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The full statement of the FOMC rate decision for July 2020

FOMC Rate statement for July 2020

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Implementation Note issued July 29, 2020

Japan Unemployment rate for December: 2.2% (expected 2.3%)

The Tokyo area CPI is out at the same time, on a separate post

Japan Jobless rate for December 2.2%

  • expected 2.3%, prior 2.2%

Job to applicant ratio for December 1.57

  • expected 1.57, prior 1.57
Japan economy … 99 problems but unemployment ain’t one.

Economic data coming up in the European session

UK December CPI data in focus today

Good day, everyone! Hope you’re all doing well as we look to get things going in the session ahead. Markets are keeping more calm after a minor hiccup yesterday over tariff headlines but the main focus remains on the US-China trade deal signing later today.

Major currencies remain little changed thus far as the more steady tones are giving little direction for traders to work with in general. Looking ahead, we’ll have a couple of data points to move things along with the big one being UK inflation data.

0745 GMT – France December final CPI figures
The preliminary release can be found here. As this is the final release, it shouldn’t have much of an impact as it should reaffirm a slight rebound in price pressures last month.
0800 GMT – Spain December final CPI figures
The preliminary release can be found here. Similar to the French release, it should just reaffirm a slight rebound in inflation across the region last month.
0930 GMT – UK December CPI figures
0930 GMT – UK December PPI figures
Prior release can be found here. Price pressures in the UK is expected to keep more steady last month, but still below the desired 2% level. I reckon barring any significant drop-off in inflation, the BOE could lean towards staying pat in January but markets may still allude to this as being a reason to cut as well. In my view, post-election data matters more for the BOE so more steady price pressures (for now) should keep the finger off the trigger.
1000 GMT – Eurozone November industrial production
Prior release can be found here. The bounce in German industrial production for November should help give a slight nudge higher in the release here today but overall factory activity remains rather subdued in the euro area towards the end of 2019. A minor data point.
1000 GMT – Eurozone November trade balance data
Prior release can be found here. A general indication of trade conditions in the euro area economy, which is still a bit shaky in general amid slower global activity.
1200 GMT – US MBA mortgage approvals w.e. 10 January
Weekly US housing data, measures the change in number of applications for mortgages backed by the MBA during the week. Not the biggest of data points, but a general indicator of the housing sector sentiment.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading!

Japan headline inflation data for October misses, core-core beats

The headlines National CPI comes in at 0.2% y/y, a “miss” on estimates.

  • expected 0.3%, prior was 0.2%
National CPI y/y excluding Fresh Food is 04% y/y
  • expected 0.4%, prior was 0.3%
National CPI excluding Food, Energy is 0.7% y/y a “beat” on estimates
  • expected 0.6 %, prior was 0.5%
I generally do not like describing CPI data in terms of misses and beats but made an ex[pcetion today.
The ‘core-core’ referred to is CPI excluding Food & Energy, this is the closest measure to what is termed ‘core’ CPI in the US. As you can see, slightly above the median consensus. While well short of the 2% BOJ target, a tiny bit of good news for the Bank.
Yen doing pretty much nothing on the data release. As is usual.

Japan – National CPI for March: 1.6% y/y (vs. 1.6% expected) & the rest of this data

Japan inflation data:

National CPI y/y for March,  1.6%

  • expected 1.6%, prior was 1.5%

National CPI y/y excluding Fresh Food for March,  1.3%

  • expected 1.4%, prior was 1.3%

National CPI excluding Food, Energy y/y for March,  0.7%

  • expected 0.7%, prior was 0.8%

Tokyo CPI y/y for April,  2.9%

  • expected 3.0%, prior was 1.3% (Note: the ‘expected’ is much higher than the prior due to the introduction of the higher sales tax rate on April 1 …. note we get Tokyo inflation figures for April, with national figures are for March)

Tokyo CPI excluding Fresh Food y/y for April,  2.7% (this is a 22-year high … but, of course, skewed by the sales tax hike)

  • expected 2.8%, prior was 1.0% (ditto) (more…)

Great Expectations

The best things in life are unexpected – because there were no expectations – ELI KHAMAROV 

Great_expectations

 Legendary trader Roy Longstreet was once asked by Intermarket Magazine, “Why have you succeeded in trading to such a degree and why do most traders fail?”  Roy answered “Many major problems people have in trading are caused by their expectations – of where the market is headed, how much money will they make from this trade, etc. One thing I learned that has helped me: it is wrong for a person to enter any market with any preconceived expectations.” 

He went on to say, “I know that there’s always the possibility that what I don’t want to happen, will happen. The market will not act in accord with my expectations. You have to ask yourself the question, how must you function to survive? The answer is to be able to accept a loss. Not having expectations makes it a little easier to accept a loss. You must realize that losing is part of soul growth, so to speak. It’s necessary. It’s hard to accept, but necessary.” 

This problem of attaching ourselves to an outcome is not exclusive to trading, but is a problem in investing in general. Expectations of higher and higher returns have become commonplace in an environment of lower opportunity to do so. Few people consider the fact that when they invest today, the riskless marketplace pays close to zero.  For example, the one month Treasury Bill pays $40 for a $100,000 investment, and inflation is running around -1.3%, based on the Consumer Price Index.  (more…)

European Bank Stress Test – Full List of Banks to be Examined

Details of what the much talked about stress test of European banks will examine is out. A total of 91 European banks will be involved in the stress tests (full list of banks being tested are shown below). The test which is being overseen by the Committee of European Banking Supervisors (CEBS) states:

The objective of the extended stress test exercise is to assess the overall resilience of the EU banking sector and the banks’ ability to absorb further possible shocks on credit and market risks, including sovereign risks, and to assess the current dependence on public support measures.

The exercise is being conducted on a bank-by-bank basis using commonly agreed macro-economic scenarios (baseline and adverse) for 2010 and 2011, developed in close cooperation with the ECB and the European Commission.

The macro-economic scenarios include a set of key macro-economic variables (e.g. the evolution of GDP, of unemployment and of the consumer price index), differentiated for EU Member States, the rest of the EEA countries and the US. The exercise also envisages adverse conditions in financial markets and a shock on interest rates to capture an increase in risk premia linked to a deterioration in the EU government bond markets.

On aggregate, the adverse scenario assumes a 3 percentage point deviation of GDP for the EU compared to the European Commission’s forecasts over the two-year time horizon. The sovereign risk shock in the EU represents a deterioration of market conditions as compared to the situation observed in early May 2010.

The scope of the stress testing exercise has been extended to include not only the major EU cross-border banking groups but also key domestic credit institutions in Europe. {…}

The results of the stress test will be disclosed, both on an aggregated and on a bank-by-bank basis, on 23 July 2010.

It should be noted that a stress testing exercise does not provide forecasts of expected outcomes, but rather a what-if analysis aimed at supporting the supervisory assessment of the adequacy of capital of European banks. {…}

We all remember the stress test that was applied to American financial institutions in early 2009. It took months for the Federal Reserve to decide how to conduct the testing and then how to release the results so as not to upset anyone. Will the Europeans tell it like it is, or will they follow Tim Geithner’s past action of ‘just don’t say much’ ?

The full list of European banks that will undergo stress testing:

 

Austria

  • ERSTE GROUP BANK AG
  • RAIFFEISEN ZENTRALBANK OESTERRREICH AG (RZB)

Belgium

  • KBC GROUP
  • DEXIA

Cyprus

  • MARFIN POPULAR BANK PUBLIC CO LTD
  • BANK OF CYPRUS PUBLIC CO LTD

Denmark

  • DANSKE BANK
  • JYSKE BANK A/S
  • SYDBANK A/S

Finland

  • OP-POHJOLA GROUP

France

  • BNP PARIBAS
  • CREDIT AGRICOLE
  • BPCE
  • SOCIETE GENERALE

Germany

  • DEUTSCHE BANK AG
  • COMMERZBANK AG
  • HYPO REAL ESTATE HOLDING AG
  • LANDESBANK BADEN-WÜRTTEMBERG
  • BAYERISCHE LANDESBANK
  • DZ BANK AG DT. ZENTRAL-GENOSSENSCHAFTSBANK
  • NORDDEUTSCHE LANDESBANK -GZ-
  • DEUTSCHE POSTBANK AG
  • WESTLB AG
  • HSH NORDBANK AG
  • LANDESBANK HESSEN-THÜRINGEN GZ
  • LANDESBANK BERLIN AG
  • DEKABANK DEUTSCHE GIROZENTRALE
  • WGZ BANK AG WESTDT. GENO. ZENTRALBK

Greece

  • NATIONAL BANK OF GREECE
  • EFG EUROBANK ERGASIAS S.A.
  • ALPHA BANK
  • PIRAEUS BANK GROUP
  • AGRICULTURAL BANK OF GREECE S.A. (ATEbank)
  • TT HELLENIC POSTBANK S.A.

Hungary

  • OTP BANK NYRT.
  • JELZÁLOGBANK NYILVÁNOSAN M?KÖD? RT.

Ireland

  • BANK OF IRELAND
  • ALLIED IRISH BANKS PLC

Italy

  • UNICREDIT
  • INTESA SANPAOLO
  • MONTE DEI PASCHI DI SIENA
  • BANCO POPOLARE – S.C.
  • UNIONE DI BANCHE ITALIANE SCPA (UBI BANCA)

Luxembourg

  • BANQUE ET CAISSE D’EPARGNE DE L’ETAT
  • BANQUE RAIFFEISEN

Malta

  • BANK OF VALLETTA (BOV)

?Netherlands

  • ING Bank
  • RABOBANK GROUP
  • ABN/ FORTIS BANK NEDERLAND (HOLDING) N.V
  • SNS BANK

Poland

  • POWSZECHNA KASA OSZCZ?DNO?CI BANK POLSKI S.A. (PKO BANK POLSKI)

Portugal

  • CAIXA GERAL DE DEPÓSITOS
  • BANCO COMERCIAL PORTUGUÊS BANCO COMERCIAL PORTUGUÊSS.A. (BCP OR MILLENNIUM BCP)
  • ESPÍRITO SANTO FINANCIAL GROUP S.A. (ESFG)
  • BANCO BPI

Slovenia

  • NOVA LJUBLJANSKA BANKA (NLB)

Spain

  • BANCO SANTANDER S.A.
  • BANCO BILBAO VIZCAYA ARGENTARIA S.A. (BBVA)
  • JUPITER –  CAJA DE AHORROS Y MONTE DE PIEDAD DE MADRID (CAJA MADRID); CAJA DE AHORROS DE VALENCIA, CASTELLÓN Y ALICANTE (BANCAJA); CAIXA DÉSTALVIS LAIETANA; CAJA INSULAR DE AHORROS DE CANARIAS; CAJA DE AHORROS Y MONTE DE PIEDAD DE AVILA; CAJA DE AHORROS Y MONTE DE PIEDAD DE SEGOVIA; CAJA DE AHORROS DE LA RIOJA.
  • CAIXA-  CAJA DE AHORROS Y PENSIONES DE BARCELONA (LA CAIXA); CAIXA DÉSTALVIS DE GIRONA.
  • CAM –  CAJA DE AHORROS DEL MEDITERRÁNEO (CAM); CAJA DE AHORROS DE ASTURIAS; CAJA DE AHORROS DE SANTANDER Y CANTABRIA; CAJA DE AHORROSY MONTE DE PIEDAD DE EXTREMADURA.
  • BANCO POPULAR ESPAÑOL, S.A.
  • BANCO DE SABADELL, S.A.
  • DIADA –  CAIXA DÉSTALVIS DE CATALUNYA; CAIXA DÉSTALVIS DE TARRAGONA: CAIXA DÉSTALVIS DE MANRESA.
  • BREOGAN – CAJA DE AHORROS DE GALICIA; CAIXA DE AFORROS DE VIGO, OURENSE E PONTEVEDRA (CAIXANOVA).
  • MARE NOSTRUM –  CAJA DE AHORROS DE MURCIA; CAIXA DÉSTALVIS DEL PENEDES; CAJA DE AHORROS Y MONTE DE PIEDAD DE LAS BALEARES (SA NOSTRA); CAJA GENERAL DE AHORROS DE GRANADA.
  • BANKINTER, S.A.
  • ESPIGA – CAJA DE AHORROS DE SALAMANCA Y SORIA (CAJA DUERO); CAJA DE ESPAÑA DEINVERSIONES CAJA DE AHORROS Y MONTE DE PIEDAD (CAJA ESPAÑA).
  • BANCA CIVICA, S.A.
  • CAJA DE AHORROS Y M.P. DE ZARAGOZA, ARAGON Y RIOJA
  • ANTEQUERA Y JAEN (UNICAJA)
  • BANCO PASTOR, S.A.
  • CAJA SOL –  MONTE DE PIEDAD Y CAJA DE AHORROS SAN FERNANDO DE HUELVA, JEREZ Y SEVILLA (CAJA SOL); CAJA DE AHORRO PROVINCIAL DE GUADALAJARA.
  • BILBAO BIZKAIA KUTXA,AURREZKI KUTXA ETA BAHITETXEA
  • UNNIM – CAIXA DÉSTALVIS DE SABADELL; CAIXA DÉSTALVIS DE TERRASSA; CAIXA DÉSTALVIS COMARCAL DE MANLLEU.
  • CAJA DE AHORROS Y M.P. DE GIPUZKOA Y SAN SEBASTIAN
  • CAI –  CAJA DE AHORROS Y MONTE DE PIEDAD DEL CÍRCULO CATÓLICO DE OBREOS DEBURGOS (CAJA CÍRCULO); MONTE DE PIEDAD Y CAJA GENERAL DE AHORROS DE BADAJOZ; CAJA DE AHORROS DE LA INMACULADA DE ARAGÓN.
  • CAJA DE AHORROS Y M.P. DE CORDOBA
  • BANCA MARCH, S.A.
  • BANCO GUIPUZCOANO, S.A.
  • CAJA DE AHORROS DE VITORIA Y ALAVA
  • CAJA DE AHORROS Y M.P. DE ONTINYENT
  • COLONYA – CAIXA D’ESTALVIS DE POLLENSA

Sweden

  • NORDEA BANK
  • SKANDINAVISKA ENSKILDA BANKEN AB (SEB)
  • SVENSKA HANDELSBANKEN
  • SWEDBANK

?United Kingdom

  • ROYAL BANK OF SCOTLAND (RBS)
  • HSBC HOLDINGS PLC
  • BARCLAYS
  • LLOYDS BANKING GROUP