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News for May 14

U.S. Federal Reserve Chairman refused to cut the interest rates.

Federal Reserve Chairman Jerome Powell fought back pressure from traders and President Donald Trump to lower interest rates, saying that inflation will recover and the economy will remain healthy without new help from the central bank.

“We don’t see compelling reasons for taking a step in any direction,” Powell said at a press conference on Wednesday after Fed officials left the stake unchanged. “The economy continues on a healthy path, and the Committee believes that the current political line is correct."

US stocks fell and the dollar went up, while investors lowered their estimate of the likelihood that the Fed’s next step would be a rate cut. Treasury bond quotes ended the session close to the previous day’s close.

A statement from the Federal Open Market Committee again notes that he will be “patient” in making decisions about future rate changes. The decision to leave the target range for the federal funding rate at 2.25-2.50 % was unanimous.
Expectations for lowering rates have fallen: traders are now laying softening a quarter percentage point by the end of the first quarter of 2020. Previously, overnight swaps reflected rates for this to occur in December.

Morgan Stanley warns the markets about possible negative impact from growing oil prices.

Markets inadequately assess the risks associated with rising oil prices, warns Morgan Stanley Wealth Management.

The rally of US stocks and treasury, which pushed the S & P 500 to a record peak and lowered the yield on 10-year bonds to about 2.5%, gives investors unconcern about oil prices, Morgan Stanley Wealth Management Investment Director wrote in a review of April 29 Lisa Shalett Their sentiments are not hindered by US intentions to cut off Iranian exports, a slump in oil production in Venezuela and the looming threat from Libya.

"Markets continue to enjoy growth in each class of assets as evidence of the central bank’s patient position and the renewal of ideal conditions," said Chalette. However, "if oil stays at current levels by the end of the year, overall inflation may exceed 3%, which will create problems for the Fed, reduce consumer purchasing power, put pressure on companies’ profits and threaten growth in China and emerging markets, "she cautioned.

Shares of US energy companies show an unprecedented 10 years behind the price of oil, which is “perhaps the most convincing evidence” that markets do not expect an increase in oil prices, according to Shalette. She suggests using cheap stocks of oil companies as hedging portfolios with a share of US growth “above the market”.

Hyperinflation started in Iran.

Iran faced a sharp acceleration of inflation amid US sanctions, which deprived Tehran of half of its oil export revenues. In April, at the level of consumers, prices in Iran increased by 51.4% year-on-year. Compared with March, inflation accelerated by 3.9 percentage points and was a record since December 1995, Interfax reports, citing data from TradingEconomics.

Food prices jumped first with a growth pace almost twice as high as average inflation. Food and beverages in April became more expensive by 84.4% compared to prices a year ago. Rising prices for clothes and shoes accelerated from 55.5% to 57.8%, for furniture and household items from 78.3% to 80.1%. Transport services rose by 52.5%, entertainment - by 72%.

Imported goods rise in price against the collapse of the national currency - the rial, whose rate on the black market for four months dropped by 17%, to a minimum since October last year - 143 thousand rials per dollar, follows from the data of Bombast.com. The official rate in Iran is set at 41,000 rials per dollar, but it is only available to government agencies for a limited number of transactions. The real estate is becoming cheaper as the inflow of hard currency to Iran is declining: in April, the country managed to export less than 1 million barrels of oil per day against 2.3 million barrels a year ago.

As a result, according to the US State Department, the Iranian economy did not receive about $ 10 billion, which aggravated the recession that began last year. By April, the fall in Iran’s GDP accelerated to 6% from 3.2% in 2018. According to the IMF, Iran needs an oil price of $ 125.6 per barrel to balance the state budget, which is critically dependent on the sale of raw materials. Tighter sanctions and the abolition of temporary permission to buy Iranian oil for China, India and six more countries, will bring down Tehran’s export revenues by another two, analysts of Bank of America predict. According to their estimates, of China’s significant customers, only China and India will decide to buy oil bypassing the sanctions: this will collapse exports to 500 thousand barrels per day.

U.S.-China trade talks are in danger of collapse.

China is exploring the possibility of transferring trade talks with the United States scheduled for this week after the threat of President Donald Trump to increase duties on Chinese goods, sources familiar with the situation said. Trump stepped up pressure on Beijing on Sunday, announcing it will increase import duties to 25% from 10% on goods worth $ 200 billion on Friday. He also mentioned the possibility of expanding the 25% duty on products valued at $ 325 billion.

"The risk of a full-scale trade war is increasing," said Chua Hak Bin, chief economist at Maybank Kim Eng Research Pte. In Singapore, "Trump's threat could have negative consequences because China does not want to negotiate at gunpoint."
The yuan weakened, China’s shares collapsed, US Treasury bond futures rose, and oil prices dropped, while market participants closed the rates on ending the trade war.

Vice Premier Liu He was scheduled to arrive in Washington on Wednesday at the head of a delegation of about 100 people. This week could be the last round of talks between the United States and China. US Trade Representative Robert Lightheiser and Treasury Secretary Stephen Mnuchin visited Beijing last week and described the discussions held in the Chinese capital as productive.

It is not yet clear whether Trump’s threat is a consequence of the heightened fears of the president who had previously interrupted the summit with Kim Jong-un on nuclear disarmament, which surprised the DPRK leader a lot or with a tactical move to speed up negotiations. The United States hoped to announce a trade deal on May 10, and then finalize the document so that Trump and President Xi Jinping signed it during the summit, sources familiar with the negotiations said last week.

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