Central banks are now shadow central banks too

The role of central banks has been perverted

The role of central banks has been perverted
Central banks were designed as the lender-of-last-resort for banks. If people wanted cash and a bank didn’t have liquid assets to quickly sell, it could turn to central banks for loans.
Yet over time, central banks have become the lender-of-last-resort (and sometimes first resort) to the entire financial system.
It’s especially notable because the coronavirus financial crisis wasn’t centered in banks. Stronger capital rules after the financial crisis left banks in generally good shape as the panic hit.
Instead it was the shadow banking system that collapsed. Alternative mortgage lenders needed to be saved; junk bonds were bailed out; commercial paper, repos and munis were saved. Swap lines were set up to protect the dollar-lending market.
Fed balance sheet


European shares end the session lower

But off lowest levels for the day

The major European indices are ending the session lower, but off the lowest levels of the day. The provisional closes are showing:
  • German DAX, -1.4%
  • France CAC, -1.2%
  • UK’s FTSE, -0.8%
  • Spain’s Ibex, unchanged
  • Italy’s FTSE MIB, -0.8%
In the debt market, the benchmark 10 year yields are ending the session lower. With the UK yield down -5.5 basis points.
But off lowest levels for the day_

Reminder: The BOJ will be holding an emergency policy meeting tomorrow

The meeting will begin at 0000 GMT

  • BOJ calls for unscheduled monetary policy meeting on 22 May
The central bank is likely to announce a new scheme to facilitate funding for banks to extend to small businesses that have been hit by the fallout from the coronavirus outbreak.
In short, it is yet another measure to bolster liquidity conditions in the financial system, in order to ease corporate funding strains.
I don’t believe that the Kuroda & co. will offer any surprises beyond that, so expect other monetary policy tools to remain unchanged. They will likely just use the meeting to communicate the details of the new scheme if anything else.
As for the impact on the yen, I would argue that this should not play too significant of a role as the central bank has played it down and Kuroda has made mention to this in the past.
For USD/JPY, continue to keep an eye on the elusive 108.00 handle in any case.

How hesitant would you be to take a coronavirus vaccine?

According to a poll by Reuters/Ipsos, a quarter of Americans have little or no interest in taking a coronavirus vaccine

The survey was conducted on 13 May to 19 May, and gathered 4,428 respondents with 14% saying that they were ‘not at all interested’ in taking a vaccine and a further 10% saying that they were ‘not very interested’.
That said, an important thing to point out is that the hesitance can be tied back to the record-breaking pace that pharmaceutical companies are working at to churn out a vaccine.
Among those who expressed little or no interest in taking a vaccine, nearly half said that they were worried about the speed in which one is being developed – with more than 40% believing that the vaccine may be riskier than the disease itself.


UK May flash services PMI 27.8 vs 24.0 expected

Latest data released by Markit/CIPS – 21 May 2020

  • Prior 13.4
  • Manufacturing PMI 40.6 vs 37.2 expected
  • Prior 32.6
  • Composite PMI 28.9 vs 25.7
  • Prior 13.8
Much like the euro area readings earlier, this just reaffirms the bottoming in business activity seen in April with things improving in the month of May – relative to the prior month.
The details still aren’t pretty though as rapid declines are still seen in new work and employment across the UK private sector, with both rates contracting further – only outpaced by the record decline seen in April.
Markit notes that:

“The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May. Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously.

“Travel and tourism firms, hotels, restaurants and producers of consumer goods such as clothing were again the hardest hit, reflecting virus containment measures, but this remains a shockingly broad-based downturn with very few companies left unscathed by the COVID-19 pandemic.

“An improvement in business confidence about the year ahead for a second successive month is welcome news, and the easing of restrictions in coming months should help boost activity in some sectors as we head into the summer.

“However, the UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer COVID-19 cases. Virus related restrictions, widespread job insecurity and weak demand will be exacerbated by growing business uncertainty regarding Brexit. We are consequently expecting GDP to fall by almost 12% in 2020. While the quarterly rate of decline looks likely to peak at around 20% in the second quarter, the recovery will be measured in years not months.”

The full report can be found here.

Airlines on the verge of bankruptcy: Should we sell stocks?

A more in-depth look at airlines stocks

A month has hardly passed since the publication of my article about airlines, and the market is already full of rumors about one of the largest airlines approaching bankruptcy. In that post, I tried to give the soft version of the situation; moreover, it was my individual opinion which could be a mistake. However, time shows that things are worse than I expected.

Today, I will reveal other aspects of risks in the sector of air transportation and give hints on how to make money on airlines stocks; also, we already have the information about the income of airlines in the first quarter.

As I wrote earlier, 10 airlines asked the US government for financial help, thus increasing the debt load. As long as the flow of passengers has dried out, the debts will be extremely hard to pay off. Apart from the debt, the company also needs maintenance, which includes expenses on salaries, the maintenance of airplanes, etc.

Before airlines got in trouble, clients used to buy tickets several months before the flight with a good discount. One side spent less on their trips while the other could plan flights more efficiently.

What has changed these days?


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