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Tuesday November 29th, 2022

Asian markets extend rally as China data lifts optimism

AFP – Asian markets rallied Monday, building on last week’s healthy gains with investors buoyed by optimism over China-US trade talks and forecast-busting Chinese factory data.

Top negotiators from China and the US flagged progress in last week’s discussions in Beijing on the tariffs row, with another round slated for this week in Washington.

While there have been few details, the general view on trading floors is that the economic superpowers are heading towards a deal that will end a long-running spat that helped sink global markets towards the end of last year.

Confidence an agreement will be reached helped overcome concerns about the world economy that saw a sharp sell-off in equities at the start of last week.

A positive lead from Wall Street was picked up in Asia, with Tokyo ending the morning 2.2 percent higher, Hong Kong adding 1.6 percent and Shanghai climbing 2.3 percent.

Sydney and Singapore each jumped 0.8 percent, while Seoul piled on 1.2 percent, with Taipei and Wellington also in the green.

The rises were supported by a sharp jump in an index of Chinese manufacturing activity, which soothed concerns about the world’s number two economy and a key driver of the global economy.
– EU patience ‘running out’ –

The Purchasing Managers Index for March showed growth in the sector for the first time in four months and was far better than expected.

"The manufacturing print… will go a long way to allaying slowdown fears about China, at least in the short-term as the US-China trade talks move back to Washington this Wednesday," said OANDA senior market analyst Jeffrey Halley.

Attention once again returns to Britain, where Prime Minister Theresa May failed on Friday to pass her Brexit deal through parliament, stoking uncertainty with just over a week before the deadline for leaving the European Union.

With MPs still unable to agree on a way forward there are fears the country will crash out of the bloc without a deal, putting pressure on the pound.

Lawmakers will hold a series of votes Monday to try to find a majority-backed plan to end the current crisis, though European Commission President Jean-Claude Juncker has said the EU is "running out" of patience as the saga plods on.

"Brexit is a mess, and sterling traders are getting bored with the continued political point scoring that has plagued the whole process," said James Hughes, chief market analyst at AxiTrader.

"The closer we get to the proposed deadline of April 12 the more volatility we will surely see."
– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 2.2 percent at 21,679.44 (break)

Hong Kong – Hang Seng: UP 1.6 percent at 29,527.14

Shanghai – Composite: UP 2.3 percent at 3,161.01

Pound/dollar: UP at $1.3027 from $1.3023 at 2100 GMT on Friday

Euro/pound: UP at 86.19 pence from 86.14 pence

Euro/dollar: UP at $1.1227 from $1.1217

Dollar/yen: UP at 111.09 yen from 110.82 yen

Oil – West Texas Intermediate: UP 31 cents at $59.45 per barrel

Oil – Brent Crude: UP 40 cents at $67.98 per barrel (new contract)

New York – Dow: UP 0.8 percent at 25,928.68 (close)

London – FTSE 100: UP 0.6 percent at 7,279.19 (close)

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a twitter.com message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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