Archives of “interest rate” tag

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Has the dollar lost its grip on the iron throne?

  
  Analysis
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What is next for the dollar?

FXTM
If one could describe the Dollar’s performance over the past few months in one word, the best fit would be vulnerable.

The once king of the FX space has weakened considerably in Q3, depreciating against every single G10, most Asian and emerging market currencies. This is despite its safe-haven status and the global reserve currency title. For those who are wondering why the Greenback remains depressed and unable to shake away the blues despite the general uncertainty, the first clues can be found in the US economy. (more…)

Like a general fighting the last war

  
  Analysis
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Central banks doing now what they should have been doing a decade ago

The last half of the 2010s was characterized by central banks trying to get back to ‘normal’ or to ‘home’ on interest rates. They were obsessed with getting away from the zero bound, just so they could cut again in the future.
They were slaves to the Phillips Curve and few of them emphasized (or realized) that technology, globalization and deunionization were putting downward pressure on prices.
Now we arrive in the 2020s and they’ve seen the light. They’re pledging to keep rates low and goose inflation above target. Kaplan today highlighted technology-enabled disruption as justification.
The problem is that the game is likely to change again. It’s all like a general investing in trench-digging equipment after the first world war. China is now exporting inflation.
I believe that the layering on of leverage should be one of the big takeaways from the market blowup in March. Central banks should be tackling that but instead, they’re building an even-larger tower of leverage in the belief that if anything goes wrong, they can always pump in enough money to make it better. That’s a mistake.
The real danger though is inflation. Yields moved up yesterday and in Asia today before correcting back lower. If they start to move up, bond investors are going to be sitting on massive paper losses.
Already, parts of the market are signaling that inflation is coming.Note that 5y5y forward inflation rates today are at 2.13%; a level that would crush today’s 10-year note bond buyers at 0.73%.
That’s a long way from even the post-crisis era but you can see which direction it’s moving.
Poweell
I’m the furthest thing from an evangelical on inflation but you can see the way that house prices, commodity prices and government spending are going.

ECB leaves rates unchanged, as expected

  
  Analysis
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ECB continues to reiterate stands ready to adjust all of its instruments

ECB continues to reiterate stands ready to adjust all of its instruments
  • Full statement
  • Prior statement
  • Interest rates to remain at present or lower until it has seen inflation outlook robustly converge to a level sufficiently close to but below 2% within its protection horizons (repeat)
  • No change to rate tiering multiplier
  • Will continue purchases under PEPP with a total envelope of 1,350B euros
  • Will continue to fully invest maturing securities at least through end-2022
  • PEPP will run at least through end of June 2021
  • The ECB cites ‘very high takeup’ of TLTRO-III
  • In its June forecast the ECB saw GDP down 8.7% in 2020 and up 5.2% in 2021
There are no changes here whatsoever. The euro chopped around 1.1400 on the release but has ticked up to 1.1410 since.

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.

Federal Reserve Chair Powell will speak this week – to push back on negative interest rates

  
  Analysis
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Fed’s Powell is to speak at a Peterson Institute for International Economics event (webinar)

  • He is billed to discuss his economic outlook, but is also to expected to address monetary policy (more on this below)
  • text with a Q&A to follow
  • Wednesday 13 May at 1300GMT
In brief – while there has been intense speculation about the Fed moving to negative interest rates, it seems likely Powell will push back on this. Other Fed officials who have spoken recently have all expressed caution on moving to negative rates but it may be time to wheel out Powell to more effectively quash the chatter.
Some of the recent remarks on likely negative rates have come from big hitters in the industry, while market pricing has also indicated sub-zero rates.
  • Scott Minerd, global chief investment officer of Guggenheim Partners said on Friday he expects rates below zero ‘soon’ – he cited declining Treasury yields
  • Other market movements are also reflecting expectations –  eg. falling LIBOR,
  • Jeffrey Gundlach, co-founder of DoubleLine Capital tweeted last week on mounting pressure on fed funds to go negative and said “fatal” consequences may have brought the expectations to the fore (more here: Jeffrey Gundlach says pressure building on Fed funds to go negative)
Fed's Powell is to speak at a Peterson Institute for International Economics event (webinar) 

Federal Reserve acts on a Sunday evening to slash rates to near zero

  
  Analysis
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Federal Open Market Committee

  • cut interest rates for the second time in less than two weeks
  • emergency move
  • “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range
  • 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”
Headlines via Reuters:
  • fed cuts interest rates to near zero in response to coronavirus crisis, risks to economic outlook
  • says expects target interest rate will remain in range of 0 and 0.25% until economy has “weathered recent events” and is on track to meet inflation and employment goals
  • says crisis has “harmed communities and disrupted economic activity” in u.s. and other countries, will weigh on activity in the near term
  • says will use “full range of tools” to support economy, will expand holdings of treasury securities by $500 bln and mortgage backed securities by $200 bln in coming months
  • vote on policy action was 9 to 1, with Cleveland fed president Loretta Mester preferring a smaller interest rate cut
  • Fed announces coordinated action with bank of Canada, bank of England, bank of Japan, European central bank and Wwiss national bank
  • Fed says six global central banks have agreed to lower pricing on u.s. dollar liquidity swap arrangements by 25 bps
  • says changes to central bank swap lines will take effect week of march 16
  • Fed and other global central banks will begin offering u.s. dollar liquidity in each jurisdiction with 84-day maturity
  • Fed says it will lower the primary credit rate by 150 basis points to 0.25 percent, effective march 16
  • Fed says it supports firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner
  • says that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis
  • says reducing reserve requirement ratios to zero percent effective on march 26
  • says encourages depository institutions to utilize intraday credit extended by reserve banks, on both a collateralized and uncollateralized basis

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.

Upcoming Week : Cutting to the Quick

  
  Analysis
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Central banks are prepared to take fresh measures to strengthen and extend the business cycle primarily because price pressures are below what their predecessors thought would be acceptable levels. Draghi, speaking for the ECB, the Federal Reserve, and the Bank of Japan ratcheted up their concerns, which, even without new initiatives, were sufficient to drive interest rates lower.
There is no real definition of many terms economists throw around like recession or depression.  The “two negative quarters of declining GDP” is not a technical definition but a rule of thumb.  Ironically there weren’t recessions before the Great Depression.  The end of business or credit cycles were called panics and crises.  The use of “recession” appears to have been applied to economies to distinguish the end of the business cycle from the Great Depression.  Neither the US nor Europe seems to be on the verge of an economic contraction.  Given a shrinking population, the Japanese economy can contract, and per capita GDP can still rise.
The Bundesbank warned last week that the German economy may have contracted in Q2, but the eurozone flash composite PMI suggests the region expanded.  Although the composite PMI averaged 51.8 in Q2, following a 51.5 average in Q1, GDP growth maybe half of the 0.4% in recorded in the first three months of the year.
The most important data point for the eurozone next week is the flash CPI reading.  Some may see it as a non-story as headline inflation is expected to remain at 1.2% and the core rate at 0.8%.  Unchanged data is the story.  Draghi was clear: if conditions do not improve, the ECB needs to provide more stimulus.

(more…)

Greece – About to Hit the Panic Button?

  
Analysis, Economy, Education
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Well it would appear that all the talk of the European Union and the IMF standing at the ready did not calm the markets when it was being discussed over the past month. It was hoped that the markets would be calmed if they knew that Greece had support from its neighbors.

That was Plan A, now it is time for Plan B, or C, D, E…

The Greek government’s cost of borrowing has hit a new high as talks on a joint eurozone and International Monetary Fund (IMF) rescue plan begin.

The interest rate on 10-year government bonds hit 8.3% – the highest since the euro was introduced.

Rates rose as it became clear that talks over the aid package may not be finished until days before a multi-billion-euro loan is due for repayment.

Investors are becoming more convinced that Greece will need to be rescued.

Greece’s finance ministry said the talks with the European Commission and the IMF would take about two weeks, with a joint text issued on about 15 May. […] (BBC)

It would appear that Greece is about to hit the button

Wednesday, April 21, 2010 1:27:13 PM
Greece Fin Min: Will make decision on whether or not to trigger the aid mechanism soon – Notes that the IMF will have discussions over the competitiveness of the country. No further austerity measures this year are likely.

Howard Marks On Luck And Skill In Investing

  
  Education
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When Howard Marks graduated from the Booth School of Business of the University of Chicago, he was turned down for the one job he really wanted. That, he said, was the luckiest moment of his career. The firm that turned him down was Lehman Brothers.

Marks is the co-chairman and founder of Oaktree Capital Management. He spoke to an audience of investment professionals and MBA students at the annual MIT Sloan Investment conferencein Cambridge on February 20th.

His talk was moderated by Randy Cohen, a senior lecturer at the Sloan School. Marks and Cohen discussed a range of topics, including his luck and skill in career choices, the lack of efficacy in forecasting, the importance of second-level thinking, investing in the current interest rate environment and the ingredients for investment success.

On luck and skill in career choices

Marks said he was not the kid who started reading prospectuses at nine years old and then invested his bar mitzvah money. Before deciding on a career in finance, he considered being a history professor, an architect, an advertising man and an accountant. Before graduating from the University of Chicago, he interviewed for jobs in corporate treasury, banking, investment management, investment banking, accounting and consulting. (more…)

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