Archives of “Central bank” tag

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Beijing pushes envelope with 7-yuan-to-dollar reference rate

  
  Analysis
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 China’s central bank set its daily yuan reference rate at 7.0039 to the dollar Thursday, crossing the 7 line for the first time in roughly 11 years and signaling resolve even as the U.S. cries foul over the weakening currency.

Market participants speculate that Beijing may keep pushing the rate to around 7.2 to 7.3 so as to alleviate the impact of the next round of American tariffs.

But while a weaker yuan will help exporters impacted by the drawn-out trade war, the People’s Bank of China still must carefully balance these gains against the risks of runaway devaluation and capital flight.

The yuan can move only 2% in either direction from the daily reference rate on the mainland. So the rate, announced before trading starts each session, reflects the monetary authorities’ wishes.

The authorities want a gradual weakening of the yuan, said Ken Cheung, senior Asian foreign exchange strategist at Mizuho Bank.

The Trump administration just labeled China a currency manipulator Monday, after the yuan weakened past the psychological threshold of 7 in Shanghai. Setting reference rates past that line could trigger further pushback from the U.S. (more…)

Disappointment from the ECB ahead would be euro supportive

  
Analysis, Forex
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The headline is the in a nutshell view from Macquarie following the European Central Bank overnight.

  • The banks notes expectations building for more from the ECB
  • But the ECB have a limited range of policy options available
  • The bank also faces political headwinds to further aggressive action
And thus eventual action could be disappointing to markets.
For the euro ahead:
  • market is pricing around 18bps of policy rate cuts over the next 12 months
  • Eurozone bond market rally is an indication market is also expecting the ECB to restart QE
And thus is if the ECB fail to deliver on either of these, euro rates would go higher supporting the euro
The headline is the in a nutshell view from Macquarie following the European Central Bank overnight.Secret message?

ECB monetary policy meeting today – preview of a live one – and where to for the EUR.

  
  Analysis
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The European Central Bank Governing Council will be dovish today, and may even cut the main rate.

  • 1145 GMT for the announcement
  • 1230 GMT is President Draghi’s press conference
  • Most expect the depo rate to remain on hold at -0.4%, although the probability of a cut (to 0.5%) is priced around 38% … which is not negligible …. this meeting is ‘live’.
Here’s a quick preview from TD:
  • The odds of a dovishly more proactive ECB look twice as high as those of a hawkish disappointment
  • The press conference is key to the ECB’s view on the rate floor, potential QE, low inflation expectations, and reinforcing a “symmetric” inflation target
And, on the euro:
  • With our base case fully priced and EUR weak, we see some scope upside if Draghi delivers as expected.
  • Dovish risks prevail, which could send EURUSD lower into fresh ranges. 
  • Next week’s FOMC may constrain follow-through.
European Central Bank dovish draghi

Week ahead: US earnings, South Africa rates, EC president vote

  
  Analysis
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No summer hours here. Investors are bracing for a busy week as earnings season gets under way in America, in Europe parliament votes for a new president for the European Commission and on both sides of the Atlantic, investors face a deluge of economic data. Here’s what to watch in the coming days. US earnings Banks unofficially kick off second-quarter earnings season on Monday and investors will be tuning in to see whether corporate America is headed for its first earnings recession since 2016. Citigroup starts the earnings party on Monday and JPMorgan Chase, Goldman Sachs and Wells Fargo follow suit on Tuesday. Prospects of rate cuts by the Federal Reserve are unnerving investors that are watching to see if this could squeeze banks’ profit margins. My colleague Rob Armstrong has more in his excellent bank earnings curtain raiser. I

in all, nearly 60 companies in the S&P 500 are expected to report results including the big banks, Netflix, Microsoft, Schlumberger and Johnson & Johnson. US data Markets have largely pencilled in a cut by the Fed at its monetary policy meeting this month, though investors continue to debate how many cuts the central bank may push through this year and how deep the cuts will be. To get a better picture of the US economy and clues to Fed policymakers’ thinking, investors will closely parse a string of economic data for updates on consumer and industrial health. Americans are expected to have tightened their purse strings a little last month with headline retail sales expected to rise 0.2 per cent month-on-month, following a stronger 0.5 per cent increase in May. Control sales, which strip out volatile items like food, energy and building materials, are expected to rise 0.3 per cent. Investors will also tune into consumer sentiment data later in the week. Updates on the industrial sector come via regional manufacturing surveys as well as industrial production data, which is expected to show factory output cooled. The economic calendar also includes updates on the housing market. UK data

The economic calendar across the pond also promises to be busy with jobs data, inflation and retail sales on the docket. As markets consider the possibility of a rate cut by the Bank of England, “next week’s raft of UK data are likely to give ammunition to both sides of the argument,” noted economists at ING. While wages are expected to tick back up, they said “the high street isn’t feeling the benefit of this modest improvement in real wage growth”. However, they added: “With Brexit noise only likely to increase over the coming months, and a risk that trade tensions could worsen, we think the Bank of England will keep rates on hold for the rest of the year.”

EU Commission president On Tuesday the European Parliament votes on the next EU Commission president. Ursula von der Leyen has promised parliament a bigger say in Brussels’ decision-making as she seeks MEPs for the top post in Brussels for the next five years. “A successful vote will be largely ignored by markets, but a failure to garner enough support (which is still a possibility) could blow up the entire deal that the Council reached earlier this month, though we do think that Ms [Christine] Lagarde’s ECB nomination will be safe either way,” said strategists at TD Securities. South Africa rates On Thursday attention shifts to South Africa, where the reserve bank is widely expected to announce a 25 basis point cut to the repo rate, putting it at 6.5 per cent. Since the last SARB meeting in May, the monetary policy committee has undergone a massive transition. Strategists at TD Securities “think the message will be moderately dovish, suggesting potentially more easing,” and expect “slightly positive” reaction in the rand as they argue markets have “priced for more easing than we expect”.

Mario Draghi's Favorite Joke

  
Education, Humour
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In his latest “What Next in The Global Economy” note, Morgan Stanley economist Joachim Fels passes along the following little story about Mario Draghi:

 Who said central bankers have no sense of humour? During a recent dinner at Frankfurt’s Senckenberg Museum (the home of Germany’s most extensive collection of dinosaurs) Mario Draghi told the crowd his favourite joke:

A man needs a heart transplant. Says the doctor: “I can give you the heart of a five-year old boy.” “Too young.” “How about that of a forty-year old investment banker?” “They don’t have a heart.” “A seventy-five year old central banker?” “I’ll take it.” “But why?” “It’s never been used!”

I like the joke, and not only because I consider myself an economist working for an investment bank rather than an investment banker. Mario Draghi’s joke conveys a simple but important message: central banking is about making rational, cool-headed and unemotional decisions in often difficult circumstances. In the 15 years of its existence as the keeper of the euro, the ECB led by Mario Draghi and his predecessors Jean-Claude Trichet and Wim Duisenberg has had to make a lot of difficult decisions in difficult circumstances. A few of these decisions were questionable (though typically only with the benefit of hindsight), such as the rate cut in April 1999 or the rate hikes in July 2008 and in April and July 2011. Most of the other ECB decisions were just right or even hugely successful – just think of Mario Draghi’s announcement in July 2012 to “do whatever it takes” to safeguard the euro. (more…)

China greasing economy with $55bn in tax breaks

  
Analysis, Education
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China’s State Council on Wednesday approved 380 billion yuan ($55.1 billion) in tax relief that will mainly favor farmers and small businesses in a move that is seen as both economic and political.

The second large-scale tax cut to follow last year’s comes as China’s economy is forecast to slow down in the latter half of 2017, during which the Communist Party will convene its 19th National Congress and reshuffle top leadership.

China will modify its value-added tax this July by removing the 13% bracket while retaining the 6%, 11% and 17% tiers. The 13% rate currently applies to farm products and natural gas, but they will move to the 11% category. Farmers as well as households that purchase rice and vegetables will likely benefit from this change.

For smaller companies, those that pay 300,000 yuan or less in annual taxable revenue qualify for preferential tax treatment. The ceiling will be lifted to 500,000 yuan. Furthermore, small businesses and startups will be allowed to deduct 75% of research and development costs, up from 50%. These tax breaks will remain in effect until the end of 2019.

The Chinese government enacted about 500 billion yuan worth of corporate tax cuts in 2016. Helped also by a surge in infrastructure spending, the real economy grew 6.9% during the January-March period this year, marking the second quarter of economic acceleration. However, the People’s Bank of China, the country’s central bank, has been gradually raising market interest rates in order to rein in the real estate bubble. (more…)

Ray Dalio’s Long-Term Debt Cycle Charts

  
Analysis, Education
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The following speech was delivered by Ray Dalio of Bridgewater at the Federal Reserve Bank of New York’s 40th Annual Central Banking Seminar on Wednesday, October 5, 2016.

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It is both an honor and a very special opportunity for me to be able to address such a large and esteemed group of central bankers at such an interesting time for central bankers. I especially want to thank President Dudley and Vice President Schetzel for inviting me to forthrightly share my perspective as an investor and my unconventional template that I believe sheds some light on the very unconventional circumstances that we face.

It is no longer controversial to say that:

• …this isn’t a normal business cycle and we are likely in an environment of abnormally slow growth

• …the current tools of monetary policy will be a lot less effective going forward

• …the risks are asymmetric to the downside

• …investment returns will be very low going forward, and (more…)

18 Signs That The Global Economic Crisis Is Accelerating As We Enter H2 2014

  
Analysis, Education
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A lot of people that I talk to these days want to know “when things are going to start happening”.  Well, there are certainly some perilous times on the horizon, but all you have to do is open up your eyes and look to see the global economic crisis unfolding.  As you will see below, even central bankers are issuing frightening warnings about “dangerous new asset bubbles” and even the World Bank is declaring that “now is the time to prepare” for the next crisis.  Most Americans tend to only care about what is happening in the United States, but the truth is that serious economic trouble is erupting in South America, all across Europe and in Asian powerhouses such as China and Japan.  And the endless conflicts in the Middle East could erupt into a major regional war at just about any time.  We live in a world that is becoming increasingly unstable, and people need to understand that the period of relative stability that we are enjoying right now is extremely vulnerable and will not last long.

The following are 18 signs that the global economic crisis is accelerating as we enter the last half of 2014…

#1 The Bank for International Settlements has issued a new report which warns that “dangerous new asset bubbles” are forming which could potentially lead to another major financial crisis.  Do the central bankers know something that we don’t, or are they just trying to place the blame on someone else for the giant mess that they have created?

#2 Argentina has missed a $539 million debt payment and is on the verge of its second major debt default in 13 years.

#3 Bulgaria is desperately trying to calm down a massive run on the banks that threatens of spiral out of control.

#4 Last month, household loans in the eurozone declined at the fastest rate ever recorded.  Why are European banks holding on to their money so tightly right now?

#5 The number of unemployed jobseekers in France has just soared to another brand new record high. (more…)

Half Of The Population Of The World Is Dirt Poor – And The Global Elite Want To Keep It That Way

  
Analysis, Education
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Could you survive on just $2.50 a day?  According to Compassion International, approximately half of the population of the entire planet currently lives on $2.50 a day or less.  Meanwhile, those hoarding wealth at the very top of the global pyramid are rapidly becoming a lot wealthier.  Don’t get me wrong – I am a very big believer in working hard and contributing something of value to society, and those that work the hardest and contribute the most should be able to reap the rewards.  In this article I am in no way, shape or form criticizing true capitalism, because if true capitalism were actually being practiced all over the planet we would have far, far less poverty today.  Instead, our planet is dominated by a heavily socialized debt-based central banking system that systematically transfers wealth from hard working ordinary citizens to the global elite.  Those at the very top of the pyramid know that they are impoverishing everyone else, and they very much intend to keep it that way.

Credit Suisse had just released their yearly report on global wealth, and it shows that 45.6 percent of all the wealth in the world is controlled by just 0.7 percent of the people…
 As Credit Suisse tantalizingly shows year after year, the number of people who control just shy of a majority of global net worth, or 45.6% of the roughly $255 trillion in household wealth, is declining progressively relative to the total population of the world, and in 2016 the number of people who are worth more than $1 million was just 33 million, roughly 0.7% of the world’s population of adults. On the other end of the pyramid, some 3.5 billion adults had a net worth of less than $10,000, accounting for just about $6 trillion in household wealth.

And since this is a yearly report, we can go back and see how things have changed over time.   (more…)

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