Tag Archives: currency markets

Business

Fed’s Mester says there’s been no progress on inflation, so interest rates need to move higher

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With little or no progress made on bringing inflation down, the Federal Reserve needs to continue raising interest rates, Cleveland Fed President Loretta Mester said Tuesday.

“At some point, you know, as inflation comes down, them my risk calculation will shift as well and we will want to either slow the rate increases, hold for some time and assess the cumulative impact on what we’ve done,” Mester told reporters after a speech to the Economic Club of New York.

“But at this point, my concerns lie more on – we haven’t seen progress on inflation , we have seen some moderation- but to my mind it means we still have to go a little bit further,” Mester said.

In her speech, the Cleveland Fed president said the central bank needed to be wary of wishful thinking about inflation that would lead the central bank to pause or reverse course prematurely.

“Given current economic conditions and the outlook, in my view, at the point the larger risks come from tightening too little and allowing very high inflation to persist and become embedded in the economy,” Mester said.

She said she thinks inflation will be more persistent than some of her colleagues.

As a result, her preferred path for the Fed’s benchmark rate is slightly higher than the median forecast of the Fed’s “dot-plot,” which points to rates getting to a range of 4.5%-4.75% by next year.

Mester, who is a voting member of the Fed’s interest-rate committee this year, repeated she doesn’t expect any cuts in the Fed’s benchmark rate next year. She stressed that this forecast is based  on her current reading of the economy and she will adjust her views based on the economic and financial information for the outlook and the risks around the outlook.

Opinion: Fed is missing signals from leading inflation indicators

Mester said she doesn’t rely solely on government data on inflation because some of it was backward looking. She said supplements her research with talks with business contacts about their price-setting plans and uses some economic models.

The Fed is also helped by some real-time data, she added.

“I don’t see the signs I’d like to see on the inflation,” she added,

Mester said she didn’t see any “big, pending risks” in terms of financial stability concerns.

“There is no evidence that there is disorderly market functioning going on at present,” she said.

U.S. stocks were mixed on Tuesday afternoon with the Dow Jones Industrial Average
DJIA,
+0.12%
up a bit but the S&P 500 in negative territory. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.936%
inched up to 3.9%

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Business

He nailed three big S&P 500 moves this year. Here’s where this strategist sees stocks headed next, with beaten down names to buy.

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A Wall Street hat trick may not be on the cards, with stocks in the red for Wednesday.

A two-day rally was never a guaranteed exit out of the bear woods anyway, as some say signs of a durable bottom are still missing.

Enter our call of the day, from the chief market technician at TheoTrade, Jeffrey Bierman, who has made a string of prescient calls on what has been a roller coaster year for the index thus far. He’s also a professor of finance at Loyola University Chicago and DePaul University.

Bierman, who uses quant and fundamental analysis to determine market direction, sees the S&P 500
SPX,
-1.62%
finishing the year between 4,000 and 4,200, maybe around 4,135. “Fourth-quarter seasonality favors bulls following a weak third quarter.  Not to mention most stocks are priced for no growth,” he told MarketWatch in a Monday interview.

In December 2021, he forecast the S&P 500 might see a 20% decline within six months, toward 3,900 — it hit 3,930 in early May. In June, he forecast a rally and recovery to 4,300 — the index hit 4,315 by mid-August.

Speaking to MarketWatch on Aug. 25, Bierman saw a retest of around 3,600 for the index, citing an often rough September for stocks. It closed out last month at a new 2022 low of 3,585.

“I think we’re going to end up for the quarter. [The market is] deeply oversold and some stocks are completely mispriced in terms of their valuation metrics,” said Bierman, who is looking squarely at retail and technology sectors.

“The valuations on half the chip stocks are trading below a multiple of seven. I’ve never seen that ever…but what that means is when the semiconductor sector comes back, the multiple expansion is gonna be like a volcanic eruption to the upside,” he said of the sector known for its boom/bust cycles.

For example, he owns Intel
INTC,
-2.53%,
which hit a five-year low on Friday. Eventually, the company that has invested $20 billion in a new U.S. plant will come roaring back alongside rivals like Advanced Micro
AMD,
-4.65%.
“People will look back on this and go ‘Oh, my God, I can’t believe Intel was at five times earnings,’ which is insanity for this stock.”

For the S&P 500 as a whole next twelve months price/earnings is currently 16.13 times, so Intel’s would be less than half of the broader index, according to FactSet

As for retail, he’s been looking at Urban Outfitters
URBN,
-1.06%,
Macy’s
M,
-1.94%
and Nordstrom
JWN,
-0.67%,
all places where millennials don’t shop, but the middle class does, with the all-important holiday shopping period dead ahead.

“There are 100,000 people being hired to work part time at these companies, and their margins are not coming down at all,” with no markdowns and decent sales, he said, noting those companies are being priced at a multiple of 5 times forward earnings.

“It means that you don’t think that Macy’s can put together for the Christmas quarter a comparative quarter, year over year of greater than 5%? If you don’t then don’t buy it, but I do,” said Bierman. “That’s why I’m willing to stick my neck out and buy these things. I bought Abercrombie & Fitch
ANF,
-3.78%
at 10 times earnings…I’ve never seen it that low.”

For those who aren’t comfortable picking stocks, he says they can still get exposure through exchange-traded funds, such as SPDR S&P Retail
XRT,
-2.58%
or the Technology Select Sector SPDR ETF
XLK,
-1.70%.

Bierman adds that investors need to be careful not to be overly concentrated in the top stocks, given “10 stocks accounted for 45% of the Nasdaq and the fact that 25% of the S&P almost accounted for about 50% of the S&P movement.”

“Everbody’s concentrated in 10 stocks that can still fall another 30% or 40%, like Apple and Microsoft. The idea of concentration risk is that everybody owns Apple, everybody owns Amazon,” he said.

And that could force the hand of passive and active managers heavily invested in those big names, driving a 10% drop for markets that “washes away all other stocks.”

The markets

Stocks
DJIA,
-1.21%

SPX,
-1.62%

COMP,
-2.19%
are in the red, and bond yields
TMUBMUSD10Y,
3.783%

TMUBMUSD02Y,
4.199%
are up, along with the dollar
DXYN,
.
Silver
SI00,
-5.00%
is retracing some of this week’s big gains, and bitcoin
BTCUSD,
-2.62%
is also off, trading at just over $20,000. Hong Kong stocks
HSI,
+5.90%
surged 6% in a catch-up move following a holiday. New Zealand’s central bank hiked rates a half point, the fifth increase in a row.

The buzz

Oil prices
CL.1,
-0.02%

BRN00,
+0.28%
are flat as OPEC+ reportedly agreed to cut oil production by 2 million barrels a day. Some say don’t be too impressed by any output reduction.

Amazon
AMZN,
-2.34%
will reportedly freeze corporate hires in its retail business for the remainder of 2022.

Mortgage applications fell to the lowest pace in 25 years in the latest week.

The ADP private-sector payrolls report showed 208,000 jobs added in September. The trade deficit narrowed, which should be good news for third-quarter GDP. The Institute for Supply Management’s services index is due at 10 a.m. Atlanta Fed President Raphael Bostic will also speak.

Expect the spotlight to stay on Twitter
TWTR,
-2.53%
after Tesla
TSLA,
-5.16%
CEO Elon Musk committed to the $44 billion deal. But will it feel like a win once he owns it?

Plus: Elon Musk’s legal battle with Twitter may be over, but his war with the SEC continues

EU countries agreed to impose new sanctions on Russia after the illegal annexation of four Ukraine regions. Those moves will include an expected price cap on Russian oil.

South Korea’s missile fired in response to North Korea’s weapon launch over Japan, crashed and burned.

Best of the web

Russians fleeing Putin’s mobilization are finding haven in poor, remote countries.

Consumers are throwing away perfectly good food because of ‘best before’ labels.

The CEO of an election software company has been arrested on accusations of ID theft.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker Security name
TSLA,
-5.16% 		Tesla
GME,
-7.59% 		GameStop
AMC,
-9.56% 		AMC Entertainment
TWTR,
-2.53% 		Twitter
NIO,
-5.92% 		NIO
AAPL,
-1.77% 		Apple
APE,
-8.40% 		AMC Entertainment preferred shares
BBBY,
-8.52% 		Bed Bath & Beyond
AMZN,
-2.34% 		Amazon
DWAC,
-0.64% 		Digital World Acquisition Corp.
The chart

More market-bottom talk:


Twitter

Random reads

All about the investment manager who caught Yankees’ superstar Aaron Judge’s record-breaking home run.

An iPhone in a 162-year old painting? The internet is stumped.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton

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US

UK’s tax cut pivot down to politics not economy, analysts say

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LONDON — The U.K. government’s reversal on scrapping the top rate of income tax is down to political optics and will not reassure market skittishness over its economic plan, analysts told CNBC Monday.

The tax cut, which Prime Minister Liz Truss was defending just hours before, would have abolished a 45% rate paid on annual income over £150,000 ($166,770).

Paul Dales, chief U.K. economist at Capital Economics, said it would have a limited impact on revenue.

“Of the £44 billion net loosening in fiscal policy by 2026/27 the Chancellor announced in the mini-budget, the 45p tax cut accounted for just £2 billion. So it is more politics than economics,” he said by email.

That was reflected in the statement released by Finance Minister Kwasi Kwarteng, who said in a statement it had become a “distraction from our overriding mission to tackle the challenges facing our economy”; and Conservative Member of Parliament Grant Shapps, who said it “jarred for people in a way which was unsustainable.”

The U.K. Treasury had previously confirmed the tax cut would lead to an average £10,000 saving for 660,000 people.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, agreed.

”The U-turn only accounts for a small part of the equation in terms of the planned tax cuts, and was clearly made to limit further political fall out,” she told CNBC, adding that markets are still factoring in a benchmark interest rate rise to at least 5.5% next year.

“It is still likely to mean people on the lowest incomes will pick up the bulk of the cost of the cuts, with the government refusing to rule out that benefits will be hit,” she said.

Rate hike expectations on the Bank of England, which next meets Nov. 3, rose sharply after the budget announcement on Sep. 23, with the pound falling in value and the gilt market experiencing a historic sell-off.

“The greatest part of the borrowing that came from the 23 September mini-budget is still unfunded,” Jane Foley, senior FX strategist at Rabobank, told CNBC’s “Squawk Box Europe.”

It includes what is expected to be a package worth more than £100 billion over the next two years to support businesses and households with energy bills.

Despite speculation that the government will be looking at what else it might cut, its decisions may not be easy or popular, Foley said. Meanwhile, the Bank of England’s emergency asset-buying program, which has supported markets over the last week, would eventually end.

Kwarteng said Monday at the Conservative Party conference it would be looking to cut £18 billion in public services. He will deliver his main speech Monday afternoon.

Foley said: “If the markets don’t believe in the credibility of the government’s policy, gilts are still going to be very exposed and so is sterling. So, far from out of the woods, I would say.”

Sterling got a slight boost from the government’s tax cut pivot and was 0.3% higher against the dollar at $1.12 at 11:40 a.m. London time Monday. Gilt yields were lower, with the 10-year yield falling 2 basis points to 4.068%; still a level it was last at during the 2008 financial crisis.

Capital Economics’ Dales added: “This is one in a number of ways that the government is rowing back on its mini-budget. There has been lots of talk that government spending will be cut, perhaps significantly to balance the books.”

“That suggests fiscal policy might not be as expansive as we all thought, although the legacy of the mini-budget still appears to be higher interest rates.”

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Business

China’s central bank PBOC warns against yuan speculation

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The Chinese yuan weakened past the closely-watched 7.2 level against the greenback this week.

Getty Images

BEIJING — The People’s Bank of China has warned against betting on the yuan, after its rapid decline against the U.S. dollar this week.

“Do not bet on a one-sided appreciation or deprecation of the renminbi exchange rate,” the central bank said in a Chinese statement on its website late Wednesday, according to a CNBC translation.

That’s based on a readout of a speech by vice governor Liu Guoqiang at a video conference meeting on foreign exchange that day.

The renminbi, or the yuan, crossed the 7.2 level against the greenback Wednesday, falling to its weakest since 2008. The U.S. dollar index, which tracks the dollar against major global currencies, has climbed to two-decade highs as the U.S. Federal Reserve aggressively raised interest rates this year.

The PBOC’s statement, with its requirement for banks to maintain stability in the foreign exchange market, is “verbal guidance against the recent rapid depreciation of the currency,” Goldman Sachs analyst Maggie Wei and a team said in a note.

However, the yuan’s crossing of the 7.2 mark “suggests Chinese policymakers are not necessarily defending a particular level of the exchange rate,” the report said. The “statement from the PBOC might slow the pace of CNY depreciation on the margin.”

The onshore-traded yuan has weakened against the dollar by 1.9% so far this week, according to Wind Information.

The Chinese central bank has made other moves to support the yuan this month, including reducing the amount of foreign currency banks need to hold.

Read more about China from CNBC Pro

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Business

Sterling hits record low against the dollar, as Asia-Pacific currencies also weaken

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Sterling hit a record low.

Matt Cardy | Getty Images

Critics say those economic measures will disproportionately benefit the wealthy and could see the U.K. take on high levels of debt at a time of rising interest rates.

“[It] doesn’t seem like the U.K. government is throwing the market a bone here in terms of having a much more tempered fiscal trajectory, and so I think at this point right now, the path of least resistance is going to remain lower,” Mazen Issa, senior forex strategist at TD Securities, told CNBC before the pound hit a new low.

“Below $1.05, you really look at parity,” he told CNBC’s “Squawk Box Asia.”

“We’ve seen the euro dip below parity — I don’t see a reason why sterling can’t either,” he added.

Stock picks and investing trends from CNBC Pro:

In the Asia-Pacific region, Japan, South Korea and China’s currencies weakened against the greenback, while the Australian dollar was about flat.

The Japanese yen traded at 143-levels against the dollar, weaker compared to after authorities intervened in the currency market last week.

South Korea’s won was near 2009 levels at 1,428.52 per dollar.

The U.S. dollar index gained against a basket of six major currencies.

— This is breaking news. Please check back for updates.

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World

Britain’s lurch to Reaganomics gets thumbs down from markets

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Truss has now put the country on an economic road completely at odds with most, if not all, major global economies.

Hannah Mckay | Reuters

LONDON — New U.K. Prime Minister Liz Truss may have talked big on “trickle-down economics” during her campaign trail this summer, but no-one could have predicted the swathe of tax cuts unleashed just weeks into her Downing Street tenure.

Billed as a “mini-budget” by her Finance Minister Kwasi Kwarteng, Friday’s fiscal announcement was anything but with a volume of tax cuts not seen in Britain since 1972.

Truss — whose “Trussonomics” policy stance has been likened to that of her political idols Ronald Reagan and Margaret Thatcher — has now put the country on an economic road completely at odds with most, if not all, major global economies as inflation boils over and a cost-of-living crisis barrels into Europe.

It’s been seen, even by some of her advocates, as a political and economic gamble with Truss yet to face the wider British electorate in a nationwide vote — unlike her predecessor Boris Johnson.

Market players immediately predicted that Britain would have to scale up its bond issuance and significantly increase its debt load to pay for the cuts — not typical of the low-tax Conservative governments of the past.

U.K. bond markets went into a tailspin Friday as investors shunned the country’s assets. Yields (which move inversely to prices) on the 5-year gilt rose by half a percentage point — which Reuters reported was the largest one-day rise since at least 1991.

And with bonds tanking, sterling was also sent into freefall after hitting 37-year lows against the dollar in recent weeks. It ended Friday down nearly 3.6% against the greenback. On the week it lost 5% and is now down 27% since just before the 2016 Brexit vote.

Wall Street banks are now seriously considering a break lower to parity with the U.S. dollar — for the first time in history — and many commentators have likened the pound to an emergency market currency.

Left-leaning The Guardian newspaper called it “a budget for the rich” on its front page Saturday, while The Times called it a “great tax gamble.” The right-wing Daily Mail newspaper called it a “true Tory budget” while Kwarteng himself said it was a “very good day for the U.K.,” declining to comment on the currency moves.

ING analysts said in a research note that investors are worried that the U.K. Treasury has now effectively committed to open-ended borrowing for these tax cuts, and that the Bank of England will have to respond with more aggressive rate hikes.

“To us, the magnitude of the jump in gilt yields has more to do with a market that has become dysfunctional,” ING’s Senior Rates Strategist Antoine Bouvet and Global Head of Markets Chris Turner said in the note.

“A number of indicators … suggest that liquidity is drying up and market functioning is impaired. A signal from the BOE that it is willing to suspend gilt sales would go a long way to restoring market confidence, especially if it wants to maximise its chances of fighting inflation with conventional tools like interest rate hikes. The QT [quantitative tightening] battle, in short, is not one worth fighting for the BOE,” they added, referencing the Bank’s move to normalize its balance sheet after years of stimulus.

ING also noted that the U.K.’s long-term sovereign outlook is currently stable with the big three ratings agencies, but the “risk of a possible shift to a negative outlook” could come when they are reviewed (Oct. 21 and Dec. 9).

Deutsche Bank analysts said, meanwhile, that the “price of easy fiscal policy was laid bare by the market” on Friday.

“[Friday’s] market moves suggest that there may be a credibility gap,” Sanjay Raja, a senior economist at Deutsche Bank, said in a research note.

“A plan to get the public finances on a sustainable footing will be necessary but not sufficient for markets to regain confidence in an economy sporting large twin deficits [the U.K.’s fiscal and current account balances],” he added.

“Crucially, with fiscal policy shifting into easier territory, the onus may now fall on the Bank of England to stabilise the economy, with the MPC [Monetary Policy Committee] having more work to do to plug the gap between expansionary fiscal policy and tightening monetary policy.”

—CNBC’s Karen Gilchrist contributed to this article.

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Business

Bank of England hikes by 50 basis points, says UK may already be in recession

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The Bank of England warned that the U.K. will enter recession later this year. The expected recession is forecast to be the longest since the global financial crisis.

Vuk Valcic | SOPA Images | LightRocket | Getty Images

The Bank of England voted to raise its base rate to 2.25% from 1.75% Thursday, lower than the 0.75 percentage point increase that had been expected by many traders.

Inflation in the U.K. dipped slightly in August but at 9.9% year-on-year remained well above the bank’s 2% aim. Energy and food have seen the biggest price rises, but core inflation, which strips out those components, is still at 6.3% on an annual basis. 

The bank now expects inflation to peak at just under 11% in October, down from a previous forecast of 13%.

The hike came despite the bank saying it believed the U.K. economy was already in a recession, as it forecast GDP would contract by 0.1% in the third quarter, down from a previous forecast of 0.4% growth. It would follow a 0.1% decline in the second quarter.

The BOE dropped its key rate, known as the Bank Rate, down to 0.1% in March 2020 in an attempt to prop up growth and spending at the onset of the coronavirus pandemic. However, as inflation began to rise sharply late last year, it was among the first major central banks to kick off a hiking cycle at its December meeting. 

This is its seventh consecutive rise and takes U.K. interest rates to a level last seen in 2008.

In a release explaining its decision, the bank noted volatility in wholesale gas prices but said announcements of government caps on energy bills would limit further increases in consumer price index inflation. However, it said there had been further signs since August of “continuing strength in domestically generated inflation.”

It added: “The labour market is tight and domestic cost and price pressures remain elevated. While the [energy bill subsidy] reduces inflation in the near term, it also means that household spending is likely to be less weak than projected in the August Report over the first two years of the forecast period.”

Numerous analysts, along with business association the British Chambers of Commerce, have previously said they expect the U.K. to enter a recession before the end of the year. As well as energy price shocks, it faces trade bottlenecks due to Covid-19 and Brexit, declining consumer sentiment and falling retail sales.

Five members of its Monetary Policy Committee voted for the 0.5 percentage point rise, while three voted for a higher 0.75 percentage point rise that had been expected by many. One member voted for a 0.25 percentage point rise.

The bank said it was not on a “pre-set path” and would continue to assess data to decide the scale, pace and timing of future changes in the Bank Rate. The committee also voted to begin the sale of U.K. government bonds held in its Asset Purchase Facility shortly after the meeting and noted a “sharp increase in government bond yields globally.”

The bank’s decision comes against a backdrop of an increasingly weak British pound, recession forecasts, the European energy crisis and a program of new economic policies set to be introduced by new Prime Minister Liz Truss. 

Sterling hit fresh multi-decade lows against the dollar this week, trading below $1.14 through Wednesday and dipping below $1.13 early Thursday. It has fallen precipitously against the greenback this year and was last at this level in 1985. It was up 0.2% after the BOE decision with the 0.5 percentage point rise fully priced in.

The devaluation of the pound has been caused by a combination of strength in the dollar — as traders flock to the perceived safe-haven investment amid global market volatility and as the U.S. Federal Reserve hikes its own interest rates — and grim forecasts for the U.K. economy. 

Meanwhile, the country’s newly-formed government has set out numerous significant economic policy proposals this month ahead of a “fiscal event,” dubbed a mini budget, when they will be officially announced on Friday.

This is expected to include a reversal of the recent rise in National Insurance tax, cuts in taxes for businesses and home buyers, and a plan for “investment zones” with low taxes.

Truss has repeatedly stressed a commitment to lowering taxes in a bid to boost economic growth.

However, the energy crisis has also meant the government has announced a huge spending package to curb soaring bills for households and businesses.

Data published Wednesday showed the U.K. government borrowed £11.8 billion ($13.3 billion) last month, nearly twice as much as forecast and £6.5 billion more than the same month in 2019, due to a rise in government spending.

The U.K. is not alone in raising interest rates to combat inflation. The European Central Bank raised rates by 75 basis points earlier this month, while Switzerland’s central bank hiked by 75 basis points Thursday morning. The U.S. Federal Reserve raised its benchmark rate range by the same amount Wednesday.

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US

Investors brace for possible rate cut amid Turkey’s 80% inflation

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An electronic board displays exchange rate information at a currency exchange bureau in Istanbul, Turkey, on Monday, Aug. 29, 2022.

Nicole Tung | Bloomberg | Getty Images

Investors are bracing for another potential interest rate cut – or simply a hold on the current rate – as Turkey refuses to follow economic orthodoxy in battling its soaring inflation, now at more than 80%.  

Or indeed, the investors that can still stomach Turkey’s market volatility.

The Eurasian hub of 84 million people – which many major banks in Europe and the Middle East still have sizable exposure to, and which is highly exposed to geopolitical tensions – witnessed major market turbulence in recent days, on top of the dramatic currency drops of the last few years. 

This week saw a major rout in Turkey’s stock market, the Borsa Istanbul, with Turkish banking stocks diving 35% over the week ending last Monday, after clocking a stratospheric 150% rally between mid-July and mid-September. It prompted regulators and brokers to hold an emergency meeting, though ultimately they decided not to intervene in the market.

The cause of the volatility? First, Turkey’s high inflation had pushed investors to pour their money into stocks to protect the value of their assets. But it was fear of higher U.S. inflation, and consequent rate hikes from the Federal Reserve, that likely triggered the sudden downward turn, analysts believe. 

The drop wiped out more than $12.1 billion in market value from the country’s publicly-listed banks. 

Russians tourists to Europe decreased dramatically over the summer, but rose in several other destinations, including Turkey (here).

Onur Dogman | Sopa Images | Lightrocket | Getty Images

This is because higher interest rates set by the U.S. and a resulting stronger dollar spell trouble for emerging markets like Turkey that import their energy supplies in dollars and have large dollar-denominated debts, and thus will have to pay more for them. 

The market rout prompted margin calls, which is when brokerages require investors to add money into their positions to buffer the losses in stocks they bought on “margin,” or borrowed money. That caused the selling to spiral further, until Turkey’s main clearing house, Takasbank, announced on Tuesday an easing of requirements for the collateral payments on margin trading. 

Banking stocks and the Borsa as a whole rebounded slightly on the news, with the exchange up 2.43% since Monday’s close as of 2:00 p.m. in Istanbul. The Borsa Istanbul is still up 73.86% year-to-date.

Soaring inflation: what next from the central bank?  

But analysts say the exchange’s positive performance is not in line with Turkey’s economic reality, as they look ahead to the Turkish central bank’s interest rate decision on Thursday. 

Faced with inflation at just over 80%, Turkey shocked markets in August with an interest rate cut of 100 basis points to 13% – sticking to President Recep Tayyip Erdogan’s staunch belief that interest rates will only increase inflation, counter to widely held economic principles. This is all taking place at a time when much of the world is tightening monetary policy to combat soaring inflation. 

Country watchers are predicting another cut, or at most a hold, which likely means more trouble for the Turkish lira and for Turks’ cost of living. 

Economists at London-based Capital Economics predict a 100 basis-point rate cut. 

“It’s clear that the Turkish central bank is under political pressure to abide by Erdogan’s looser monetary policy, and it’s clear Erdogan is more focused on growth in Turkey, and not so focused on tackling inflation,” Liam Peach, a senior emerging markets economist at Capital Economics, told CNBC. 

“While the Turkish central bank is under such pressure, we think it will continue with this cycle of cutting interest rates for maybe one or two more months … the window of cutting rates is small.”

Timothy Ash, an emerging markets strategist at BlueBay Asset Management, also predicts a 100 basis point cut. Erdogan won’t need a justification for this, Ash said, citing future elections as the reason behind the move. 

Analysts at investment bank MUFG, meanwhile, predict a hold at the current rate of 13%. 

Economists predict continued high inflation and a further fall in the lira, which has already fallen 27% against the dollar year-to-date, and 53% in the last year. 

Erdogan, meanwhile, remains optimistic, predicting that inflation will fall by year-end. “Inflation is not an insurmountable economic threat. I am an economist,” the president said during an interview on Tuesday. Erdogan is not an economist by training. 

Regarding the effect of Erdogan’s decisions on the Turkish stock market, Ash said, “The risk of these unorthodox monetary policies is that it creates resource misallocation, bubbles, which eventually burst, causing big risks to macro financial stability.” 

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Business

SEC’s Gensler Signals Support for Commodities Regulator Having Bitcoin Oversight

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WASHINGTON—Securities and Exchange Commission Chairman

Gary Gensler

signaled that he would support Congress handing more authority to the SEC’s sister markets regulator to oversee certain cryptocurrencies such as bitcoin.

Mr. Gensler, speaking at an industry conference, said Thursday he looked forward to working with Congress to give the Commodity Futures Trading Commission added power, to the extent the agency needs greater authority to oversee and regulate “nonsecurity tokens…and the related intermediaries.”

The remarks come amid an intensifying battle among federal agencies and congressional committees that oversee them over who will regulate crypto.

Cryptocurrencies remain largely unregulated by the federal government, leaving investors without protections from fraud and market manipulation that come with many other types of investments. The competition for jurisdiction heated up in recent months as a meltdown in crypto markets underscored the need for guardrails in the eyes of many policy makers.

The competition also reflects the industry’s ramped-up lobbying presence in Washington and its push to reach more mainstream investors through Super Bowl ads and other high-profile marketing initiatives.

Mr. Gensler, who headed the CFTC from 2009 to 2014, qualified his remarks by saying he welcomed working with lawmakers as long as it doesn’t take away power from the SEC.

“Let’s ensure that we don’t inadvertently undermine securities laws,” he said. “We’ve got a $100 trillion capital market. Crypto is less than $1 trillion worldwide. But we don’t want that to somehow undermine what we do elsewhere.”

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Leaders of the Senate Agriculture Committee, which oversees the CFTC, are pitching legislation that would assign oversight of the two largest cryptocurrencies—bitcoin and ether—to that agency. At present, the CFTC generally has the power to regulate derivatives—such as futures and swaps—as opposed to cash or spot markets where the underlying assets are bought and sold for immediate delivery.

The SEC has declined for years to assert jurisdiction over bitcoin and ether, which proponents say are more “decentralized” than other cryptocurrencies. Mr. Gensler noted Thursday that bitcoin is often likened to a digital form of gold, and that it doesn’t bear all of the characteristics of a security.

The bill from the leaders of the agriculture panel is one of several that lawmakers have offered to more tightly oversee cryptocurrencies. In his remarks, Mr. Gensler didn’t express support for any particular bill.

CFTC Chairman

Rostin Behnam

has asked Congress to pass a law that would allow the CFTC to regulate cash markets for certain types of cryptocurrencies and provide it with funding to conduct additional oversight.

After objecting for years to meaningful federal oversight, cryptocurrency lobbyists have recently shifted their focus to convincing lawmakers and regulators that the CFTC should have primary jurisdiction over their industry. They say the SEC’s rules for traditional securities like stocks and bonds don’t fit because cryptocurrencies aren’t organized as traditional corporations with stockholders.

Jake Chervinsky, head of policy at the Blockchain Association, a crypto lobbying group, said in a statement that “decades of legal precedent shows that most digital assets” are commodities.” He said lawmakers should address the issue.

“This is a matter for Congress rather than regulators, and we’re glad to see consensus in Congress that the CFTC, not the SEC, should regulate spot markets,” he said.

While Mr. Gensler’s comments suggest that his agency shouldn’t oversee bitcoin, he said the majority of crypto tokens are securities that fall under his agency’s jurisdiction and should comply with investor-protection laws. Mr. Gensler also said it is possible some crypto intermediaries would need to be dually registered with both his agency and the CFTC, similar to the way some brokers and mutual-fund firms are overseen by both agencies.

Mr. Gensler has also repeatedly demanded that cryptocurrency-trading platforms such as Coinbase Global Inc. register with the agency as securities exchanges akin to the New York Stock Exchange or Nasdaq. In May, the SEC nearly doubled the staff of an enforcement unit focused on cryptocurrencies.

WSJ’s Dion Rabouin explains why many investors are still betting on crypto, even with the very real threat of losing all their money. Illustration: Rami Abukalam

—Paul Kiernan contributed to this article.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Why China’s central bank is shoring up the yuan

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The Chinese yuan has tumbled to two-year lows against the U.S. dollar in the last few weeks.

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BEIJING — China’s central bank has sent a strong signal it wants to keep the Chinese yuan from weakening too quickly against the U.S. dollar, economists said.

For a second time this year, the People’s Bank of China announced Monday it would reduce the amount of foreign currency banks need to hold.

Such moves theoretically reduce the weakening pressure on the yuan, which has tumbled by more than 8% this year to two-year lows against the U.S. dollar.

Chinese authorities typically emphasize the yuan’s level versus a basket of currencies, against which the yuan has strengthened by about 1% over the last three months.

However, Beijing’s latest actions show how important the yuan-dollar exchange rate still is, Nomura’s chief China economist Ting Lu and a team said in a report Monday.

They gave two reasons:

  • “First, in a year of the once-in-a-decade leadership reshuffle and with elevated US-China tensions, Chinese leaders especially care about RMB’s bilateral exchange rate with USD because they believe RMB/USD somehow reflects relative economic and political strength.
  • “Second, a big depreciation of RMB/USD could dent domestic sentiment and speed up capital flight.”

China’s ruling Communist Party is set in October to select a new group of leaders, while solidifying President Xi Jinping’s power.

Tensions between the U.S. and China have escalated in the last several years, resulting in tariffs and sanctions on Chinese tech companies.

Meanwhile, China’s economic growth has slowed in the last three years, especially with the shock of the pandemic in 2020. Tighter Covid controls this year, including a two-month lockdown of Shanghai, have prompted many economists to cut their GDP forecasts to near 3%.

That economic slowdown has contributed to the weakening yuan, which can help make Chinese exports cheaper to buyers in the U.S. and other countries.

The U.S. dollar has strengthened significantly this year as the U.S. Federal Reserve aggressively tightened monetary policy.

In addition, the greenback — as measured by the U.S. dollar index — has benefited from 20-year lows in the euro and a similar plunge in the Japanese yen.

Levels to watch

“We think the PBOC might have tolerance for further CNY depreciation against the USD, especially as the broad USD continues to strengthen, though they might want to avoid continued and too fast one-way depreciation if possible,” Goldman Sachs analyst Maggie Wei and a team said in a report Monday.

The analysts said they expect the yuan to depreciate to 7 against the dollar over the next three months. Nomura’s foreign exchange analysts forecast a 7.2 level by the end of the year.

The yuan last traded near 7.2 against the dollar around May 2020 and September 2019, according to Wind Information data.

“I don’t think it will go far beyond [7], certainly sort of beyond the 7.2 that we saw during the trade war,” Julian Evans-Pritchard, senior China economist at Capital Economics said Tuesday on CNBC’s “Squawk Box Asia.”

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“I think that’s the key threshold,” he said. “I think the reason they’re reluctant to allow that to happen is, if it goes beyond that level, then expectations for the currency risk becoming unanchored. You risk seeing much larger-scale capital outflows.”

The PBOC on Tuesday set the yuan’s midpoint against the dollar at 6.9096, the weakest since Aug. 25, 2020, according to Wind Information. China’s central bank loosely controls the yuan by setting its daily trading midpoint based on recent price levels.

PBOC: Don’t bet on a specific point

The PBOC’s latest cut to the foreign currency reserve ratio — to 6% from 8% — is set to take effect Sept. 15, according to an announcement Monday on the central bank’s website.

Earlier on Monday, PBOC Deputy Governor Liu Guoqiang said that in the short term, the currency should fluctuate in two directions and people “should not bet on a specific point.”

That’s according to a CNBC translation of a Chinese transcript of Liu’s remarks at a press event on economic policy.

For the long run, Liu maintained Beijing’s hopes for greater international use of the yuan. “In the future the world’s recognition of the yuan will continue to increase,” he said.

— CNBC’s Abigail Ng contributed to this report.

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