Archives of “September 2019” month

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Next week a big one for central banks – BOJ, BOE, Fed

  
  Analysis
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A heads up for a packed monetary policy week ahead.

Yesterday we got the ECB to whet our appetite and next week brings another big three
  • Federal Reserve on Wednesday September 18
  • Bank of Japan on Thursday September 19
  • Bank of England on Thursday September 19
There will be previews ahead, for now though some quick thoughts on the BOJ:
  • ECB easing (not as much as was expected) will be eyed by the BOJ, they will not want to be left behind, especially with the Fed expected to ease also on Wednesday).
  • The BOJ will also want to keep the yen from strengthening. Its had a bit of relief as optimism on trade talks increases but crunch time for trade talks is coming and if the past year is anything to go by pessimism is just around the corner, as are flows back into the haven yen.
  • Also coming up is the sales tax hike in Japan, and again if the past is anything to go by this will not be a positive for the economy.
  • Inflation … well, we all know this is nowhere near target.
The preconditions are there for further easing from the Bank of Japan.
Will they? Given the ECB move and the expected Fed move its hard to think they will not.
Will it do any good? I’ll leave that to the economists.
A heads up for a packed monetary policy week ahead.

Fitch reports on Chinese tariffs impacting US agriculture

  
  Analysis
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Chinese tariffs stinging farmers

Chinese tariffs stinging farmers
  • Chinese tariffs on US agricultural imports escalate trade related risks to US farm sector , which is experiencing falling sales and land values
  • Ongoing trade wars impact equipment loan and lease ABS collateral performance
  • Ongoing trade wars have placed greater pressure on already stressed US agricultural sector
Biting tariffs will get Trump to the dealing table quicker than anything else, I would say. He won’t want to see tariffs stinging the US.

Trump reacts to the ECB decision to cut rates

  
  Uncategorized

Trump tweets on the European Central Bank

Via twitter:
European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports…. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!
Aside from the random capitalization, he’s accurate about the impacts. I’m not sure he wants the eurozone economy though.

How are markets initially reacting to the ECB decision?

  
Analysis, Forex

Euro weaker, bonds surge as the ECB reintroduces QE

EUR/USD H1 12-09

I’ll try to keep this short and concise. So, what was announced by the ECB today?
1. A 10 bps cut to the deposit facility rate
2. A rate tiering system
3. Change in forward guidance (dropped date-based forward guidance)
4. Reintroduction of QE (€20 billion per month) starting 1 November
So far, the initial market reaction is as what you would see with the euro weaker on the more or less “expected” stimulus package. The initial knee-jerk reaction was a move higher before a whipsaw back lower in the single currency.
On the balance of things, it is a dovish decision but I reckon the move lower in the euro could also be in part tied back to markets not having confidence that this is enough to bolster economic confidence and/or inflation expectations.
But we’ll see, there’s still Draghi’s press conference and time after that to let the dust settle before we get more clarity.
Elsewhere, equities are moving higher on the easing decision and the introduction of the rate tiering system is helping to lift bank stocks as well.
Meanwhile, bonds are loving the QE news as yields tumble across the board where we’re seeing even Italian 10-year bond yields hit a record lower of 0.77%. Treasury yields are much firmer across the board as well and that is putting a bid in the yen with USD/JPY falling to 107.70 levels currently.

ECB announces cut to deposit facility rate by 10 bps to -0.50%

  
  Analysis
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uropean Central Bank monetary policy decision – 12 September 2019

  • Prior decision
  • Main refinancing rate 0.00%
  • Marginal lending facility 0.25%
  • Deposit facility rate -0.50%
  • Announces rate tiering system
  • To introduce two-tier system for negative rate policy
  • Reintroduces QE, €20 billion per month from 1 November
  • Says to buy bonds as long as needed
  • To stop purchases shortly before raising rates
  • Modalities of TLTROs will be changed
  • Sees rates at present or lower levels until inflation outlook robustly converges to central bank’s aim
Overall, the decision here looks to be a weak one in terms of what markets are expecting. But the fact that QE is being reintroduced is giving bond buyers something to chew at (although it is just €20 billion per month). In my view, that’s not good enough.

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OPEC+ statement: Important for all countries to reach full conformity with output cuts

  
Analysis, Crude

OPEC+ releases its statement after today’s meeting

  • Compliance reached 136% in August
  • Non-compliant countries have pledged to achieve 100% compliance
Essentially, that can be read as nothing of real importance was actually discussed in Abu Dhabi today. Talk of achieving full compliance among those who aren’t playing ball sounds good, but I just don’t see how OPEC can enforce anything in that regard.
As mentioned earlier, this is one of those ideas/proposals that sound great on paper but is a nightmare in terms of execution.
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