Archives of “monetary policy” tag

rss

Markets and the Pathogen in the Week Ahead

  
Analysis, Forex
#  #  #  #  #  #  #  #  #  #  #

The infectious and mortality rates of the new coronavirus have become the main force driving the pendulum of investor sentiment toward fear. The move is all the more dramatic as the investors had been positioned for a continuation of the historic bull market in equities and eager to take on new risks.

The coronavirus has surpassed the earlier precedents of SARS (2003) and the Swine Flu (2009). The World Health Organization declared an international health emergency, which will free up resources and boost efforts to contain the pathogen. It took roughly 20 months to devise a vaccine for SARS, and it is estimated that a vaccine is possible within a month or so now to begin the testing process. Although China is expected to return from the extended Lunar New Year on February 2, more than a dozen provinces and cities will be closed several days longer, which ballpark estimates suggest are responsible for a little more than 2/3 of GDP and 3/4 of exports. Supply-chain and business disruptions will likely last longer still.

Investors fear that the health crisis will turn into an economic crisis. Although President Xi is understood to be the strongest Chinese leader in a generation, the challenges that China faces are immense: US rivalry and trade conflict, Hong Kong, Taiwan, and a highly leveraged domestic economy underpinned by a deteriorating demographics. China recently reported its birthrate fell to a record last year. Still, some argue that the situation is even more dire as the official figures exaggerate both the population and the birth rate. More monetary and fiscal stimulus is expected to be delivered to cushion the impact. Some forecasts show the Chinese economy slowing to around 4.5% in Q1 20 from 6.0% in Q4 19.

Since the onshore yuan (CNY) stopped trading for the holiday, the dollar appreciated by a net of a little less than 1% against the offshore yuan (CNH). A catch-up move of roughly the same magnitude would bring the greenback toward CNY7.0. While the last time the dollar rose through that threshold, the US accused China of currency manipulation, this time is considerably different. Moreover, of all times, this is the time when China could likely get away with manipulation if it wanted. It is not just because of the macro shock, but also because the US has played the card once and relatively quickly reversed itself. (more…)

Here are all the changes in the FOMC statement (blink and you’ll miss it)

  
  Analysis
#  #  #  #  #  #  #  #  #

This is how the statement from the Federal Open Market Committee changed in January from December.

Sheesh. Not much. What there is is slightly more dovish (but its a bit of a hair-split isn’t it?)
This is how the statement from the Federal Open Market Committee changed in January from December. 

ECB leaves key rates unchanged in January meeting

  
  Analysis
#  #  #  #  #  #  #  #

The ECB announces its latest monetary policy decision – 23 January 2020

  • Prior decision
  • Deposit rate facility -0.50%
  • Main refinancing rate 0.00%
  • Marginal lending facility 0.25%
  • Rates to remain at present or lower levels until inflation outlook robustly converges to target, reflected in underlying inflation
  • Announces first strategic review of policy since 2003
  • Further details on scope, timetable of review will be due later at 1430 GMT
  • Bond buying to continue until shortly before rates are raised
Pretty much a non-event as the details of the statement is very much a repeat of December – or so it seems, the ECB website link is down – besides the announcement of the strategic review, which was very much expected.
The euro is barely moved on the release as all eyes will turn towards Lagarde’s press conference, which is due at 1330 GMT later.
Update: Here’s the full statement.

“At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The Governing Council will continue to make net purchases under its asset purchase programme (APP) at a monthly pace of €20 billion. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The Governing Council also decided to launch a review of the ECB’s monetary policy strategy. Further details about the scope and timetable of the review will be published in a press release today at 15:30 CET.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.”

BOJ minutes: Downside risks to overseas economies remained signficant

  
  Analysis
#  #  #  #  #  #  #

Minutes of the Bank of Japan October 2019 monetary policy meeting.

  • most members shared view that there had been no further increase in the possibility that the momentum toward achieving the price stability target would be lost
  • most members shared view downside risks to overseas economies remained significant, must continue to pay close attention to chance inflation momentum would be lost
  • one member said given downside risks, BOJ should continue to examine whether additional monetary easing would be necessary
  • some members said BOJ must not hesitate to take additional easing measures if there was a greater possibility momentum toward achieving the price target would be lost
  •  important to enhance cooperation with government on economic policies

Headlines via Reuters

A quick glance at the key risk events in markets this week

  
  Analysis
#  #  #  #  #  #  #  #

It is going to be an eventful week in markets despite the slower start today

Let us take a look at what else is on the agenda:

Tuesday, 10 December
– RBA governor Philip Lowe speaks at the AusPayNet Summit in Sydney
– China November CPI data
– Germany December ZEW survey current conditions, expectations
Wednesday, 11 December
– US November CPI data
– FOMC December monetary policy meeting & Fed chair Powell press conference
Thursday, 12 December
– UK general election
– SNB December monetary policy meeting
– ECB December monetary policy meeting & ECB president Lagarde press conference
– BOC governor Stephen Poloz speaks about the Canadian economic outlook for 2020
Friday, 13 December
– US November retail sales data
Sunday, 15 December
– Deadline before US tariffs on $156 billion of Chinese goods go into effect
These will be the key ones to pay attention to but there will also be other smaller data releases during the week that will also have some say to the ebb and flow of things.
As such, fret not about the lack of meaningful moves in markets so far today. Things will surely heat up over the next few days.

European mid-morning: Currencies remain little changed but big week lies ahead

  
  Analysis
#  #  #  #  #  #  #  #  #

Major currencies are <0.1% changed against the dollar so far today

EOD 28-10

The pound is arguably the only active mover as cable rose to a high of 1.2859 earlier in the session before settling back to near flat levels currently around 1.2820-30 levels.
Other major currencies are holding in narrow ranges against the dollar with little conviction to break stride so far today.
The risk mood is a bit mixed overall with European equities looking indecisive but bond yields are marked higher amid the fact that a Brexit extension was granted, with the move higher coming after France moved on their stance from last week.
Despite the slower start to currencies this week, fret not because it is going to be a crucial week ahead and here are some of the highlights to look forward to:
Monday, 28 October (still to come)
– UK parliamentary vote on Johnson’s election motion
Wednesday, 30 October
– Australia Q3 CPI data
– France Q3 preliminary GDP data
– US October ADP employment change
– US Q3 advanced GDP data
– Bank of Canada October monetary policy meeting
– FOMC October monetary policy meeting
Thursday, 31 October
– New Zealand October ANZ business confidence
– China October manufacturing, non-manufacturing PMI
– BOJ October monetary policy meeting
– Eurozone October preliminary CPI data
– Eurozone Q3 preliminary GDP data
– Canada August monthly GDP data
– US September PCE deflator data
Friday, 1 November
– China October Caixin manufacturing PMI
– US October non-farm payrolls, labour market report

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

  
Analysis, Economy
#  #  #  #  #  #  #  #

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.

Singapore loosens monetary policy for first time in 3.5 years

  
Analysis, Economy
#  #  #  #  #  #  #  #  #

Singapore has moved to loosen its monetary policy for the first time in three-and-a-half years to help offset slowing economic momentum due to prolonged U.S.-China trade tensions.

As a small, heavily trade-dependent economy, the country has been heavily exposed to the tariff battle between two of its largest trading partners. Exports have been falling at a double-digit pace from last year’s levels.

The Monetary Authority of Singapore, the central bank, said in its semiannual policy statement Monday that it would slightly decrease the slope of the Singapore dollar’s exchange policy band, a move to guide a weaker appreciation of the local currency.

The nation’s monetary policy is based on its exchange rate whereby the Singapore dollar is managed against a basket of currencies representing the country’s major trading partners.

With this move, Singapore follows regional peers such as Indonesia, the Philippines and India, all of which have eased monetary policy by cutting interest rates in recent months.

Singapore’s adjustment comes as trade-related industries stagnate under pressure from the U.S.-China standoff, though economists say domestically focused sectors have held up better. (more…)

Next week a big one for central banks – BOJ, BOE, Fed

  
  Analysis
#  #

A heads up for a packed monetary policy week ahead.

Yesterday we got the ECB to whet our appetite and next week brings another big three
  • Federal Reserve on Wednesday September 18
  • Bank of Japan on Thursday September 19
  • Bank of England on Thursday September 19
There will be previews ahead, for now though some quick thoughts on the BOJ:
  • ECB easing (not as much as was expected) will be eyed by the BOJ, they will not want to be left behind, especially with the Fed expected to ease also on Wednesday).
  • The BOJ will also want to keep the yen from strengthening. Its had a bit of relief as optimism on trade talks increases but crunch time for trade talks is coming and if the past year is anything to go by pessimism is just around the corner, as are flows back into the haven yen.
  • Also coming up is the sales tax hike in Japan, and again if the past is anything to go by this will not be a positive for the economy.
  • Inflation … well, we all know this is nowhere near target.
The preconditions are there for further easing from the Bank of Japan.
Will they? Given the ECB move and the expected Fed move its hard to think they will not.
Will it do any good? I’ll leave that to the economists.
A heads up for a packed monetary policy week ahead.

The question is not if but how much will the ECB deliver this week – Danske Bank

  
  Analysis
#  #  #  #  #

The firm outlines its expectations ahead of the ECB meeting this week

ECB

Analysts at the firm say that “the question is not if the ECB will announce new initiatives but how much it will deliver” instead. I think that’s an argument that everyone already has figured out by now. So, let’s see what they are expecting:

“We expect the ECB to announce (1) a 20bp cut in the deposit rate (other key rates unchanged) and that the extended forward guidance (‘at present or lower…well past the horizon of net asset purchases’) will remain; (2) a 12-month QE restart of €45-60bn per month, albeit also acknowledging the downside risks given the recent hawkish communications from a few Governing Council members; and (3) a tiering system.”

At this stage, a cut to the ECB deposit facility rate, a tiering system and a change in forward guidance message is all but guaranteed. The big question is whether or not we will see the reintroduction of QE this week.

(more…)

Go to top