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Trump Lauds Economy, Blasts Fed; BIS Urges Central Bank Climate Action; Trade Tensions Flare
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Good day. President Trump praised the U.S. economy and once again slammed the Federal Reserve over its interest-rate policy, on a day when trade tensions with Europe came to the forefront at the World Economic Forum in Davos, Switzerland. Also at Davos, Bank of England Gov. Mark Carney said climate-related risks have become a top worry for investors. The Bank for International Settlements in a paper urged central banks to play a part in fighting climate change. And Malaysia's central bank cut its key rate to the lowest since mid-2011, a move that surprised forecasters.
Now on to today’s news and analysis.
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Trump Lauds U.S. Economy, Reiterates Fed Complaints
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President Trump waved as he arrived Tuesday in Davos, Switzerland, on Marine One. PHOTO: Evan Vucci/Associated Press
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President Trump touted what he described as a “blue-collar boom” transforming the American economy and hailed the U.S. trade agreement with China in a speech to global business and government leaders. He also repeated complaints about higher rates in the U.S. than abroad in his address to the World Economic Forum. The U.S. is "forced to compete with nations that have negative rates, meaning they are paid to borrow money—something I could get used to very quickly." The U.S., he said, is prospering even though the Fed "raised rates too fast and lowered them too slowly."
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Derby's Take: Central Banks Should Act on Climate Change, BIS Says
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An organization comprised of the world’s top central banks says they have a key role to play in mitigating the risk posed by a changing global environment.
The Bank for International Settlements, which counts the Federal Reserve, European Central Bank and other institutions as members, warned of what it called “green swan” environmental shocks, which it defined as “potentially extremely financially disruptive events that could be behind the next systemic financial crisis.”
Because of the financial implications posed by a climate-related disaster, central banks, most of which are focused on job and inflation mandates while serving as bank regulators, need to step up. Read More.
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Other Developments Around the World
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Climate Change Is Becoming Real for Big Investors: Carney
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Speaking on a panel at the World Economic Forum in Davos, Mark Carney, the Bank of England governor and U.N. special envoy for climate action and finance, said climate change has rapidly become the most pressing issue on the minds of investors.
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"The biggest asset owners are going to be around 30 years from now so they can see the implications for their assets," Mr. Carney said. (Dow Jones Newswires)
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Bank Negara Malaysia Cuts Policy Rate in Surprise Move
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Malaysia’s central bank on Wednesday cut its benchmark interest rate by a quarter of a percentage point to 2.75% in a surprise move, to lend support to economic growth. Four of five economists polled by WSJ had expected Bank Negara Malaysia to hold rates steady.
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Stable ECB Policy Drives Demand for Eurozone Sovereign Bonds
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The stability of the ECB’s monetary policy is a key driver behind the record-high order books eurozone states have received for their syndicated government bond issues this year, according to officials at the Belgian Debt Agency.
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Fed Adds Just Over $90 Billion in Temporary Money to Markets
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The Fed added short-term money in two repurchase-agreement operations, or repos. The overnight intervention added $58.6 billion, while a 14-day repo added $32.2 billion. In both cases, eligible banks took less money than the Fed was willing to offer.
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Indonesia Central Bank Likely to Stand Pat: Poll
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Seven out of eight economists polled by WSJ expect Bank Indonesia to keep its seven-day reverse repo rate at 5%, with only one forecasting a cut of a quarter percentage point. DBS says improving risk sentiment on the signing of the phase-one trade deal between the U.S. and China and a stronger rupiah make it likely that the central bank, which meets Thursday, will hold back from easing. (Dow Jones Newswires)
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Financial Regulation Roundup
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SEC Decision on 4 p.m. Closing Trades Deals Blow to NYSE, Nasdaq
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The SEC said it would allow a rival exchange group, Cboe Global Markets, to implement a mechanism that lets traders bypass paying fees to NYSE and Nasdaq when they seek to buy or sell shares at daily closing prices.
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Fancy Meals and Loans for Friends: China’s Banks Face Cleanup
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For years, China’s small banks had a field day. They lent to overstretched borrowers, disguised loans as investment products and fueled their business with short-term funds.
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Regulators used a light touch, eager to keep credit flowing to areas ignored by the country’s big national lenders. The country’s years of rapid economic growth papered over shoddy practices. Now, the bill is coming due.
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London Braces for a Post-Brexit Squeeze
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Britain’s hulking financial sector presents a serious dilemma for both sides in the U.K.’s coming trade negotiations with the European Union, and whatever the outcome, British-based financial institutions are preparing to see their access to the trade bloc heavily curtailed after Brexit.
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Money Managers Venture Into Trade Finance
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Money managers including Allianz and American International Group have found a window of opportunity to enter the risky business of financing international trade, long the domain of banks.
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Carole Ghosn Takes On Japan’s Legal System
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Carlos Ghosn’s arrest in November 2018 thrust his wife, Carole Ghosn, into battles she wasn’t expecting to fight: against Nissan Motor, the company her husband ran, and the Japanese justice system.
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Sheldon Silver’s Corruption Conviction Partially Overturned
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A federal appeals court partially overturned the criminal conviction of former New York state Assembly Speaker Sheldon Silver, underscoring the difficulty of bringing corruption cases against public officials.
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Wednesday (all times EST)
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10 a.m.: Bank of Canada releases interest-rate announcement and monetary policy report
11:15 a.m.: Bank of Canada’s Poloz and Wilkins hold press conference in Ottawa
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Time N/A: Bank of Indonesia releases policy
4 a.m.: Norges Bank releases rate decision
7:45 a.m.: European Central Bank releases policy statement
8:30 a.m.: European Central Bank’s Lagarde holds press conference in Frankfurt
6:50 p.m.: Bank of Japan releases Dec. 18-19 meeting minutes
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The Effects of Regulating Credit Value Adjustments
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The financial crisis shined a spotlight on banks’ credit valuation adjustment risk, which brought about $43 billion in losses across 10 banks between 2007 and 2009 according to one estimate. Giulio Malberti and Thom Adcock examine the effects of CVA requirements enacted in 2014 for the Bank of England’s Bank Underground. They write that “roughly two-thirds of losses associated with counterparty creditworthiness were due to CVA losses and only one-third were due to actual defaults,” citing the Basel Committee. “We found a long-term decline in capital requirements for CVA risk despite there being no change in the CVA capital rules” since their introduction, Messrs.
Malberti and Adcock write. Additionally, “we found high volatility in CVA [risk-weighted assets] over relatively short periods: yearly changes in RWAs of over 30% are common across our sample of globally systemic banks.”
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In Trade With China, the U.S. Is Missing the Point
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For all President Trump’s boasts at Davos on Tuesday, his trade negotiations so far have revolved around the wrong thing: The quantity of stuff the U.S. sells to China and other partners. But what actually matters is their quality, Jon Sindreu writes at The Wall Street Journal.
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Latin America ended 2019 in upheaval and all signs suggest there is more to come. Across the region, satisfaction with the economy is down to 16%, its lowest level since 2003, and approval of governments has sunk to 32% from 56% in 2010, according to pollster Latinobarómetro.
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Argentina’s former finance minister and new governor of Buenos Aires province gave creditors until Wednesday night to accept a three-month delay in the repayment of $250 million in foreign debt issued by the province due this coming Sunday, raising fears of a more aggressive confrontation between the federal government and foreign creditors.
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South Korea's economy grew 2% last year, its slowest pace in a decade, after a stronger-than-expected 1.2% pickup in the final quarter from the third quarter's 0.4% gain, data from the Bank of Korea showed Wednesday. (Dow Jones Newswires)
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Australian consumer sentiment softened this month amid the devastating human and economic cost of wildfires, with the Westpac-Melbourne Institute Index of Consumer Sentiment falling 1.8% to 93.4 from 95.1 in December. (Dow Jones Newswires)
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Canada's Liberal government will introduce legislation next week to ratify the revised North American free-trade pact, or USMCA, which lawmakers in the U.S. and Mexico have already ratified. (Dow Jones Newswires).
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Canadian factory sales fell 0.6% in November from October to a seasonally adjusted 57.02 billion Canadian dollars ($43.68 billion), marking a third consecutive monthly decline, Statistics Canada said.
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