The steepening yield curve reflected countervailing forces at play for different maturities of gilts.

Markets received a shock earlier in the day when two BoE policymakers unexpectedly voted to cut rates, and the majority said a rate cut could become necessary if Brexit uncertainty and a global slowdown did not ease.

One measure of interest rate expectations now prices in a two thirds chance of a quarter-point BoE rate cut by the end of next year, compared with just over half on Wednesday, pushing down on two-year and five-year gilt yields, which are already well below the BoE’s 0.75% Bank Rate.

But the broader tone in markets on Thursday was negative for fixed income assets, bolstered by increased optimism about a trade deal between the United States and China.

German 10-year Bunds , like their British counterparts, rose to their highest since mid-July.

And for longer-dated gilts, there was added upward pressure on yields from the second day of Britain’s election campaign, in which both the Conservative Party and the Labour opposition promised big increases in spending if they win the Dec. 12 vote.

The fiscal news was “arguably more significant” for gilts than the BoE decision, Capital Economics analyst Oliver Allan wrote in a note to clients.

Labour’s would-be finance minister, John McDonnell, promised an extra 150 billion pounds ($ 192 billion) of infrastructure spending during the next five years, on top of 250 billion pounds he has already promised for the coming decade.

McDonnell’s Conservative counterpart, Sajid Javid, said he would spend an extra 100 billion pounds.

Both plans would require a significant increase in gilt issuance over the medium term, and could push up inflation or BoE rates if the spending hits the economy at a time when it is close to full capacity.

However, Capital said it expected the increase in British yields to be limited as any significant rise would attract foreign investors at a time when yields on much euro zone debt are below zero.

“Although UK yields are low historically, they are not particularly low relative to those elsewhere in the developed world,” Allen said.

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Japan Sept. household spending seen jumping ahead of sales tax hike: Reuters poll

TOKYO (Reuters) – Japan’s household spending likely rose at the fastest pace in nearly 20 years in September, a Reuters poll found on Friday, as shoppers rushed to buy goods ahead of a sales tax hike in October.

Household spending was seen rising 7.8% in September from a year earlier, the poll of 14 economists showed, the fastest pace since comparable data from 2001.

Spending had spiked 7.2% in March 2014, a month ahead of the previous sales tax increase, but then fell sharply and did not return to growth for more than a year.

“Retail sales data has shown there was rush demand for luxury goods, electrical appliances, cosmetics and alcohol,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“The focus will be on when subsequent falls in household spending after the tax hike will wane.”

Japan rolled out a twice-delayed increase in the sales tax to 10% from 8% on Oct. 1, a move seen as critical for fixing the country’s tattered finances but that could tip the economy into recession by dampening consumer sentiment.

Retail sales grew at the strongest pace in 5-1/2 years in September as consumers rushed to buy big-ticket items to beat the tax hike.

The government will announce household spending data at 8:30 a.m. Japan time on Nov. 8 (2330 GMT, Nov. 7).

The Bank of Japan kept monetary policy steady on Thursday as expected but gave the strongest signal to date that it may cut interest rates in the near future, underscoring its concern that overseas risks could derail a fragile economic recovery.

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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India says no plans to revise fiscal deficit target or cut spending now

By Manoj Kumar

NEW DELHI (Reuters) – India will not revise its fiscal deficit target immediately and is not planning any spending cuts at this stage, the country’s finance minister said on Sunday, after slashing corporate tax rates to boost a flagging economy.

India cut corporate tax rates on Friday in a surprise move designed to woo manufacturers, revive private investment and lift growth from a six-year low that has led to major job losses and fueled discontent in the countryside.

Though equity markets welcomed the move, bond yields spiked to a near three-month high on speculation the government may have to borrow more to meet its spending needs.

The measures will cut revenue by 1.45 trillion rupees ($ 20.4 billion) in the current fiscal year, according to government estimates.

But Finance Minister Nirmala Sitharaman said the government would only review the fiscal deficit target closer to the 2020/21 budget.

“At this point of time we are not revising any target. The decision will be taken later,” she told reporters at her residence in New Delhi on Sunday, adding that there was no plan to cut spending currently.

Sitharaman also said the government would decide on additional market borrowings for the second half of 2019/20 later.

Ratings firm S&P Global said on Friday India’s move to cut corporate tax rates was a “credit negative development” despite potentially boosting the economy as it will widen its fiscal deficit.

Government sources told Reuters this month that India is likely to miss its fiscal deficit target for the current financial year and, toward the end of 2019, be forced to raise it to 3.5% of GDP from 3.3% after economic growth fell to a six-year low of 5% in the April-June quarter.

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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South Korea second-quarter GDP bounces as public spending offsets private sector drag

© Reuters. FILE PHOTO: People look at a view of central Seoul from an observatory platform in Seoul © Reuters. FILE PHOTO: People look at a view of central Seoul from an observatory platform in Seoul

By Choonsik Yoo and Joori Roh

SEOUL (Reuters) – South Korea’s economy swung back to growth in the second quarter, dodging a technical recession, although the expansion was mostly driven by government spending, suggesting the central bank may need to cut rates again to stoke demand.

Gross domestic product grew by a seasonally adjusted 1.1% in the April-June period from the first quarter, central bank estimates showed, just beating the median forecast of 1.0% growth tipped in a Reuters survey of 12 economists.

However, the Bank of Korea estimates showed the economy would have contracted without increased government spending, following previous quarter’s surprise contraction.

“Details of the GDP data confirmed the economy has been dependant on government spending and support my expectation of another interest rate cut in the fourth quarter,” said Park Sang-hyun, economist at HI Investment & Securities.

Heavily reliant on exports of chips, smartphones, autos and ships, South Korea’s economy has been hit especially hard by the year-long China-U.S. trade dispute, which has hurt supply chains and global growth.

BOK estimates showed government spending contributed 1.3 percentage points to second-quarter GDP while private-sector activity presented a 0.2 percentage point drag as companies slashed investment due to the uncertain outlook.

Last week, the BOK cut interest rates for the first time in three years, earlier than market expectations for a cut in August, and trimmed its 2019 economic growth forecast to a decade low of 2.2% from the previous 2.5%.

South Korea’s economy shrank 0.4% in the first quarter due to delays in government spending as private investment also slowed.

On a year-on-year basis, Asia’s fourth-largest economy expanded 2.1% in the second quarter, compared with 2.0% growth forecast in the poll and 1.7% growth in the first quarter, the central bank estimated.

Merchandise exports returned to growth of 2.3% in the April-June period after a 3.2% contraction in the first, which was the worst reading since the final quarter of 2017.

But export prospects remain uncertain as Japan has curbed chip and display production materials shipments to South Korea, which Seoul says is related to a diplomatic row over compensation of forced labor during World War Two.

The BOK said in a report to parliament on Tuesday that Japan’s export curbs were one of the top three risks to the domestic economy. Governor Lee Ju-yeol added that this year’s growth could dip further due to the curbs.

Analysts have downgraded their forecasts for 2019 growth, with some seeing growth falling short of 2%.

(This story corrects first bullet of Q2 GDP quarterly figure)

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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US special representative to Iran: US sanctions is reducing Iranian military spending

US special representative to Iran, Brian Hook, comments in Brussels

US Iran
  • Iran can come to the negotiating table or continue to watch its economy crumble
  • Iran is more diplomatically isolated now than before US left nuclear deal
  • Says that Trump is very willing to sit down with Iran to talk
  • There is no diplomatic backchannel with Iran
  • Says US is prepared to restore diplomatic ties with Iran and lift sanctions
  • But only if Iran is willing to do a deal

ForexLive

The war of words is continuing with Iran also making it clear earlier that they won’t be willing to negotiate anything so long as US sanctions are still being imposed against them. With either side not willing to budge, expect the tensions here to keep up and potentially escalate further in the coming days/weeks.

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Forex – U.S. Dollar After Spending Data, Pound Slides on Brexit Vote

© Reuters.  © Reuters.

Investing.com – The greenback gave up earlier gains by mid-morning in New York on Friday, after data showing only the weakest of bounces in U.S. consumer spending in January.

The , which measures the greenback’s strength against a basket of six major currencies, slipped 0.1% to 96.683 as of 10:14 AM ET (14:14 GMT). It had earlier hit a two-week high of 96.907.

, which accounts for more than two-thirds of U.S. economic activity, increased 0.1% in January, following a 0.6% decline in December, its first drop since September 2016.

The data were consistent with other signs of weakness this week from the housing market and a downward revision to fourth-quarter gross domestic product. However, they were offset by a stronger-than-expected reading for consumer sentiment from the and by slightly better-than-expected numbers on for last month.

The dollar rose against the safe-haven yen, with rising 0.2% to 110.74.

Elsewhere, the fell briefly below $ 1.3000 as Prime Minister Theresa May’s EU Withdrawal Agreement failed in the House of Commons for a third time, by a margin of 286-344. The defeat leaves a ‘Hard’ Brexit with no transitional arrangements on April 12th as the default option.

Elsewhere, the dollar rose another 1.7% against the Turkish lira as the central bank fought short-sellers ahead of municipal elections at the weekend. The loonie was up, with falling 0.6% to 1.3347 and inched up 0.1% to 1.1227.

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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Tiffany holiday-quarter sales miss expectations on weak tourist spending

© Reuters. A Tiffany & Co logo is seen outside the store on 5th Ave in New York © Reuters. A Tiffany & Co logo is seen outside the store on 5th Ave in New York

(Reuters) – Tiffany & Co (NYSE:) narrowly missed Wall Street estimates for quarterly sales on Friday, two months after the luxury retailer signaled soft demand in the holiday season because of low spending by Chinese tourists and weakness in Europe and at home.

Weakening economic growth in China, especially against the backdrop of an ongoing trade spat between Beijing and Washington, has been a worry for luxury goods companies that rely on the country’s burgeoning middle class to boost sales.

"Softer trends in the second half of the year reflected, in part, what we believe were external challenges and uncertainties," Chief Executive Officer Alessandro Bogliolo said in a statement.

In January, the company blamed a stronger dollar for weak tourist spending globally.

The company reaffirmed its financial forecasts for fiscal 2019 and expects a decline in per share profit in the first half of the year, due to the external factors.

In the reported quarter, comparable-store sales dropped 1 percent as demand for engagement and designer jewelry fell.

Tiffany’s net sales fell to $ 1.32 billion, while analysts on average were expecting sales of $ 1.33 billion, according to IBES data from Refinitiv.

The company’s net earnings rose to $ 204.5 million, or $ 1.67 per share, in the fourth quarter ended Jan.31, from $ 61.9 million, or 50 cents per share, a year earlier, when the company had higher provisions for income taxes.

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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UK's Hammond offers more spending, lower taxes if a Brexit deal is done

© Reuters. Britain's Chancellor of the Exchequer Philip Hammond speaks in Parliament ahead of a vote on Brexit in London © Reuters. Britain’s Chancellor of the Exchequer Philip Hammond speaks in Parliament ahead of a vote on Brexit in London

By Andy Bruce and William Schomberg

LONDON (Reuters) – British finance minister Philip Hammond said on Wednesday he could free billions of pounds for extra public spending or tax cuts, as long as parliament resolves its Brexit impasse.

Hammond told lawmakers he could relax his grip on the public finances if they spared Britain the shock of leaving the world’s biggest trading bloc without an agreement.

"I hoped we would do that last night, but I am confident that we, as a House, will do it over the coming weeks," he said.

On Tuesday, parliament rejected Prime Minister Theresa May’s proposed Brexit plan for a second time, little more than two weeks before the scheduled date of departure from the EU.

"Leaving with no deal would mean significant disruption in the short and medium term and a smaller, less prosperous economy in the long term, than if we leave with a deal," Hammond told parliament, warning of higher unemployment and prices and lower wages under a no-deal Brexit.

"That is not what the British people voted for in June 2016," he said.

Lawmakers were expected to vote later on Wednesday against a leaving the European Union without a transition deal, then vote on Thursday on seeking a delay to Britain’s departure, currently scheduled for March 29.

New half-yearly fiscal forecasts showed that Britain’s public finances were in better shape than in October, when Hammond gave his full, annual budget statement, even against the backdrop of a weaker outlook for the country’s economy.

Strong income tax receipts, reflecting Britain’s lowest unemployment rate since the 1970s despite the economic slowdown, lay behind the improved outlook for the budget.

Hammond said he now had 26.6 billion pounds of fiscal "headroom" that he has earmarked as a potential war chest for helping Britain’s economy — for example, via extra spending or tax cuts — up from a previous estimate of 15.4 billion pounds.

He repeated his forecast that there would be a Brexit deal "dividend" as companies regained confidence and he could choose between increased spending on public services, capital investment and keeping taxes low while also bringing down debt.

However, Britain’s independent budget forecasters said almost half of Hammond’s fiscal headroom might be lost, depending on how official statisticians treat student loans in the public accounts.

Hammond also announced an extra 100 million pounds in funding for police to tackle rising knife crime after a spate of high-profile murders.

In his full budget statement in October, Hammond also held out the prospect of higher spending or tax cuts if parliament backed the government’s Brexit plan. Britain’s parliament rejected that plan in January and again on Tuesday.

Hammond announced official forecasts showing growth would be weaker this year than expected in October, but Britain’s budget deficit would be smaller. [nL8N20Z5V8][nL8N20Z5SC]

The forecasts were produced by the Office for Budget Responsibility, Britain’s budget watchdog, and assumed that Britain would leave the EU with a deal.

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Mexico's new government sees income, spending jump in first budget

© Reuters. Mexico's new Finance Minister Carlos Urzua presents the 2019 national budget next to lawmaker Porfirio Munoz Ledo of the ruling National Regeneration Movement party (MORENA) at the Congress in Mexico City, © Reuters. Mexico’s new Finance Minister Carlos Urzua presents the 2019 national budget next to lawmaker Porfirio Munoz Ledo of the ruling National Regeneration Movement party (MORENA) at the Congress in Mexico City,

By Anthony Esposito

MEXICO CITY (Reuters) – Mexico’s new leftist government on Saturday avoided major surprises in its closely watched first budget, sticking to fiscal promises made to investors who have been jittery about plans for Latin America’s No. 2 economy.

The 2019 budget plan reflected "the absolute commitment to fiscal and financial discipline," Finance Minister Carlos Urzua told reporters after presenting it to Congress.

Still, Urzua forecast a jump in both government revenues and spending in real terms, presenting numbers that will be pored over by bondholders keen to ensure the projections in the document are credible.

President Andres Manuel Lopez Obrador’s ambitious plans for developing Mexico require cheap credit, and his team has sought to court wary international investors. However, in a sign of investor anxiety, debt yields have spiked since late October after he used a straw poll to justify scrapping a partly built $ 13 billion airport.

Urzua said the budget redirected spending toward Lopez Obrador’s priorities, namely infrastructure and social outlays.

Some of the largest spending highlighted by Urzua included 100 billion pesos ($ 5 billion) in payments for the elderly and another 44 billion pesos ($ 2 billion) earmarked for unemployed youth.

The minister said overall government income was expected to rise by 6.3 percent in real terms in 2019 compared to the sum approved in the last budget. He argued that income in 2018 was higher than budgeted, making it easier to reach the 2019 target.

He proposed an increase in spending of 6.1 percent.

($ 1 = 20.2240 Mexican pesos)

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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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