The Poon Report
News Summary
Japan's negative rate exit scenario muddled by Fed outlook
Taken from Nikkei Asia Thursday, 14 December 2023
BOJ prepares to tighten monetary policy as other central banks signal loosening
With Japanese inflation and wage hikes entering a long-sought virtuous cycle, financial markets eye several time frames for the Bank of Japan's anticipated exit from its negative rate policy.
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Those speculating that the negative rate policy will end this month argue that the sustainability of a virtuous cycle of rising prices and wages can be judged without waiting for the results of Japan's annual spring labor talks.
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But this view is very much in the minority. Virtually no market analyst thinks the BOJ will exit negative rates during the two-day policy meeting that ends Tuesday.
The main scenario involves an exit in the first half of 2024, when the results of labor talks at large companies are known. Drinks maker Suntory Holdings said recently it would lift pay by roughly 7%, joining a number of companies indicating similarly ample wage hikes prior to labor talks.
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But waiting until April raises the possibility that the U.S. will lower rates before then. The BOJ might be unwilling to go in the opposite direction if central banks in the U.S. and Europe place rate cuts on the table.
In that light, some project the BOJ will decide to exit negative rates between January and March.
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Federal Reserve keeps rates at 22-year high but signals cuts in 2024
Taken from FT Thursday, 14 December 2023
US Treasury yields fall and stocks rise after central bank officials forecast 75bp worth of cuts next year
The Federal Reserve on Wednesday held interest rates at a 22-year high, but officials forecast that the central bank would implement 75 basis points worth of cuts next year, setting off a sharp rally in US stocks and government bonds.
The unanimous decision from the Federal Open Market Committee extends a pause in monetary policy moves that has been in place since July, leaving the federal funds rate at 5.25 per cent to 5.5 per cent.
But new economic projections from individual central bank officials suggested they saw greater scope for the Fed to lower interest rates next year than in previous projections, amid an improvement in the outlook for inflation.
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In a statement, the Fed spelt out the conditions under which it would consider “any additional policy firming that may be appropriate to return inflation to 2 per cent over time” — softer language that suggests the central bank may not see a further need to raise rates again.
Speaking at a press conference, Jay Powell, Fed chair, said the inclusion of the word “any” reflected a view that the policy rate was “likely at or near its peak for this tightening cycle”. He also added that while officials “do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table”.
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The Fed’s Yield-Curve Problem
Taken from WSJ Thursday, 14 December 2023
Central bank might ease rates sooner rather than later
Fed policy makers on Wednesday left their target on overnight rates at a range of 5.25% to 5.5%, holding it at its highest level in more than 20 years. But a dovish postmeeting statement that acknowledged inflation’s cooling trend—and policy maker forecasts of lower rates by the end of next year—suggested easing might be coming sooner rather than later.
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An important reason long-term rates have fallen is that they are in a large part a reflection of what investors think the Fed’s target will average over the long haul, and investors are increasingly convinced the Fed will lower rates significantly over the next 12 months. Interest-rate futures imply that, at the end of next year, the Fed’s target will be around 4%. Fed policy makers had been pushing against the idea that they would cut rates by much next year, but on Wednesday they caved a bit. Projections released following their meeting had a median forecast for overnight rates at the end of next year at around 4.6%. The last time they offered up projections, in September, the end-of-2024 rate forecast was around 5.1%.
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Japan is tired of Prime Minister Kishida, a man who tries too hard
Taken from AFR Thursday, 14 December 2023
Fumio Kishida’s knack for associating with controversial policies has turned him into one of the most unpopular leaders of the past two decades.
Fumio Kishida is in trouble. Japan’s prime minister is dealing with the lowest approval ratings since his Liberal Democratic Party returned to power in 2012; support rates so low that they’ve typically destroyed other leaders.
In one recent favourability survey of current and former leaders, Kishida not only ranked below Yasuo Fukuda, the most forgettable of the many LDP heads of the 2000s, but also Yoshihiko Noda; the last head of the doomed opposition Democratic Party of Japan administration, whose signature policy achievement was pushing through a widely hated consumption tax hike.
He also faces an emerging funding scandal that has the potential to shake the ruling party to its core. While Kishida himself is not directly implicated, the investigation by Tokyo prosecutors into concealed political funds is set to lead to multiple sackings of senior officials, and may even lead to the prosecution of cabinet members.
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Top defence officials from US and China meet after Taiwan rift
Taken from FT Thursday, 14 December 2023
Re-engagement seen as sign of progress towards improving relations after Biden-Xi summit
The Pentagon’s most senior China official has met his Chinese counterpart for the first time since he flew to Taiwan in February on a secret trip that derailed top-level military talks between the two men.
Michael Chase, the top US defence official for China policy, recently met Major General Liu Zhan, the Chinese defence attaché in Washington, according to people familiar with the meeting, including a US defence official. The meeting occurred before the summit between presidents Joe Biden and Xi Jinping in San Francisco last month.
The meeting suggests the US and China are making some progress towards improving relations between their militaries after Beijing closed formal communication channels in August 2022 after then-House Speaker Nancy Pelosi visited Taiwan.
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The people familiar with the situation said the US and China were negotiating a series of senior-level military engagements for 2024 after the Pentagon submitted an initial proposal to Beijing.
But they cautioned that arranging the series of engagements they are hoping for would take time, partly for bureaucratic reasons. The situation in China is also complicated because Beijing has not replaced Li Shangfu, who was formally removed from his post as defence minister in October over a corruption investigation.
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UK willing to legislate on post-Brexit trade arrangements for N Ireland
Taken from FT Thursday, 14 December 2023
Sunak attempts to address unionist concerns but insists any solution must accompany restoration of Stormont executive
The UK government is willing to legislate to address the concerns of Northern Ireland’s biggest unionist party over the impact of post-Brexit trading arrangements on the region which have led to nearly two years of political paralysis.
But speaking at Westminster on Wednesday, Prime Minister Rishi Sunak said all sides must work “day and night” to strike a deal to stabilise crippled public finances and restore the Stormont executive.
During three days of talks at Hillsborough Castle, leaders from all the main parties in Northern Ireland rejected London’s offer of a ￡2.5bn package for the region, whose finances are deeply in the red. Public services falling into crisis and pay strikes by public sector and transport workers are looming.
But London said talks would continue in a bid to thrash out a deal.
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UK watchdog proposes cap on card fees in blow to Visa and Mastercard
Taken from FT Thursday, 14 December 2023
Duopoly had raised their cross-border interchange rates for online transactions fivefold since Brexit
British regulators plan to reintroduce a cap on card fees imposed on transactions between the UK and EU, in a blow to the Visa and Mastercard duopoly that raised charges on businesses more than fivefold since Brexit.
On Wednesday, the Payments Systems Regulator proposed that so-called interchange fees charged for cross-border and online credit and debit card payments should be restored to the level set before the country left the EU “to protect UK businesses from overpaying”.
“The fees charged by Mastercard and Visa to UK businesses which accept payments from within the European Economic Area are likely too high,” said PSR managing director Chris Hemsley.
“In short, we do not think this market is working well . . . Last year alone, the PSR estimates that UK businesses paid an extra ￡150mn to ￡200mn due to the fee increases.”
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Vivendi floats plan to split itself up
Taken from FT Thursday, 14 December 2023
French media group controlled by Vincent Bolloré says it will study break-up option to maximise value
French media conglomerate Vivendi is considering splitting itself up into three businesses that would all be listed separately, in what would be a major overhaul piloted by owner Vincent Bolloré.
The Paris-based company said it has begun work with bankers and lawyers to evaluate the feasibility of such a plan, which it said was aimed at maximising its valuation.
“Vivendi has endured a significantly high conglomerate discount, substantially reducing its valuation and thereby limiting its ability to carry out external growth transactions for its subsidiaries,” it said.
“In order to fully unleash the development potential of all its activities . . . [the group will] explore the feasibility of a project to split the company into several entities.”