Archives of “Central bank” tag

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

  
  Analysis
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The meeting will begin at 0000 GMT

BOJ
  • 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.

Bank of England looking more urgently at negative rates

  
  Analysis
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The Bank of England is looking more urgently at options such as negative interest rates and buying riskier assets to prop up the country’s economy as it slides into a deep coronavirus slump, the BoE’s chief economist was quoted as saying.

The Telegraph newspaper said the economist, Andy Haldane, refused to rule out the possibility of taking interest rates below zero and buying lower-quality financial assets under the central bank’s bond-buying programme.

“The economy is weaker than a year ago and we are now at the effective lower bound, so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy,” he said in an interview. “How could we not be?”

Top BoE officials have previously expressed objections to taking rates below zero – as the central banks of the euro zone and Japan have done – because it might hinder the ability of banks in Britain to lend and hurt rather than help the economy.

But with the BoE’s benchmark at an all-time low of 0.1% and Britain facing potentially its sharpest economic downturn in 300 years, talk of cutting rates to below zero has resurfaced.

Governor Andrew Bailey said on Thursday the BoE was not contemplating negative rates, but he declined to rule it out altogether.

EU could open legal case against Germany over ECB bond-purchases ruling

  
  Analysis
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Last week Germany’s constitutional court issued a decision ruling that the European Central Bank had overstepped its mandate with QE bond purchases,

  • German court in Karlsruhe gave the ECB 3 months to justify its euro zone QE stimulus programme, or the Bundesbank might have to step aside from it
Responding, the European Union’s highest court (which had previously permitted the ECB QE programme) and the European Commission said that EU law holds precedence over national regulations
Further now, on Sunday, EU Commission President Ursula von der Leyen said the EU executive might end up opening a legal case against Germany.
  • “We are now analysing the ruling of the German Constitutional Court in detail. And we will look into possible next steps, which may include the option of infringement proceedings,”
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These wort of legal wranglings are not a positive for EU coherency and stability. Nor are they positive for the EUR. Watching for developments on this front – both legal/political and for ECB actions ahead.
 Last week Germany's constitutional court issued a decision ruling that the European Central Bank had overstepped its mandate with QE bond purchases,

ECB has given the middle finger to the German constitutional court

  
  Analysis
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You’ll recall from earlier this week that the court ruled the European Central Bank must ensure its QE bond-buying program is proportionate or else Germany’s Bundesbank central bank may no longer participate.

  • And if its not the Germany Bundesbank central bank may no longer participate
The Governing Council of the ECB responded with a “Yeah, right …”:
said it “takes note” of the judgement
  • “The Governing Council remains fully committed to doing everything necessary within its mandate”
One member (at least) said the ECB will not respond directly to the court
  • court’s arguments are ridiculous
  • we could easily answer them
  • we should not do so as this is a risk to central bank independence
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So, its an ‘as you were’ for the ECB QE program.
You'll recall from earlier this week that the court ruled the European Central Bank must ensure its QE bond-buying program is proportionate or else Germany's Bundesbank central bank may no longer participate.

Global central bank co-ordinated interest rate cut coming on Wednesday 4 March

  
  Analysis
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A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

  • So says economist for the U.S. bank lobby Bill Nelson, chief economist at the Bank Policy Institute
Nelson, formerly at the Federal Reserve (worked on the Fed’s responses to the 2007-2008 financial crisis):
  • It will happen before the U.S. stock market opens, either 7 a.m. or 8 a.m. ET (1200 or 1300 GMT)
  • It will be half a percentage point at least
  • “The only way to get a positive market reaction is to deliver more than expected”
  • will include “forward guidance”
Here is the link for more: Don’t keep your powder dry
A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

India’s gold demand fell 9 per cent in 2019 but set to recover: World Gold Council

  
  Analysis
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Indias gold demand was 9 per cent lower in 2019, at 690 tonne, primarily owing to the sharp surge in prices, however, it is expected to rebound in 2020, the World Gold Council (WGC) said on Thursday.

The council said India’s gold demand will be in the range of 700-800 tonnes in 2020 from 690 tonnes in 2019.

“Looking ahead, 2020 we expect policy-led and industry-led initiatives to bring a marked shift in making the industry more transparent and organised,” said Somasundaram PR, Managing Director, India, World Gold Council.

He added that the government has already made hallmarking mandatory on January 15, 2020 with a transition period of one year for the trade to sell or change its existing non hallmarked inventory.

“This is an overdue reform and a positive step towards making the Indian gold more trustworthy. These and other changes to follow are significantly positive for the long-term sustainability of demand, especially for the compliant and the organised,” Somasundaram added.

However, the report said that short-term challenges remain as large sections of the industry compete on low margins and fear tax uncertainty, leaving little incentive for long term investments and modern trade practices.

Globally, WGC said that Gold demand fell 1 per cent in 2019 as a huge rise in investment flows into ETFs and similar products was matched by the price-driven slump in consumer demand.

Besides, the central bank net purchases in 2019 were remarkable the report said. The annual total of 650.3 tonne is the second highest level of annual purchases for 50 years.

In total, 15 central banks increased their gold reserves by at least one tonne in 2019.

Demand was exclusive to emerging market central banks looking to bolster and diversify their overall reserve, WGC said.

Its a big week coming up (FOMC, UK election & more) – Asian events to take note of also

  
  Analysis
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Its a huge market week with loads of central bank decisions and more:

  • FOMC (Wednesday 11 December)
  • ECB, SNB and UK election (Thursday 12 December )
Also, take note of events in Asia that could well be significant also:
  • China inflation data for November on Tuesday 10 December
  • Philip Lowe, Governor of the Reserve Bank of Australia. speaks. Also on Tuesday
  • Bank of Japan’s quarterly Tankan survey is on Friday December 13
And, while not during market hours, Sunday December 15 will bring US President Trump’s latest mood swing decision on tariffs on China. Which should set up a volatile Monday morning (the 16th)
Its a huge market week with loads of central bank decisions and more:

Argentina to limit USD purchases for individuals to $200 a month (down from $10,000)

  
Analysis, Economy
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Argentina’s central bank has adjusted its currency controls to limit dollar purchases for individuals

  •  to $200 a month, down from $10,000
The President of the central bank to speak Monday
  • at 8:30 am local time
Headlines via Reuter.
This is one way to attempt to control capital flight. The controls come as Argentina elects Alberto Fernandez its new president. Voters tired of economic austeity.

Big German banks warn against further rate cuts (expected from the ECB this week)

  
  Analysis
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Both Deutsche and Commerzbank Banks have weighed in against forecast further cuts from the European Central Bank this week:

  • would benefit those with assets
  • further burdening savers.
  • neither sustainable, nor responsible
The central bank is expected to cut as [part of measure to support the Eurozone economy. As an example of the slowing of the EZ economy was the data from Germany last week:
  • Germany July industrial production -0.6% vs +0.4% m/m expected
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European Central Bank policy meeting is on September 12,
Its an amusement to debate who wins, who loses, and what the ECB should of should not do. Nothing wrong with that. Its also of more direct to use to traders to debate will the ECB will or will not do. I’ll have previews of what to expect upon approach to the meeting, but for now, here is something for EUR bulls and bears:
  • EUR/USD to stay weak, ECB next week
  • Risk for EUR is positive for next week’s ECB meeting – BAML
Both Deutsche and Commerzbank Banks have weighed in against forecast further cuts from the European Central Bank this week:

Brexit becomes a Dog’s Breakfast as Dollar’s Correction Continues

  
  Analysis
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The Dollar Index fell the most in three months yesterday and is experiencing mild follow-through selling today.  With hopes that Hong Kong has turned a corner, news that in-person US-China talks will resume next month, and a no-deal Brexit is well on the way to being averted, investor risk appetites are robust today.  Global equities are higher as are benchmark yields, while gold is being pushed back below $1550.  Most Asia Pacific equities advanced, though India and Malaysia were exceptions and Hong Kong saw a bout of profit-taking after yesterday’s surge.  In Europe, the Dow Jones Stoxx 600 is advancing for the third consecutive session and the fifth in six sessions to trade at one-month highs.  The S&P 500 has been crisscrossed the 2820-2950 range several times in recent weeks and is poised to gap above the top today.  Interest rates are backing up, and the 10-year yields are 3-5 bp higher.  The dollar is edging lower against most major and emerging market currencies.  Among the majors, the yen and the Swiss franc are experiencing minor losses, while among the emerging markets, the Turkish lira is off about 0.25%.  The lira may snap a three-day, five percent advance as Prime Minister Erdogan weighs in again on the need for aggressive rate cuts to ambitious growth hopes.
Asia Pacific
 
The PBOC’s dollar reference rate has been extremely stable in around CNY7.0850, and it is the market that blinked first.  The dollar’s broad pullback yesterday saw the model projections eased below CNY7.0940.  The onshore and offshore yuan has also converged near 7.1460. Chinese officials have been slower to roll-out additional stimulus than many observers have expected.  We had thought there was a good chance of a cut in reserve requirements over the summer.  Nevertheless, the State Council appears to be hinting of action soon, and a window of opportunity is seen before the October 1 national holiday.
With the latest round of tariffs and counter-tariffs in the US-China spat going into effect on the start of the month, securing face-to-face meetings proved difficult.  This had contributed to the pessimism.  However, now Chinese officials will come to the US next month, according to reports.   Still, the prospects of a deal are remote.  Trust between the two at a low ebb after two tariff truces were ended by the announcement of new action on Twitter, and China shows reluctance to change fundamental behaviors.  Separately, the US trade figures show that China was the third-largest buyer of US crude oil in June and July (buying 5.7 mln barrels and 7.1 mln barrels respectively).  South Korea was the largest buyer, followed by Canada.  China puts a 5% levy on US crude as of September 1.

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