Panic In Washington, US currency traders on the frontlines as Trump's 2-year stock honeymoon ends with hunt for betrayer and govt shutdown

Panic In Washington – Treasury Secretary Calls Top Bankers To Check Liquidity, While On Vacation

https://www.bloomberg.com/news/videos/2018-12-24/trump-should-have-vetted-jay-powell-wizman-says-video

  Jerome Powell Photographer: Andrew Harrer/Bloomberg

Currency Traders on Front Line as Markets Stay Wary of U.S. Risk

The final week of 2018 could prove tumultuous for investors as holiday-thinned trading combines with a growing array of pressures on markets.

Traders in the $5.1 trillion-a-day currency market were among the first to respond to a partial U.S. government shutdown and a report that President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell. The dollar slipped against its Group-of-10 peers, while the yen, seen by many as a haven, gained for a seventh day.

Treasury futures climbed in early Asian hours before paring their advance. Cash bonds trading was shut in Asia due to a holiday in Japan, the first in a week that will see a number of closures across major markets.

Sentiment in global financial markets has already taken a beating with the S&P 500 Index just recording its worst week in seven years. Increased uncertainty over the leadership of the Fed could add to turmoil along with a partial shutdown of the U.S. government, although assurances from U.S. Treasury Steven Mnuchin about liquidity and the future of the central bank chief may ease some concerns.

The Treasuries yield curve last week moved closer than ever to its first post-crisis inversion and the rally in safer assets dragged the 10-year yield below 2.75 percent for the first time since April. However, given that much of the upheaval is emanating from the U.S., it is not entirely clear whether Treasuries, and also the U.S. dollar, will act as reliable havens should Powell’s leadership face a genuine threat.

Societe Generale SA’s head of U.S. rates strategy Subadra Rajappa said she thinks a change in Fed leadership is “extremely unlikely,” though she’s not ruling out the possibility of the president persuading Powell to “resign.”

“If it comes to that, given the backdrop of the recent government shutdown, investors might be less inclined to treat Treasuries as safe haven assets,” she said by email. “A change in Fed leadership will likely rattle the already-fragile financial markets and further tighten financial conditions.”

Market participants are generally of the view that Powell will not be fired, and senior administration officials say Trump recognizes he doesn’t have that authority. But even continued exploration of the possibility could make for a volatile week.

The market response to a material threat to the Fed’s independence would be complicated, according to Steve Englander, head of global G-10 FX research and North America macro strategy for Standard Chartered Bank. He said near-term uncertainty over the process and politics in a fluid situation would weigh on equity prices and bond yields. The dollar, he said, would likely face multiple opposing forces, but the “near-term response is likely negative on the risk that U.S. economic policy becomes more erratic.”

Kitchen Sink

The Bloomberg Dollar Index was up more than 4 percent in 2018 at the end of last week and is close to its highest level in a year and a half, while the Japanese yen surged around 2 percent last week versus the greenback.

Chris Rupkey, chief financial economist at MUFG Union Bank in New York, is among the few eyeing the strained relations between the president and the Fed chair with equanimity.

The stock market “has discounted everything but the kitchen sink, including the loss of a Fed Chair who hasn’t been in office for even a year yet,” he said by email.

Given that the Fed is already close to the end of its hiking cycle, the markets won’t melt down if Powell leaves office, according to Rupkey. “They already did,” he said.

Those on the front lines of this week’s opening trade say markets are on a knife edge.

Mind the Machines

“If equity markets fall further, they’re going to set off machine-based selling,” said Saed Abukarsh, the co-founder of Dubai-based hedge fund Ark Capital Management. “The other risk is that experienced traders are on holiday, so the ones left will be trigger happy with every new headline.”

“I can’t see buyers stepping into this market to stem off any selling pressure until January,” said Abukarsh. “So if you need to adjust your books for the year-end with any meaningful size, you’re going to have to pay for it.”

Trump’s two-year stock honeymoon ends with hunt for betrayer

https://youtu.be/co5RmV_AoUs width="640"

Nobody was happier to take credit for surging stocks than Donald Trump, who touted and tweeted each leg up. Now the bull is on life support and the search for its killer is on.

And while many on Wall Street share the president’s frustration with the man atop his markets enemies list, Federal Reserve Chairman Jerome Powell, they say Trump himself risks making things worse with too much aggression when equities are one bad session away from a bear market.

“You would think that after coming off of the worst week for the markets since the financial crisis in 2008, he would look to create some stability,” said Chuck Cumello, CEO of Essex Financial Services. “Instead we get the opposite, with this headline and more self-induced uncertainty. This coming from a president who when the market goes up views it as a barometer of his success.”

U.S. stock futures whipsawed Monday and were little changed after swinging from a 0.9 percent gain to a loss of the same magnitude. The equity market closes at 1 p.m. in New York ahead of the Christmas holiday.

Click here to see all of Trump’s tweets on the economy and markets.



Attempts by Treasury Secretary Steven Mnuchin to reassure markets that Powell wouldn’t be ousted appeared to have largely removed that as an immediate concern for traders, but the secretary’s tweet Sunday that he called top executives from the six largest U.S. banks to check on their liquidity and lending infrastructure added to anxiety.

To be sure, equities remain solidly higher since Trump took office. Even with its 17 percent drop over the last three months, the S&P 500 has risen 18 percent since Election Day. The Nasdaq Composite Index is up 25 percent with dividends. True, volatility has jumped to a 10-month high, but market turbulence was significantly worse for three long stretches under Barack Obama.

The S&P 500 slumped 7.1 percent last week and the Nasdaq Composite Index spiraled into a bear market. As of 2:31 p.m. in Hong Kong, futures on the S&P 500 were up 0.6 percent while Nasdaq 100 contracts added 0.5 percent.

While Trump seems to have found his villain in Powell, blame is a dubious concept in financial markets, as anyone who has tried to explain the current rout can attest.

Along with the Fed chairman, everything from rising bond yields, trade tariffs, falling bond yields, Brexit, tech valuations and Italian finances have been implicated in the downdraft that has erased $5 trillion from American equity values in three months.

Whatever’s behind it, nothing has been able to stop it. And while many on Wall Street credit the president for helping jump-start the market after taking office, they say he should look in the mirror to see another person creating stress for it right now.

“Trump was gloating how much good he had done for the economy and the market. Now he’s blaming Powell for the decline instead of himself,” said Rick Bensignor, founder of Bensignor Group and a former strategist for Morgan Stanley. “Half his key staff has been fired or quit. The markets are off for a variety of reasons, but most of them have Trump behind them.”

If Trump is bent on getting rid of Powell, there may be ways of doing it that don’t risk kicking a volatile market into hysteria, said Walter “Bucky” Hellwig, a senior vice president at BB&T Wealth Management in Birmingham, Alabama.

“It doesn’t have to be firing, it could be someone else taking Powell’s job. That could be a net positive for the markets,” Hellwig said. “A friendly change in the head of the Fed may cause some turbulence short-term but it may be offset with the markets repricing the risk associated with two rate hikes in 2019.”

For now, the turmoil shows no signs of letting up. In the Nasdaq 100, home to tech giants like Apple Inc. and Amazon.com, there have been 17 sessions with losses greater than 1.5 percent this quarter, the most since 2009. Small caps are down 26 percent from a record, while the Nasdaq Biotech Index has dropped at least 1 percent on seven straight days, the longest streak since its inception in 1993.

It’s been a long time since anyone in the U.S. has lived through this protracted a decline. Including Trump.

”It’s impossible to tease out what the proximate causes are,” said Kevin Caron, a senior portfolio manager at Washington Crossing Advisors. “The normal ebb and flow of financial markets are all part of the mix. It’s impossible just to point to the chairman as the only input.”

Credit: Bloomberg

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A homeless man sleeps under an American flag blanket on a park bench in New York City in this file picture. As of June 2013, there was an all-time record of 50,900 homeless people, including 12,100 homeless families with 21,300 homeless children in New York - Photos AFP

A young homeless woman panhandles on the streets of Manhattan in New York City. According to a new report released by the US Department of Housing and Urban Development New York City’s homeless population expanded by about 4% in 2017.

American culture and a new tax Bill are exacerbating chronic poverty by helping to widen the wealth gap.

SITTING among a jumble of his few possessions on a San Francisco sidewalk, 41-year-old “Kaels” Raybon has begun to accept the bad choices he made.

He was a drug user, and did jail time. By the time he was let out, his wife and four children – two boys and two girls – had left him. Other family members had died and he had nowhere to live. He has now spent over 15 years on the street.

America may be the land of equal opportunity – but like many other countries, there is a thin line between a life on the street and a roof over one’s head. Poverty creates its own loop; a prison record, for instance, makes it difficult to find employment.

Raybon’s voice trembles as he speaks of his children.

“Emotionally, I’m a wreck most of the time,” he admits. “I see kids and dads, and I want that too. But it’s just not in my cards.”

The children came to visit him one day, he says. He was torn. “I wanted them to stay, but at the same time I didn’t, because I have nothing to offer them.”

Raybon is among those who make up the most visible indicator of America’s worsening poverty and inequality – over half a million urban homeless. They are a stark contrast in arguably the world’s richest, most powerful and most technologically innovative country.

But homelessness is only the visible tip of the poverty iceberg. Large areas outside big cities are mired in chronic poverty. The definition of poverty varies, but a commonly used measure from 2015 is an annual income of US$12,000 (RM47,500) or less.

Forty-one million Americans live in poverty – 12.7% of the country’s population. Some 46% of those live in “deep poverty” – on an annual income below US$6,000 (RM23,700).

Among them are 1.5 million households, including 2.8 million children, who live in extreme poverty or on less than US$2 (RM8) per person per day.

“These are people who cannot find work ... who do not qualify for any other (welfare) programmes or who may live in remote areas. They are disconnected from both the safety net and the job market,” Dr Premilla Nadasen, author and professor at Barnard College in New York City, wrote in the Washington Post newspaper on Dec 21.

Poverty is in the news again on the heels of a scathing 15-page statement released late last year by Dr Philip Alston, a tall, lean, 67-year-old New York University law professor from Melbourne, Australia, who is the United Nations’ Special Rapporteur on Extreme Poverty and Human Rights. A special rapporteur functions like an investigator and reports back to the UN.

Dr Alston is not known for beating about the bush. After a 15-day swing across six American states and cities, he is warning that worse is in store for America’s poor, at the wrong end of an increasingly widening wealth gap, and in an environment and official culture in which if you are down and out, it is probably your own fault.

The recent passage of the Republican Party’s tax Bill will make their lives worse, says Dr Alston. The Treasury Department has explicitly listed welfare reform as an important source of revenue in part to make up for the deficit that the tax cut is likely to trigger.

More important, however, is the culture.

“In a poor country, there are two starting points – that there are social rights, and citizens have a right to healthcare, a right to education, a right to food,” Dr Alston says at an interview in his booklined office at New York University.

“Second, the only thing standing in our way is resources; we just don’t have the money.”

“In the US, it’s the exact opposite,” he says. “There’s no such thing as social rights. If people are living in abysmal conditions, it’s their fault because we have equality of opportunity.

“Secondly, it’s not a resource problem. We just found US$1.5trillion (RM6trillion) to give to the super rich. The money would have been there to eliminate poverty if there had been any political will. But there isn’t.”

The US$1.5trillion refers to the Republicans’ tax Bill, passed just before Christmas that will bring the middle class some relief but inevitably, analysts say, end up benefiting the wealthy disproportionately.

America’s wealth gap has been steadily widening. On average in 1981, the top 1% of adult Americans earned 27 times more than the bottom 50%. Today, they earn 81 times more.

Meanwhile, since the 1970s, the safety net has been considerably diminished, Dr Nadasen wrote in the Post recently. “Labour regulations protecting workers have been rolled back, and funding for education and public programmes has declined. The poor have been the hardest hit.”

She added: “The shredding of the safety net led to a rise in poverty. The United States has the highest child poverty rates – 25% in the world.

In the course of his tour, Dr Alston saw houses in rural areas of Alabama surrounded by pools of sewage. “The state health department had no idea how many households exist in these conditions, nor did they have any plan to find out, or devise a plan to do something about it,” he says in his statement.

He could not help noticing that most of the area’s residents were black. But while racial divisions are not far below the surface, it would be misleading to assume that poverty is generally worse in the Native American and African American minorities. It cuts across all ethnicities. There are eight million more poor white people than black people.

Like Rudy Damian, 53, who as a teenager ended up homeless in San Francisco after taking drugs and alcohol and being involved in crime – a common pattern contributing to broken families and financial ruin.

He has several missing teeth – dental care is not covered by most health insurance and the poor, at best, can go only to hospital emergency rooms where invariably a tooth is simply extracted.

Damian says he is sober now, and even works part-time as a security guard, but still can’t afford to rent a home. He calls his sister and his 94-year-old mother sometimes, but they avoid talking about his life. “They are disappointed by my lifestyle,” he says. “I was just a loner. I was the youngest when my father died, I decided to leave (home), and that isolation has lasted throughout my life.”

Fragmentation of families and the weakening of community support contribute to the isolation of homeless people in particular. But there is more.

“Caricatured narratives” drive the debate on poverty and homelessness in America, according to Dr Alston. The rich are seen as “industrious, entrepreneurial, patriotic, and the drivers of economic success”. The poor are “wasters, losers and scammers”.

“As long as you have the mindset that we’re all on our own, it becomes possible that when my own brother falls off the cliff, I’m able to say, ‘Well, he had the same opportunities as me. He’s failed, he has to cope with it,’ instead of saying, ‘I can’t let that happen. I’ve got to do something.’”

In Los Angeles, he found that the objective for the local authorities was to raise the standard of Skid Row, an area less than a square kilometre but containing many hundred homeless, to that of a Syrian refugee camp.

“One of the richest countries in the world, and we’re aiming to meet the standards of a Syrian refugee camp for a large population in one of our richest cities,” he says. “It is sort of stunning.”

Sources: The Straits Times/Asia News Network, by Nirmal Ghosh who is The Straits Times ’US Bureau Chief.

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