› News for February 12.

News for February 12.

Wells Farge expects volatility spike in currencies as a result of the Federal Reserve meeting on Wednesday.

US Federal Reserve will publish the result of the monetary policy meeting this Wednesday and that 'might cause volatility spike in the currency market', Eric Nelson, a currency expert at Wells Fargo thinks. The lack of macroeconomic data, on which traders could focus, in the United States today means that they will pay more attention to the Fed's Statement than usual. The currency exchanges price action appears to be more active traditionally when the Fed's interest rates decision is followed by a press conference.

The fluctuations scale 'directly depends' on the volume of information provided by the Federal Open Market Committee, Nelson thinks. The Federal Reserve Chairman Jerome Powell 'was criticized for the fuzziness and evasiveness of his comments, that's why markets expect more clear signals from him regarding the regulator's monetary policy prospects'. Wells Fargo gathered and compared data about the US dollar's price action for every Fed's meeting starting from 2011. Fed Chair Powell will host press conferences after every meeting starting from January 2019 which is also an unprecedented decision.

Inflation accelerated in Turkey due to the spike in food prices.

Inflation accelerated in Turkey due to the spike in food prices. Last month's spike in food prices caused another wave of inflationary pressure in Turkey. Consumer prices rose by 20.4% year-over-year in Turkey in January after December's growth of 20.3%, according to Statistics Institute of Turkey's data. Bloomberg agency asked analysts about their projections and the average inflation forecast remained at the same level as in December last year. Food prices accelerated the growth to 31% from 25% in the previous month, reaching the highest pace since 2004. Meanwhile, the country central bank's forecast for food prices is still below 13% per annum. The recent price spike reflects the consequence of flood in Antalya which is the largest greenhouse centre in Turkey.

Producers Price Index slowed down its growth pace to 32.9% from 33.6% earlier. Energy prices rose by 13.1% after the spike of 20.8% noticed in the previous month. Turkey President Redjep Tajip Erdogan announced natural gas and energy prices for population lowering by 10% starting from January 1. Consumer Prices excluding volatile factors, such as prices for gold, food and energy, grew by 19%. Core Inflation slowed down by 0.5 percentage point. According to the central bank's basic scenario published last week, the total inflation will reach the level of 14.6% in 2019 compared to the previous forecast of 15.2%. The regulator Chairman Murat Chetinkaya stated that the central bank will continue supporting the level of tight monetary policy needed for reaching one-digit inflation growth in the nearest future. Turkish Lira was vulnerable to the inflationary pressure in 2018, losing almost 28% of its value in August during the financial crisis in the country.

Donald Trump is hoping for deal conlusion with China till March 1.

US President Donald Trump declared to journalists that he's hoping to conclude the deal with China till March 1. Otherwise, the American leader promised to impose new import tariffs for Chinese goods.

US President Donald Trump declared to journalists that he's hoping to conclude the deal with China till March 1. Otherwise, the American leader promised to impose new import tariffs for Chinese goods.

"I think we'll make the deal till March 1. I'm not sure whether it will be on paper or just at the level of verbal agreements. We want a good deal or we'll postpone it. I hope that we'll agree, or implement new tariffs for 25%. Probably, the deal will be made between me and President Xi", - Trump said. He also underlined that the United States would like to meet Chinese expectations and sign the agreement until March 1, despite the large likelihood of a fail of such an optimistic forecast. However, Trump is not completely confident that it's possible to put those arrangements on paper until the deadline.

The news about a possible deal between the U.S. and China came in on January 20 when US officials declared readiness to negotiate with the condition of additional verification of local reforms promised by the Chinese government. The U.S.-China trade war continues since June 6 last year when mutual enlarged import tariffs were implemented at the level of 25% by both countries. The US 10% tariffs were imposed for Chinese good with the total volume of 200 billion dollars since September. Beijing responded to that implementing 5-10% tariffs for US imports with a total volume of $60 billion. Donald Trump announced 'the largest deal ever' between the two leading world's economies in the middle of December.

Deutsche Bank is under investigation in relation with scandal around Danske Bank.

Bloomberg agency reported on Wednesday that Deutsche Bank is under investigation within US Fed probe about Danske Bank's participation in money laundering operations. The Federal Reserve is clarifying whether Deutsche Bank was checking carefully enough suspicious transactions to Danske Bank for billions of dollars. The Danske Bank is blamed for ignoring the implementation of risk management systems in its Estonian department, which used bank-correspondents such as Deutsche Bank for foreign currency conversions to the US dollar for its clients.

Deutsche Bank officially responded that 'all cases are performed [as the bank-correspondent] with banks only, which has to check their clients by its own, as well as their transactions'. Deutsche Bank denies that it appeared under investigation, declaring the readiness to collaborate and answer all questions about Danske Bank, which admitted that the largest part of transactions for 230 billions of dollars could be suspicious capital.

Estonia department of the Danish bank is related to international law violations in the field of money laundering. Russian and Azerbaizhan suspicious companies were laundering hundreds of billions of dollars with the help of the local bank department. Danish prosecutors reported that Danske did not provide the anti-money laundering law compliance by the department, while the United States require all banks under its jurisdiction to check clients and monitor potentially suspicious operations, reporting state agencies about violations. According to the regulators, the Danish bank failed to develop an effective money laundering system, resulting in a long-term fraud scheme. Moscow customers were buying Russian shares for roubles and selling them for dollars in the London branch. As a result, more than six billion dollars were sent outside the country.

European Union launched a mechanism to avoid US sanctions against Iran.

The mechanism of avoiding US sanctions against Tehran will start working in the very nearest days, France Finance Minister Bruno Le Maire reported. According to his words, that would demonstrate that Europe is capable of moving forward and withstand the largest world's countries.

The decision of creating a Special Purpose Vehicle (SPV) was made by the European Union in October 2018. "The EU will establish an entity for conducting legal financial operations with Iran. That will allow European companies to keep trading with Tehran within EU laws, staying open to other partners", - Federica Mogherini, EU Foreign Affairs Council explained.

It was envisaged that credits to Iran agencies, payments for oil and other goods imported from the Islamic Republic be European companies will be sent to SPV account. The company will be able to buy and dispatch European goods within requests from Iran. The main SPV's principle is counterparties' anonymity as the company is not intended to disclosure names of its partners in Europe, which will help them to avoid US secondary sanctions pressure. Moreover, payments provided via SPV aren't dollar-nominated in order to avoid the US Treasury's ability to track them down. "Operations in Euro or Pounds aren't visible for US state agencies. European companies working with an intermediatory company SPV are technically protected from violations of American laws in the recent revision", - Bloomberg agency reported.

The only thing which is still unknown is how payments will be performed within the sanctions avoiding mechanism. It's obvious that SPV is not going to use the international banking payments system SWIFT, which has already announced that it will stop serving Iran companies and it's completely clear for US Treasury agencies. EU officials stated that the new payments system used in the Special Purpose Vehicle will assist and provide confidence to European businesses in his intention to trade with Iran, as well as soften potential consequences of sanctionary pressure. However, no technical features were disclosed.

"Europe will provide the infrastructure for safe violation of sanctions that way, making sure that American regulators will not be acknowledged about the transactions. There is no sense to implement sanctions against the Special Purpose Vehicle as the U.S. is not able to know who and why works with it", - Bloomberg agency noted.

Meantime, Iran was hoping for the launch of SPV at the end of last year but the project implementation was postponed due to the lack of agreements by EU countries in the choice of exact location of the entity, being scared of Washington's pressure. The White House was fuelling those fears, underlining that Washington will not allow anyone to avoid sanctions. However, Donald Trump helped Europeans to overcome fears as the US President started a personal war against French President Emmanuel Macron in November, using his favourite tool - Twitter, - posting a provocative note about French history of WWI. There was also a claim from Trump to French people about wine tariffs, underlining the lack of support for US wine exporters in the local market, while the U.S. provides support for French wine imports.

Emmanuel Macron
Source:POLITICO Europe

Anyway, such a measure as the SPV implementation could be also useful for China and Russia because it provides an opportunity to avoid not only US sanctions but also SWIFT payment system which is controlled by the United States. That would be a huge precedent in international trade history and the US’ leading role would be weakened if that happened.

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