Oct 17, 2018

Five Things You Need to Know to Start Your Day

Boris Korby, Bloomberg News

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The Khashoggi crisis deepens, the U.S. refrains from labeling China a currency manipulator (but finds another way to punish it) and the Bank of Korea faces a tricky interest-rate decision. Here are some of the things people in markets are talking about.

Khashoggi Crisis Escalates

President Donald Trump and his top diplomat cautioned against putting the relationship between the U.S. and Saudi Arabia at risk over Jamal Khashoggi, who entered the Saudi consulate in Istanbul more than two weeks ago and apparently never emerged. But the crisis over the missing journalist and critic of the Saudi government is escalating as fresh accounts of his disappearance, some of which read like a horror movie, increasingly cast doubt on assertions by the Saudis that they don’t know what happened to him. The U.S. president reiterated to reporters on Wednesday that Crown Prince Mohammed bin Salman’s government agreed to buy $110 billion in U.S. weaponry during Trump’s visit to the country last year — his first trip abroad as president. He has said that canceling those purchases would only push Saudi Arabia toward Russia or China for its arms purchases. “If you look at Saudi Arabia, they are an ally,” Trump said. “They are a tremendous purchaser of not only military equipment but other things."

U.S. Passes on Labeling China FX Manipulator ...

The Treasury Department stopped short of declaring China a currency manipulator in its semi-annual report on foreign-exchange rates, slightly easing tensions while serving notice that the U.S. will be closely watching the Chinese yuan after its recent slide. “Of particular concern are China’s lack of currency transparency and the recent weakness in its currency,” Treasury Secretary Steven Mnuchin said in a statement. “We will continue to monitor and review China’s currency practices, including through ongoing discussions with the People’s Bank of China.” While Treasury said in the report that direct intervention by China’s central bank has recently been “limited,” it also said the U.S. is “deeply disappointed” that the nation doesn’t disclose those interventions.

… and Looks to the Mail to Squeeze Beijing

Trump plans to withdraw the U.S. from a 192-nation treaty that gives Chinese companies discounted shipping rates for small packages sent to American consumers, another escalation of the U.S. president’s economic confrontation of Beijing. U.S. officials said the administration sought to revise the treaty in September and was rebuffed by other nations, prompting the decision to withdraw. The State Department will deliver a notice to the Universal Postal Union in Switzerland Wednesday, White House Press Secretary Sarah Huckabee Sanders said in a statement. Under the union’s rules, it takes a year for a country to withdraw, during which rates can be renegotiated.

Fed Mulls Hiking Past Neutral

U.S. Federal Reserve officials stepped deeper into a debate over how high to push interest rates, with a majority appearing to favor an eventual and temporary move above the level they deem neutral for the economy in the long run. “A few participants expected that policy would need to become modestly restrictive for a time, and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level,” according to minutes of the Federal Open Market Committee’s Sept. 25- 26 meeting released Wednesday in Washington. In their most recent projections, officials estimated that long-run neutral level — at which Fed policy is neither stoking nor slowing the economy — at about 3 percent. The current federal funds rate is 2 to 2.25 percent.

BOK Faces Tricky Decision

The Bank of Korea faces growing twin pressures for an interest rate increase and for standing pat as it meets to set policy on Thursday. Eleven of 18 economists surveyed by Bloomberg News in the past week forecast the BOK would leave its seven-day repurchase rate at 1.5 percent. The rest predicted a hike to 1.75 percent. Governor Lee Ju-yeol has sounded slightly hawkish for a while, and recently reiterated that policy accommodation should be reduced to address financial imbalances such as record-high household debt. He also said the central bank would more closely monitor the widening U.S.-Korea rate gap to prevent capital outflows.

What we’ve been reading

This is what caught our eye over the last 24 hours.