Why global markets are so focused on the Fed

A trader works at his post at the New York Stock Exchange. (Reuters)
Updated 22 July 2019

Why global markets are so focused on the Fed

NEW YORK: When New York Fed President John Williams talked about the need to “vaccinate the economy” on Thursday, markets listened. And when the New York Fed itself spoke up later to clarify his remarks, investors were again all ears.
In fact, as the US central bank nears what is expected to be its first rate cut in a decade, global markets are hanging on to every clue about the upcoming decision to an unusual degree. Investors are trying to gauge whether policymakers are seriously worried about a sharp economic downturn or simply want to insure against that possibility.
One reason for investor confusion stands out. Fed Chair Jerome Powell has set the table for an interest-rate cut but has failed to win consensus why one is needed. Policymakers in recent weeks have sketched out rate-cut rationales ranging from bond market behavior to low inflation to the need to boost wages. Some have also suggested they do not see the need for a rate cut in the first place, as Boston Fed President Eric Rosengren did on Friday.
So when Williams, Powell’s No. 2 at the policy-setting table, appeared to provide some clarity, traders jumped on it.
US stocks and bonds and futures contracts tied to the Fed’s policy rate rallied on Thursday, milliseconds after remarks from Williams that appeared to suggest an appetite for forceful rate cuts. The benchmark S&P 500 on Friday remained near the all-time high set earlier this week.
“It’s better to take preventative measures than to wait for disaster to unfold,” Williams said at an academic conference on Thursday. “Don’t keep your powder dry.”
Later in the day a New York Fed representative said Williams’ comments were “not about potential policy actions” at its upcoming rate-setting meeting, but academic in nature.
In the speech, Williams cited years of his own research. Stretching back at least five years as a policymaker he has repeatedly used similar phrasing to describe how the Fed should behave when interest rates are near zero. But investors now are listening extremely closely.
Markets have long been expecting the Fed to cut rates at its July 30-31 meeting. Williams’ comments were read by some as not only endorsing that view, but suggesting the need for a deep, 50-basis-point cut.
Not even St. Louis Fed President James Bullard, the lone Fed policymaker who voted at the Fed’s June meeting for a rate cut, has gone that far. On Friday Bullard again said he supports a quarter-point cut.
Futures market odds of a 50-basis-point cut at the July meeting soared to 71 percent late Thursday immediately after Williams’ speech but fell to 23 percent on Friday, according to CME Group’s Fedwatch Tool.

HIGHLIGHTS

Investors try to gauge whether policymakers are seriously worried about a sharp economic downturn.

President Donald Trump, who has repeatedly castigated the Fed for raising rates, also weighed in. “I like New York Fed President John Williams first statement much better than his second,” Trump tweeted Friday.
“His first statement is 100 percent correct in that the Fed ‘raised’ far too fast & too early,” Trump wrote as he again blamed the Fed’s rate hikes for holding back economic growth.
Williams has not said the Fed raised rates too fast or too early, and his record of remarks and policy votes shows he supported all of the central bank’s nine rate increases since 2015.
Fed policymakers, meanwhile, face the risk of disappointing markets if their communication is not pitch-perfect. Any selloff could worsen financial conditions and increase the risk of a bad outcome for the economy.
The New York Fed did not comment on the market reaction or the comments by Trump. Policymakers on Saturday enter a traditional “blackout” period before their upcoming meeting, during which they avoid making policy pronouncements of any kind.
“The Fed has been behind the curve for market pricing for about eight or nine months and they can go a long way to correcting the inverted curve by cutting 50 basis points,” said Gary Cloud, a portfolio manager of the Hennessy Equity and Income Fund. The problem, he said, is if the Fed is seen as “kowtowing to pressure by the president or that they know something negative about the direction of the economy that we don’t know.”


Saudi-led group reinstated as builder of Bulgaria gas pipeline

Updated 16 September 2019

Saudi-led group reinstated as builder of Bulgaria gas pipeline

  • Bulgaria’s Supreme Administrative Court announced that the Saudi-led group’s main competitors for the project had dropped a legal challenge relating to the award
  • Bulgaria’s state gas operator Bulgartransgaz had initially chosen the Saudi-led group — made up of Saudi Arabia’s Arkad Engineering and a joint venture including Switzerland’s ABB

SOFIA: A Saudi-led consortium was definitively reinstated on Monday as the builder of a new gas pipeline through Bulgaria, intended to hook up to Gazprom’s TurkStream project.
Bulgaria’s Supreme Administrative Court announced Monday that the Saudi-led group’s main competitors for the project had dropped a legal challenge relating to the award.
The latest development brings to an end a long-running tussle between the Saudi-led consortium and its competitors for the project, a consortium of Luxembourg-based Completions Development, Italy’s Bonatti and Germany’s Max Streicher.
Bulgaria’s state gas operator Bulgartransgaz had initially chosen the Saudi-led group — made up of Saudi Arabia’s Arkad Engineering and a joint venture including Switzerland’s ABB — to build the 474-kilometer (294-mile) pipeline.
But Bulgartransgaz later decided to strike the winner off the tender for failing to supply documents needed to sign off the contract.
Instead it accepted the offer of the second-placed consortium led by Completions Development.
However, Bulgaria’s competition watchdog ruled in July that the operator should honor its previous commitments and sign a contract with the Saudi-led group.
The watchdog’s verdict was subject to a final appeal in the courts but the Supreme Administrative Court announced Monday that the appeal had been withdrawn, meaning that the Arkad-led group has now been definitively reinstated.
Bulgartransgaz is in a hurry to complete the pipeline as soon as possible in a bid to enable Russian gas giant Gazprom to hook it up to its TurkStream pipeline after it becomes operational at the end of this year.
Bulgaria, which is heavily dependent on Russian gas for its domestic needs, has been repeatedly criticized by both the EU and the United States for failing to diversify both its gas sources and its delivery routes.
The Balkan country hopes to start receiving Caspian Sea gas from Azerbaijan’s Shah Deniz field as well as liquefied natural gas from various sources via terminals in Greece through a 182-kilometer (113-mile) interconnector expected to be ready by the end of 2020.