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Important Steps Away from the Abyss

It seems to be well appreciated among by policymakers and investors that the system is ill-prepared to cope with another financial crisis.  It is understandable that so many are concerned that the end of the business cycle could trigger a financial crisis.  In practice, it seems like it has worked the other way around.  The financial crisis triggered the Great Recession.  The economy previously contracted when the tech bubble popped.
Similar thinking emerged after WWII.  The fear of a return to the pre-existing depression conditions and the threat of the spread of communism shaped both the domestic and foreign policy objectives.   Stimulative policies and a stable monetary order (Bretton Woods), reduced trade barriers (GATT) and the World Bank and IMF were to assist development and external imbalances.
The causes and triggers of the equity market slide in Q4 may not be fully understood, but policymakers have been spooked by the tightening of financial conditions and the loss of economic momentum.  The Federal Reserve went from balance sheet reduction and rate hikes in December to a neutral stance.  Even before the ECB staff revised its economic forecasts,  Draghi had changed the risk assessment.  A new targeted loan facility will be forthcoming, and there is increased talk in tiering the deposit rate with the idea in mind to lower the cost of negative interest rates.
Two different things may be at work here.  First, simply the consideration of tiering means that negative rates will last longer.  Until now, the ECB officially has implied that the negative interest rates are working and generating little secondary damage.  However, the longer it goes, the risks would seem to rise.  Moreover, given the contraction in the Germany economy in Q3 18 and the flattish figure for Q4, perhaps Germany needs some of the same stimulus that Italy can use.  Second, it could be a way to keep the creditor nations on-side.  The long-term loan facility is understood to benefit the debtors in Southern Europe, who especially relied on the past TLTRO operations.  A tiering of the negative deposit rate would help those with the deposits, namely the creditors, like Germany and the Netherlands.

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Norway could be forced to dump shares in BHP and Glencore

Norway’s $1tn sovereign wealth fund could be forced to dump shares in miners BHP Group and Glencore under new plans to tighten restrictions on coal investments.

The Norwegian government proposed on Friday tightening the rules on coal after intense public pressure over the fund owning stakes in some of the world’s biggest producers of the highly polluting fossil fuel.

Under the proposals, which still need to be approved by the country’s parliament, the Norwegian oil fund would be forced to sell out of any company that mines more than 20m tonnes or uses 10,000MW of coal in power production.

That would capture both BHP and Glencore, as well as German utility company RWE. The fund is a top 10 shareholder in both miners.

Currently, the fund is banned from investing in companies that derive more than 30 per cent of their revenues or activity from coal but can stay invested if the business has plans to bring it under the threshold. It is not clear if the same exception will apply to the new proposal.

Key economic releases for the week April 8 – 12

hat is on tap from a release standpoint next week:

Monday – April 8
  • German Trade Balannce
  • Canada housing starts/building permits
  • US Factory Orders/Durable Goods revision
Tuesday – April 9
  • Swiss unemployment
  • US JOLTS job openings
  • Feds Clarida speaks
Wednesday – April 10
  • RBA Asst Gov. Debelle speaks
  • BOJ Kuroda speaks
  • Australia Westpac consumer sentiment
  • UK GDP
  • UK Manufacturing Production/Industrial Production
  • ECB Interest rate statement and press conference
  • US CPI data
  • Fed’s Quarles speaks
  • US 10 year auction
  • FOMC Meeting minutes
Thursday – April 11
  • China CPI/PPI
  • German/France final CPI
  • OPEC meeting
  • US PPI
  • US weekly unemployment claims
  • Fed’s Clarida speaks
  • Fed’s Bullard speaks
  • FOMC Bowman speaks
  • US 30 year auction
Friday – April 12
  • NZ Business Manufacturing Index
  • RBA Financial Stability Review
  • China Trade balance
  • EU industrial production
  • US Michigan consumer sentiment (preliminary)
  • IMF meeting (Friday and Saturday).

Brexit next week: (more…)

CFTC Commitment of Traders: EUR short position approachs 100K

Weekly forex futures non-commercial positioning data from the CFTC

  • EUR short 99K vs 80K short last week.  Shorts increased by 19K
  • GBP short 10K vs well run some 9K short last week. Shorts trimmed by 1K
  • JPY short 63K vs 62K short last week. Shorts increased by 1K
  • CHF short 26K vs 27K short last week. Shorts trimmed by 1K
  • CAD short 44k vs 40k short last week. Shorts increased by 4K
  • AUD short 56k vs 54k short last week. Shorts increased by 2K
  • NZD 0K vs 0K short last week. No position of significance in the NZD

The EUR short is the largest short since December 2016.

Weekly forex futures non-commercial positioning data from the CFTC

US stocks end the session near highs for the day

Nasdaq leads the charge. Dow lags.

The broader US stock indices are ending the session near the highs for the day. The Dow is lagging.  Boeing after the close announced that it would cut production of its 737 Max to 42 from 52 currently. It had plans to increase production to 59 before the recent tragic accidents and issues with the now grounded planes.
The final numbers are showing:
  • S&P index, up 13.35 points or 0.46% at 2892.74
  • Nasdaq up 46.907 points or 0.59% at 7938.69.
  • Dow up 40.36 points or 0.15% at 26424.99

For the week, the major indices had solid gains:

  • S&P rose 2.06%
  • Nasdaq rose 2.71%
  • Dow rose 1.91%