Riskometer tilting positive in Asia...
Most indices are in the green, Japan lagging...
China tech got a boost - Alibaba shares surging ~6% after Jack Ma popped up safe and sound for a livestream with some rural teachers
Tech also leading the way in U.S. futures...
The huge deficit is a cause for concern, especially among Republicans
Yellen said a key metric to watch is the cost of debt interest payments relative to the size of gross domestic product. It’s now below where it was in 2008 during the financial crisis, she said.
That reinforces the argument for using deficit financing to help the pandemic-battered economy, she said.
“To avoid doing what we need to do now to address the pandemic and the economic damage it’s causing would likely leave us in a worse place fiscally and with respect to our debt situation,” Yellen said.
“...it’s essential that we put the federal budget on a path that’s sustainable.”
She nodded elsewhere in the hearing to Biden’s plans to boost some taxes in time.
The deficit is tomorrow's problem, spend all the money now while interest rates are low, get the economy back on track and then we'll talk about balancing the books...
Yellen also said she’d take a look at proposals to launch a 50-year Treasury bond, although potential demand for these bonds is said to be low...
“The Treasury has delved into this topic several times before and concluded that the demand dynamics do not support ultra-long bond issuance,”
- Subadra Rajappa, head of U.S. rates strategy at Societe Generale SA
If only there was some kind of buyer of last resort...
How could such a measure potentially be justifed?
“Climate change is an existential threat,” Yellen said. “Both the impact of climate change itself, and policies to address it, could have major impacts creating stranded assets, generating large changes in asset prices, credit risks and so forth that could affect the financial system.”
On the dollar...
“The United States does not seek a weaker currency to gain competitive advantage and we should oppose attempts by other countries to do so”
Yellen also said she would work “to oppose any and all attempts by foreign countries to artificially manipulate currency values to gain advantage in trade.”
Yellen pointed to a “large economics literature” that examines minimum wage increases in individual states, saying
“The findings are that the job loss is very minimal, if anything.”
Bitcoin also took a hit yesterday after Yellen's comments
“many cryptocurrencies are used, at least in a transaction sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels,”
No-one thought to ask if the U.S. Dollar has ever been used for the exact same things...
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Yellen channelled her inner Trump when speaking about China...
“China is undercutting American companies by dumping products, erecting trade barriers and giving illegal subsidies to corporations,”
China is an “important strategic competitor.”
China also has been “stealing intellectual property and engaging in practices that give it an unfair technological advantage, including forced technology transfers,” “These practices, including China’s low labor and environmental standards, are practices that we’re prepared to use the full array of tools to address.”
As the hearing took place, outgoing Secretary Of State Pompeo formally declared China's actions against Uighurs "genocide" & Biden's nominee for secretary of state, Tony Blinken agreed with the designation.
Avril Haines, President-elect Joe Biden’s choice for the top U.S. intelligence job also said that the U.S. should take an “aggressive stance” toward the threat posed by the aggressive and assertive China that it faces today.
The message from the incoming administration is consistent, and Pandora's box is well and truly opened when it comes to China...
In other market news...
The ECB is buying bonds to limit the differences between yields for the strongest and weakest economies in the euro zone, according to officials familiar with the matter, with one person saying the central bank has specific ideas on what spreads are appropriate.
An ECB spokesman declined to comment.
While that strategy is similar to yield curve control, “they’re calling it something different,” said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG.
“My feeling is that this is an important thing for the ECB, they’re looking at it and they’re actually envious of the BOJ.
They would love to have something like that.”
Explicit yield goals also make exiting the policy a challenge. Investors are likely to dump bonds, driving up borrowing costs, the moment they perceive the target is about to be dropped.
That may ultimately mean the ECB has an edge with what Lagarde has described as an “holistic” approach to maintaining favorable financing conditions.
“It’s not as explicit as the Japanese do it, but broader,” said Florian Hense, European economist at Berenberg. “Once it’s out that you explicitly control the yield curve, this commitment can be very expensive.”
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- Revenue: $6.64 billion versus $6.63 billion expected
- Earnings per share: $1.19 versus $1.36 expected
- Global paid subscriber additions: 8.51 million versus 6.03 million expected
More earnings due today...
Calendar highlights: Inflation data from the EU & Canada, BoC rate decision (no change expected).