Posts Tagged ‘ Monetary Policy ’

No Man’s Land

October 5, 2016
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No Man’s Land

an anomalous, ambiguous, or indefinite area especially of operation, application, or jurisdiction definition two: financial market direction over the 2015-2016 period The meandering, low-volatility, sine wave oscillations of the tape continue. How did markets arrive at a point where a 3% pull-back is petrifying, and a 5% pull-back feels like a crash? The Brexit pull-back in June, was just about 5% on the nose, but it lasted only 2-days. Policy maker support of markets , vis-a-vis central bank actions, and ultra-low interest rates, stumble upon the end of the rainbow. Now what? The pressure on the Fed to assert its independence from politics, specifically the democratic party, is rising. Last week, Janet Yellen short circuited (in this clip) when confronted by Representative Scott Garrett of New Jersey. Donald Trump,...

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Midsummer Issues Persist; Divergent Global Central Bank Actions Create Challenges

November 10, 2015
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Midsummer Issues Persist; Divergent Global Central Bank Actions Create Challenges

The market moves fast. Thankfully, in the rest of the world, trends of all kinds, generally move at a measured pace. The market overreacts to events and day-to-day happenings based on crowd think and behavioral issues. A change in trend will often start with a subtle data point or indicator, which in hindsight, ignites a big, and sustained move in the market. Now is not one of those times. Late summer fears of China slowdown and EM collapse look to have been overblown, and the severity of the selloff too harsh. But the rally of the past two months also contains elements of overreaction; the underlying drivers and risks from the summer aren’t resolved. The world is fundamentally caught in a new dynamic. Credit expansion reached limits in every...

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Stanley Fischer’s Jackson Hole Speech: Fed Determined to Lift-Off

August 29, 2015
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Stanley Fischer’s Jackson Hole Speech: Fed Determined to Lift-Off

Stanley Fischer delivered a critical speech this weekend at the Jackson Hole, Economic Symposium, outlining the Fed’s forward looking view on inflation and the potential for a lessening of factors that dampen inflation. This speech signals the Fed is staying the course and determined for rate hike lift-off on the advertised time-table. CJF interprets this speech hakwishly, relative to market expectations for a push-out to the December lift off timeframe. It is likely that December is the latest possible preference for lift-off with September (or October) still very much on the table. Will be interesting to see how volatile markets react to some of the forceful language in the speech. The speech, in full, is a worthwhile read. Excerpts with CJF commentary: The past year’s energy price declines ought...

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Philippine Central Bank – Another Emerging Market Set to Ease Monetary Policy in the First Quarter

January 11, 2012
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Philippine Central Bank – Another Emerging Market Set to Ease Monetary Policy in the First Quarter

The Philippines is a very large nation that is off the radar of most mainstream economic analysis. The country has a population of 93 million, and the economy has enormous potential but exhibits inconsistent growth. The economy of the Philippines has a decently developed electronics/semiconductor industry and a large export industry for fruits, palm oil, and coconut oil. The World Bank estimates that the Philippines is the 43rd largest economy in the world yet many investors would be shocked to learn that it is forecast to be top 20 in the world by 2050. Economic growth in the Philippines is volatile based on agricultural gearing and dependence on inflows of overseas remittances. While the Philippines is not a member of the BRICS-2 (CIVETS) it is a member on what...

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Investing Ahead of a European Recession

December 14, 2011
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Investing Ahead of a European Recession

Investing ahead of a recession is like a trip to the dentist for a filling when the Novocain isn’t quite right. You know you are in for some pain, but it’s unclear just how much, and how long it will last. Europe is accepting the German path forward, which will at a minimum, lead to plenty of pain for many countries. Spain, Portugal, Greece, Belgium, Italy, and France are all experiencing, or likely to experience, a recession. Forward looking indicators are declining, confidence is dashed, austerity being implemented, European financial assets down sharply, and interest rates higher. The ECB is taking a minimalist approach to fighting the recession and the 17 countries in the Eurozone have different agendas, interests, and policy aims. In the background of the economic recession, there...

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ECB Cuts Rates 25 Basis Points to 1% – Hawkish Press Conference Q&A Squashes Hopes of Sovereign Debt Purchases in Larger Amounts

December 8, 2011
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ECB Cuts Rates 25 Basis Points to 1% – Hawkish Press Conference Q&A Squashes Hopes of Sovereign Debt Purchases in Larger Amounts

The ECB issued a terse press release detailing an interest rate cut for the main refinancing operations of the Eurosystem (from 1.25% to 1.0%) commencing on December 14th. In addition, the ECB cut rates on the marginal lending facility and deposit facility by 25 basis points. This move was widely expected and had a limited impact on the euro or equity markets. The press conference and Q&A (45 minutes later) with financial reporters was where the real action took place. The only market friendly outcome was the announcement to extend lending to European banks from a one-year to a three-year term. The collateral requirements for these loans are also being loosened. The press conference was predominantly hawkish. When asked about hints earlier in the week that the ECB could...

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China Starts Monetary Policy Easing Cycle & Rest of World Provides Additional Liquidity

November 30, 2011
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China Starts Monetary Policy Easing Cycle & Rest of World Provides Additional Liquidity

Overnight, financial market sentiment turned around pretty dramatically. The China A-Share market sold-off by 3.3% and approached the vicinity of recent lows. Fears started to mount that Chinese central bankers were going to be slow to ease monetary policy based on continued inflation concerns. After Asian markets closed, the People’s Bank of China announced that reserve ratios were being cut by 50 basis points, from 21.5% to 21.0%. The move was somewhat of a surprise and has started a turnaround in sentiment in the financial world. The reserve ratio cut is significant because it is the first time reserve ratios have been cut since 2008. China’s central bank has been allowing reserve ratios to generally trend higher since 2006 when the ratio used to be in the high single...

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Que Lastima – Spain in a Vice as Interest Rates and Unemployment Soar

November 17, 2011
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Que Lastima – Spain in a Vice as Interest Rates and Unemployment Soar

I’ve been writing about the impossibility of the ECB running appropriate monetary policy for 17 different nations. The dilemma couldn’t be more evident when contrasting the economy of Spain with the economy of Germany. Spain actually has less sovereign debt relative to GDP than does Germany. The problem for Spain isn’t the level of debt the country has incurred, but the depth of the current recession and the questionable capitalization of the Spanish banking system. Spanish inflation is running in a range of 1.7%-3.0% depending on how you define it (1.7% core inflation). This morning, bond auctions in Spain only attracted investors at much higher yields, approaching 7%. As a result of higher interest rates and a deepening recession (which is helping to reduce inflation), real interest rates in...

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China’s Trade Balance is Adjusting – the Largest Imbalance in the World is no Longer Growing

November 14, 2011
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China’s Trade Balance is Adjusting – the Largest Imbalance in the World is no Longer Growing

Markets in China rallied to start the week. Part of the rally resulted from “catch up” to US markets which closed strongly. But part of the rally was based on positive economic comments coming from Chinese officials. China’s President Hu Jintao pledged to focus on building imports which would boost global economic growth. IMF Deputy Managing Director Zhu Min, and National Economic Research Director Fan Gang, told the Asia Pacific Economic Cooperation forum in Honolulu that a “soft landing” for the economy was expected for China. The officials noted slowing inflation and lower bad debt at Chinese banks. To complete the string of positively toned news, there was also speculation that China was relaxing lending curbs which amounts to incremental monetary policy easing. Both the H-Shares (up 2.8%) and...

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Europe Must Decide Its Future – Self Induced Financial Crisis Has Led Europe to the Brink

November 10, 2011
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Europe Must Decide Its Future – Self Induced Financial Crisis Has Led Europe to the Brink

After Wednesday’s market action around the world, it’s a good time for a big picture assessment on the state of the financial markets. The attitude out of Europe has pendulated between nonchalance and vitriolic attacks among the EU-17. Italian sovereign rates spiraling above 7% have brought the eleventh hour upon the region. Escalation of the crisis has caused all types of forward looking investment to become somewhat of a farce. The environment of complete and utter policy uncertainty will no longer be withstood by markets as the full scale part of the European financial crisis enters its fifth month. After bungling the first few opportunities to implement a fix, it has become clear that dramatic action will be required to keep the Eurozone intact. The problems of the Eurozone’s...

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Chinese Inflation Turning Down – More Confirmation on Inflection Point

November 9, 2011
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Chinese Inflation Turning Down – More Confirmation on Inflection Point

Overnight, China released inflation data for October, which came down as expected and declined meaningfully from the previous month. Chinese consumer inflation, which includes food and energy prices, rose 6.1% in September, and 5.5% in October. This data shouldn’t be a complete surprise because China is on a tightening campaign with higher interest rates, lower credit growth, and an exchange rate that has slowly appreciated this year. The actualization of lower Chinese inflation is  important because it provides the political cover for China to start easing monetary policy. In addition, many global commodities such as; copper, oil, cotton, wheat, corn, sugar, etc. have declined which will eventually help ease pressure on Chinese inflation. The Chinese Producer Price Index also declined meaningfully based on the same factors. PPI inflation fell...

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Magnifico! – Getting to Know Mario Draghi & Analysis of the ECB Monetary Policy Press Conference

November 4, 2011
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Magnifico! – Getting to Know Mario Draghi & Analysis of the ECB Monetary Policy Press Conference

The global equity markets have been held hostage by fears of a crisis since the summer. Taking another step back; crisis fears, macro, and policy responses have really been driving all financial markets since the summer of 2008. To be clear, the economy always has a meaningful impact on the investing environment, but the recent four years have been remarkable. Sound and prudent public policy has been of paramount importance, and a necessary condition, towards stabilizing the economic and business environment. The importance of the change at the helm of the ECB this week cannot be overstated. Now there are hardened and unrelenting cynics in the investment community, often quite vocal, who will say that nothing matters and the global financial system is inevitably doomed. Those who have read...

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