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“We should start with stabilizing employment, because we can boost incomes of ordinary people only when employment is secured,” said Xu Hongcai, deputy director of the economic policy commission at China Association of Policy Science.
Xu said that raising minimum wages, allowing more rural residents to settle in cities, and strengthening social safety nets would help increase earnings, and so spending, in the long run.
Some regulations could also be loosened, said Yao, the cabinet adviser.
“In Beijing and big cities, we still restrict auto purchases…there are no such restrictions in London, New York or Tokyo,” he said.
Incomes suffered under lockdowns and strict movement curbs. Some, especially migrant workers, lost months of wages. Urban disposable income growth slowed to 1.2% in 2020 from 5.0% the previous year.
Consumers chose to fill their bank accounts rather than empty their wallets. Households added 11.3 trillion yuan ($246.69 billion) in new bank savings in 2020, up from 9.7 trillion yuan the previous year, according to central bank data.
Fear of the virus, and continued small-scale outbreaks, continues to dissuade spending.
After a recent rebound in COVID-19 cases in the north of the country, around 30 million people were placed under a form of lockdown. Millions more have been asked to avoid traveling for Lunar New Year, usually a consumption hotspot.
“I won’t go out unless it’s absolutely necessary. This saves me from worry and saves me money too,” said Hou Aiping, a retired woman in her 50s who now only leaves home in Beijing to visit her parents and the supermarket.
“Even though the epidemic is contained, and I always wear my mask, I can’t guarantee I’ll be completely safe,” she said.
($1 = 6.4858 Chinese yuan renminbi)
(Additional reporting by Cheng Leng and Beijing newsroom; Editing by Raju Gopalakrishnan)
Material stocks drag TSX lower
* The materials sector, which includes precious and base metals miners and fertilizer companies, lost 1.3% as gold futures fell 0.3% to $1,799 an ounce.
* Miners Dundee Precious Metals Inc and Centerra Gold fell 3.9% and 3.8%, respectively, and were the top drag on the TSX.
* At 09:37 a.m. ET (14:37 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 77.04 points, or 0.42%, at 18,253.05.
* The financials sector gained 0.1% as Royal Bank of Canada and National Bank of Canada topped analysts’ estimates for first-quarter profit.
* The energy sector dropped 0.7%, even though U.S. crude prices were up 1% a barrel, while Brent crude added 1.1%.
* On the TSX, 62 issues were higher, while 150 issues declined for a 2.42-to-1 ratio to the downside, with 24.02 million shares traded.
* The largest percentage gainers on the TSX were printing company Transcontinental Inc <TCLa.TO>, which jumped 2.3%, and National Bank of Canada <NA.TO>, which rose 2.3%.
* The most heavily traded shares by volume were Manulife Financial Corp <MFC.TO>, Suncor Energy Inc <SU.TO>, and Great-West Lifeco Inc <GWO.TO>.
* The TSX posted 12 new 52-week highs and no new lows.
* Across all Canadian issues there were 44 new 52-week highs and six new lows, with total volume of 43.98 million shares.
(Reporting by Amal S in Bengaluru; Editing by Aditya Soni)
Fed to keep policy easy, stay patient as U.S. economy revives – Reuters
WASHINGTON (Reuters) – Amid market expectations the Fed may be forced to tighten monetary policy sooner than expected, top U.S. central bankers delivered a simple message to investors fixated on rising U.S. bond yields and price risks: Do not expect any changes until the economy is clearly improving.
Testifying on Wednesday before the House of Representatives Financial Services Committee, Fed Chair Jerome Powell emphasized the U.S. central bank’s promise to get the economy back to full employment, with little worry about inflation unless prices begin rising in a persistent and troubling way.
“We are just being honest about the challenge,” Powell told lawmakers when asked about Fed projections that inflation will remain at or below the central bank’s 2% target through 2023.
The Fed has said it will not raise interest rates until inflation has exceeded 2% and “we believe we can do it, we believe we will do it. It may take more than three years,” Powell said. The current inflation rate by the Fed’s preferred measure is about 1.3%.
An expected jump in prices this spring, he said, may reflect post-pandemic supply bottlenecks, or a jump in demand as the economy reopens, but nothing to warrant a policy response.
Powell’s remarks led a broad central bank effort to convince the public and particularly bond market investors that it is not going to tighten monetary policy until it is clear people are getting back to work.
Yields on U.S. Treasury bonds have risen recently, with the risk of a potential spike in inflation in focus as the United States expands its coronavirus vaccination program, plans further fiscal spending and moves toward a post-pandemic reopening of the economy.
Financial markets are pricing in a better outlook for the U.S. economy, and “that’s appropriate,” Fed Vice Chair Richard Clarida told the American Chamber of Commerce in Australia, adding he had become more bullish himself in recent months.
What that does not mean, he said, is any imminent change to the Fed’s near-zero setting for short-term interest rates, or its bond-buying program.
“We to a person are going to be patient, we are going to be very careful, and we are going to be very, very transparent of our intentions well in advance of any decision we might make in the future,” Clarida said.
Clarida said he sees inflation rising above 2% in the spring but coming back down to about that level by year’s end.
Talk about a possible market “taper tantrum” in response to a change in the Fed’s bond-buying program is “premature,” Clarida said. A taper tantrum refers to a rapid run-up in bond yields based on changes in market expectations for Fed policy.
“We have a deep hole, there’s still a ways to go, and I think that settings of monetary policy are entirely appropriate not only now but, given my outlook for the economy, for the rest of the year,” he said.
‘FRONT-RUNNING THE FED’
While some observers believe the Fed may need to remove crisis-era policies sooner than expected, that argument ignores the Fed’s new jobs-first framework, said Tim Duy, chief U.S. economist with SGH Macro Advisors.
“If we try to force the Fed into the old framework, we will be front-running the Fed. The Fed will not validate such front-running,” Duy wrote of Powell’s appearances this week before House and Senate committees. “The Fed intends to maintain easy policy until the data pushes it in another direction and the Fed does not expect that to happen for a long, long time.”
The Fed has said it plans to keep buying $120 billion a month in U.S. government and government-backed securities “until substantial further progress has been made” toward the Fed’s maximum employment and inflation goals.
With the inflation target a long way off, Fed officials have focused on what they see as a major gap in the labor market as well – a scar that goes well beyond the 6.3% headline unemployment rate to include concerns about disproportionate joblessness among minorities and the exodus of women from the labor force.
In recent weeks, Powell, Clarida and others have used an alternate measure of around 10% that includes, for example, those who have left the labor force in recent months, and even that may fall short of the damage to workers the Fed hopes to repair.
Powell, who testified in Congress as part of his mandated twice-a-year appearances on Capitol Hill to provide updates on the economy, said the Fed needed to see tangible progress before shifting gears, not just anticipated improvement, and not premature bets from the bond market.
“We are not acting on forecasts,” Powell said. The policy “is what it sounds like – incoming actual data that sees us moving closer to our goals.”
Reporting by Howard Schneider and Ann Saphir; Editing by Peter Cooney
Canadian dollar hits a three-year high, playing catch-up with oil
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar strengthened to its highest level in three years against its U.S. counterpart on Wednesday, as oil prices rose and Canadian bond yields climbed at a faster pace than their U.S. counterparts.
The loonie was trading 0.5% higher at 1.2523 to the greenback, or 79.85 U.S. cents, having touched its strongest intraday level since February 2018 at 1.2521.
“The medium term direction for CAD is pretty clear,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. “Unless oil corrects lower, we should see further CAD strength as it slowly catches up to the oil move that has already happened.”
Oil, one of Canada‘s major exports, has rallied more than 30% since the beginning of the year, while the Canadian dollar is up 1.7%.
U.S. crude oil futures settled 2.5% higher at $63.22 a barrel on Wednesday after U.S. government data showed a drop in crude output after a deep freeze disrupted production last week.
Canada‘s economy will see a solid and sustained rebound this year as COVID-19 inoculations ramp up, Bank of Canada governor Tiff Macklem said on Tuesday, while warning that Canada‘s red-hot housing market is starting to show signs of “excess exuberance”.
Canadian government bond yields were higher across a steeper curve on Wednesday. The 10-year yield touched its highest since February last year at 1.360% before pulling back to 1.316%, up 7.1 basis points on the day.
The gap between Canadian and U.S. 10-year yields narrowed by 5.5 basis points to 6.4 basis points in favour of the U.S. bond.
(Reporting by Fergal Smith; editing by Emelia Sithole-Matarise and Chizu Nomiyama)
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