The Opening Belle - Bitcoin Lower, Euro Higher

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U.S. Federal Reserve policymakers may soon give new guidance on their plans for asset purchases, including for how long and in what maturities, as they seek to provide more support to markets and the economy, minutes from their November policy-setting meeting show.

“Many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon,” the minutes said.

Most participants said the committee should move toward issuing forward guidance that links the pace and makeup of purchases to certain economic outcomes.

“Most participants judged that the guidance for asset purchases should imply that increases in the Committee’s securities holdings would taper and cease sometime before the Committee would begin to raise the target range for the federal funds rate,” the minutes said. A number of policymakers thought that even after it stops adding to its balance sheet the Fed would take steps to keep it from shrinking, as it did following the end of its last round of bond-buying.

Some participants in the Federal Open Market Committee said they expected the Fed to eventually lengthen the maturity of the bonds purchased, according to the deliberations.

Several policymakers also noted that there are limits to how much support the Fed could provide through purchases and expressed concern about unintended consequences, the minutes showed.

The European Central Bank should consider wiping out or holding forever the government debt it buys during the current crisis to help nations recover and restructure, a top Italian government official said.

“Monetary policy must support member states’ expansionary fiscal policies in every possible way,” cabinet undersecretary Riccardo Fraccaro, Prime Minister Giuseppe Conte’s closest aide, said in an interview in Rome on Wednesday. That could include “cancelling sovereign bonds bought during the pandemic or perpetually extending their maturity.”

The Italian demand reflects the nation’s deep fiscal hole as it tries to counter the crisis. It was suffering under a high debt burden and sluggish economy even before the pandemic, and Fraccaro noted further costs ahead such as the European Union’s green energy transition.

He also proposed a “green rule” that exempts public expenditures related to environmental investment from deficit calculations.

Fraccaro’s call for debt relief won’t be welcomed at the ECB’s Frankfurt headquarters though. Officials there repeatedly say they must adhere to EU law banning them from such monetary financing.

Oil prices climbed nearly 2% to their highest in more than eight months on Wednesday, as data showing a surprise drop in weekly U.S. crude inventories extended a rally driven by hopes that a COVID-19 vaccine will boost fuel demand.

Brent crude rose 75 cents, or 1.6%, to settle at $48.61 a barrel, its highest since early March.

U.S. West Texas Intermediate crude also closed at its highest since early March, rising 80 cents, or 1.8%, to $45.71.

Both benchmarks, which gained 4% on Tuesday, rose for a fourth straight session.

U.S. crude inventories fell by 754,000 barrels last week, government data showed, surprising analysts who in a Reuters poll had predicted a 127,000-barrel rise. Inventories at Cushing, Oklahoma, the delivery point for WTI, fell by 1.7 million barrels. [EIA/S]

“There was a decent drawdown at Cushing, so that’s supportive. It was probably the most bullish aspect of this report,” John Kilduff, partner at Again Capital LLC in New York.

Still, demand worries capped price gains as U.S. weekly gasoline demand dropped by about 128,000 barrels per day (bpd) to 8.13 million bpd, the lowest since June 2020.

Brent futures for February delivery traded as much as 14 cents above the January contract, the highest since July, before settling at an 8-cent premium.

“Positive vaccine news and swift deployment views are behind a significant part of this move in the curve, supported by increasingly firm beliefs by the market that OPEC+ will extend its current output targets for Q1 2021,” said Rystad Energy’s analyst Bjornar Tonhaugen.

Walt Disney Co said on Wednesday it would layoff 32,000 workers, primarily at its theme parks, an increase from the 28,000 it announced in September as the company struggles with limited customers due to the coronavirus pandemic.

The layoffs will be in the first half of 2021, the company said in a filing with the Securities and Exchange Commission.

In addition, as of Oct. 3, around 37,000 employees who were not expected to be laid off were placed on furlough.

The remarks came as the price of rare earth rose further in November, with neodymium oxide rising 11.56 percent to 511,500 yuan (US$77,900) per ton on Wednesday and praseodymium oxide rising 8.08 percent to 441,500 yuan per ton, with other materials also rising at varying degrees, according to open source data. Among the rising prices, neodymium oxide recorded a marked increase of 37.2 percent so far this month.

Rising rare-earth prices are partially due to the surge of concentrated demand and temporary supply constraints, industry insiders said. With the resumption of work and production in China and the continuous spread of the global pandemic, the demand for rare earth continues to grow.

However, China as the world's largest rare earth exporting country, rising prices have also driven growing concern by foreign traders that rare-earth supplies may be constrained if it is included in a new export control law that will take effect on December 1.

"Japan, the US and European countries are buying the largest quantity of rare earth from China because they need them for advanced manufacturing, and they are afraid that they will find it harder to import rare earths from China after new regulations are in place," Zhou Shijian, a former vice president of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers and Exporters, told the Global Times on Thursday.

Yet Zhou noted that there is no need for Japan and some countries in Europe to worry too much about continuing to purchase Chinese sourced rare earth, as China may use rare earth principally as a "tool of reprisal" in retaliation to the US chip ban targeting Huawei.

"After all, it makes no sense for the US to make chips using Chinese rare earth to make things like chips and then block their sale to Huawei," said Zhou, adding that he expects the regulatory law will include tungsten, tin, antimony, niobium, titanium and cobalt, all of which are widely used in areas such as aviation, defense and communications.

Although rare earth will be included in the export control list, how China will implement these regulations partially depends on the actions of importers, experts said.

The Bank of Korea kept its base rate unchanged at a record low of 0.5 percent on November 26th, 2020, as widely expected, amid the prolonged impact of the COVID-19 crisis, with a third wave of infections prompting the government to tighten social distancing measures recently.

The board marginally raised its 2020 GDP to -1.1 percent from an earlier estimate of -1.3 percent, as facilities investment has started to recover and exports have continued to improve.

Policymakers now sees GDP growing by 3 percent in 2021, up from 2.8 percent previously.

Meantime, inflationary pressures on the demand side are forecast to remain weak. The board reaffirmed that it will maintain its accommodative monetary policy stance while assessing rising household debt, the development related to the pandemic and its impact on the economy and financial markets.

The central bank has already cut rates by 75 basis points so far this year.

Governor Lee said the BOK was monitoring recent gains in the won, which could make exports more expensive and less competitive.

He also said growing household debt was a concern, limiting the scope for further monetary easing.

“The worst situation seems to be over,” Lee told a virtual news conference. “The negative impact from the resurgence of the coronavirus is still big, but we expect export growth to be better-than-expected and to offset that.”

The planning and finance committee of South Korea’s national assembly reportedly suggested delaying the commencement of the cryptocurrency income tax rule to January 2022. South Korea originally planned to implement the mentioned rule by October 2021.

According to a report published by South Korean media the DONG-A ILBO, the assembly is pushing to delay the rule as crypto exchanges operating in the country require more time to build an effective taxation infrastructure.

The Ministry of Economy and Finance introduced amendments in tax rules earlier this year to charge South Korean residents a 20% income tax on cryptocurrency gains worth more than 2.5 million won, or around $2000.

The report states that the South Korean Congress is worried about the fact that the crypto industry is not ready to implement such changes in a short time. In addition to the crypto income tax rule, exchanges need to enforce the ‘Special Financial Information Act’ by next year.