Archives of “monetary policy” tag

rss

Paul Tudor Jones is one of the great macro traders of all time but he’s ‘a slave to the tape’

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #  #

How does Paul Tudor Jones see the world now?

Paul Tudor Jones is one of the great investors of all time and he’s renowned for macro calls. His latest market outlook highlights the coming waves of direct debt monetization that will reshape the economies and financial markets of the world.
“There will be many assets that will move as a result of this money creation. So what is an investor to do? Traditional hedges like gold have done well, and we expect investors to continue to seek refuge in this safe asset. One thing I have learned over time is the best thing to do is let market price action guide your decision-making and then try to understand the fundamentals as they become more evident and comprehensible,” he writes in a note with Lorenzo Giorgianni.
That’s an odd thing for one of the great macro traders of all time to say, but if you look back over his (rare) public comments, it’s a familiar theme. Here’s what he said back in 2009:

(more…)

German judges partly dismiss ECB QE case

  
  Analysis
#  #  #  #  #  #

The judges reach a 7-1 ruling in the ECB QE case

Despite the ruling, the court says that some action by the ECB QE program partially violates constitution and that some of the action is held illegal i.e. not valid in Germany.
Adding that the ECB decision is not backed by the EU treaty. The decision can be found here.

Although there are some caveats, I wouldn’t look too much into this. This just reaffirms that PEPP is going to be untouched, so the lack of suggestive price action means ‘let’s move on’.
I would argue that this is the key passage to take note of in the ruling above:

“Following a transitional period of no more than three months allowing for the necessary coordination with the Eurosystem, the Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy effects resulting from the programme. On the same condition, the Bundesbank must ensure that the bonds already purchased and held in its portfolio are sold based on a – possibly long-term – strategy coordinated with the Eurosystem.”

Eurodollars

  
Analysis, Forex
#  #  #  #  #  #  #  #

I have some questions regarding eurodollars and attempted to answer them myself: Why is GE quoted as interest rates, but de facto acts like a commodity ? Why were GE quotes up (rates on eurodollar deposits down) during the 2008/2020 crises. There was lots of cash demand.

– GE futures prices DO show de facto demand for cash (any fx cash offshore demand)
– GE is priced as rate to par of deposits
– GE reacts to or anticipates FED rates, as FED reacts to cash demand
– the rate of the deposits are not directly driven by supply and demand of global cash, but are driven by “external”/ non-eurodollar-mkt interest rates
– GE quotes can not be understand by the internal supply and demand of the eurodollar mkt conclusion: even GE-quotes are interest rates, GE-quotes act de facto like commodity prices, e.g. currently show huge cash demand.

Does you agree with my answers?

Singapore’s central bank reduces slope of currency band to zero

  
  Analysis
#  #  #  #  #  #  #  #  #

The Monetary Authority of Singapore adjusts monetary policy for the country through currency control, not via interest rates.

MAS says it will adopt a zero percent per annum rate of appreciation of the policy band starting at the prevailing level of the SGD NEER

  • there will be no change to the width of the policy band.
  • Says this policy decision hence affirms the present level of the S$NEER, as well as the width and zero percent appreciation slope of the policy band going forward
  • core inflation is likely to remain below its historical average in the near and medium term
  • Says MAS’ money market operations will at the same time provide sufficient liquidity to the financial system
  • will continue to be vigilant over developments in the economy and financial markets, and stands ready to curb excessive volatility in the SGD NEER
  • says both MAS core inflation and CPI -all items inflation are expected to average between −1 and 0% in 2020
  • says external sources of inflation are likely to weaken in the near term amid the global downturn
  • resident unemployment rate is expected to rise and wage growth ease
more to come

The Federal Reserve (and coordinated global actions) at a glance – what it means

  
  Analysis
  Tags
In brief here’s what has happened, the Fed has
  • cut rates to zero
  • increased the length of loans for banks to 90 days
  • has lowered bank reserve requirements (the amount of cash they need to keep on hand, in brief) which will (this is the plan) free up funds for banks to keep customers afloat with lending and easier standard through the crisis
  • launched USD700 bn in new QE
  • all this in coordination with other central banks
A bit more detail:
  • the cut to rates to zero eases credit market conditions, lending was drying up
  • longer, extended time period  loans help eliminate panic in short-term lending market, in effect this will assist banks to keep lending. If this assists firms in avoiding mass layoffs (such as occurred in the GFC 2008 crisis), at the margin, it’ll help the economy.
  • Lower bank reserve requirements encourages bank lending as a complement to the Community Reinvestment Act (CRA) emergency measures the Federal Reserve put into place with their first pre-emptive cut back in early March (this involved steps to waive late fees, easing credit, for firms and consumers)
  • $700 b in new QE will (this is the plan) ease the recession ahead
  • coordination with other central banks on Sunday night pre much of Asia opening is a big step, meant to ease panic
  • CBs have committed to do more and for as long as needed
The FOMC and other central banks around the planet have made an emergency Sunday evening move. 
ps. If your immediate response to this news is its not good as its not a vaccine/cure for the virus you are missing the point – the Fed can’t do this. They do what they can with the tools available to them.
If your immediate response is its no good because we need fiscal efforts, again the Fed can’t do this.
If your immediate response is its not enough, well you may be correct. The Fed says it’ll do more if necessary and as long as necessary.

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

  
  Analysis
#  #  #  #  #  #  #  #  #  #  #

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

China Securities Journal: PBOC may cut OMO rates this month

  
  Analysis
#  #  #  #  #  #  #  #  #  #

People’s Bank of China open market operations are one tool used to manage liquidity

  • rates may be cut this month reports the CSJ
—
China Securities Journal is a national securities newspaper – part of official Xinhua News Agency.

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

  
  Analysis
#  #  #  #  #  #  #  #

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.

Fed: Downside risks eased in late 2019 but virus is a new threat

  
  Analysis
#  #  #  #  #  #

Comments in the semi-annual monetary policy

  • US economy grew moderately last year
  • Labor market strengthened further and inflation continued to run below target
  • Probability of recession in the next year has ‘fallen noticeably’ in recent months
  • Downside risks seem to have receded in late 2019 due to decrease in trade tensions
  • Global slowdown in manufacturing and trade appears to be nearing an end while consumer spending and services activities continue to hold up
  • Possible virus spillovers present a new risk
  • Asset valuations and business debt are elevated; leverage in the financial sector appears low by historical norms
  • Fragilities in the corporate and financial sector in China are a risk
  • Market conditions were quite calm around year end after added liquidity
There’s nothing groundbreaking here.

China cuts rates

  
  Analysis
#  #  #  #  #

China cuts rates on reverse repos

  • the rate on 7-day reverse repos goes to 2.4% from previously at 2.5%
  • on 14-day RRs goes to 2.55% from 2.65%
This is part of stimulus efforts to combat the negative economic impact of the coronavirus outbreak and spread.
There was a big injection of funds today (but there is a but):
  • 900bn yuan added via 7 day RRs
  • 300bn via 14-dayers
Go to top