• Tag Archives ECB
  • Now China’s Curve

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    Suddenly central banks are mesmerized by yield curves. One of the jokes around this place is that economists just don’t get the bond market. If it was only a joke. Alan Greenspan’s ‘conundrum’ more than a decade ago wasn’t the end of the matter but merely the beginning. After spending almost the entire time in between then and now on monetary ‘stimulus’ of the traditional variety, only now are authorities paying close attention. Last September the Bank of Japan initiated QQE with YCC (yield curve control). The ECB in December altered its QE parameters to allow for what looks suspiciously like a yield curve steepening bias. And the Fed in its last policy statement declared its upcoming intent to think about balance sheet runoff that, as my colleague Joe Calhoun likes to point out, is almost surely going to be favored in the same way.
    Central bankers spent years saying low interest rates were stimulus. They have yet to explicitly correct their interpretation, preferring the more subtle approach of instead altering their operations as noted above. As I wrote back in December.

    This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ June 20, 2017.

  • German Politicians Hammer the ECB, But Only to Get Votes

    They know: the Eurozone would plunge into a sovereign debt crisis all over again, only worse this time.
    By Don Quijones, Spain & Mexico, editor at WOLF STREET. These days it’s easy to tell when general elections are approaching in Germany: members of the ruling government begin bewailing, in perfect unison, the ECB’s ultra-loose monetary policy. Leading the charge this time was Finance Minister Wolfgang Schaeuble, who on Tuesday urged the ECB to change its policy ‘in a timely manner’, warning that very low interest rates had caused problems in ‘some parts of the world.’
    Werner Bahlsen, the head of the economic council of Merkel’s CDU conservatives, was next to take the baton. ‘The ongoing purchase of government bonds has already cost the European project a great deal of credibility and has damaged it,’ he said. ‘The ECB can only regain trust with the return to a sound monetary policy.’
    As Schaeuble and Balhsen well know, that is not likely to occur any time soon. Indeed, like all other Eurozone finance ministers, Schaeuble is benefiting handsomely from the record-low borrowing costs made possible by the ECB’s negative interest rate policy. But by attacking ECB policy he and his peers can make it seem that they take voters’ concerns about low interest rates seriously, while knowing perfectly well that the things they say have very little effect on what the ECB actually does.

    This post was published at Wolf Street on Jun 18, 2017.

  • Global Liquidity Reaching a Tipping Point

    ICYMI! Global #liquidity is close to its tipping point! pic.twitter.com/jqrOoaexHo
    — jeroen blokland (@jsblokland) June 16, 2017

    This week the Fed announced that they are going to begin reducing their $4.2 trillion balance sheet starting this year. Here’s what Louis-Vincent Gave at Gavekal Research said about this yesterday (see Louis-Vincent Gave on Tech, Fed Balance Sheet, and More):
    ‘In our system today, there are four central banks that matter a lot and have a disproportionate impact on global markets: the Fed, the Bank of Japan, the ECB, and People’s Bank of China. Starting from really six months ago, we’ve gone from zero central banks tightening to now two, because (in addition to the Fed) the Chinese central bank is also tightening.’
    Here’s an updated chart from Moody’s illustrating where central banks across the globe are currently, showing, as Louis says, US and China tightening while Japan and the ECB maintaining a loose policy stance (h/t @SoberLook):

    This post was published at FinancialSense on 06/16/2017.

  • “The Next Leg Is Clearly Lower” – Global Excess Liquidity Collapses

    First it was Citi’s Hans Lorenzen warning about the threat to growth and global risk assets as a result of the upcoming slowdown in global central bank balance sheet growth. Then, yesterday, it was Matt King’s turn to caution that “the Fed’s hawkishness this week adds to the likelihood that in markets a significant un-balancing (or perhaps that should be re-balancing?) is coming.”

    That said, with both the ECB and BOJ injecting hundreds of billions each month – even as they are set to run ouf of “haven assets” in the coming year, there is still time before the global central bank balance sheet “tipping point” is reached and assets roll over…

    This post was published at Zero Hedge on Jun 17, 2017.

  • Fear of Contagion Feeds the Italian Banking Crisis

    At first, deny, deny, deny. Then taxpayers get to bail out bondholders.
    By Don Quijones, Spain & Mexico, editor at WOLF STREET.
    Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were ‘bailed in’ before the bank was sold to Santander for the princely sum of one euro.
    At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the 5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout.
    But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim. The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems.

    This post was published at Wolf Street by Don Quijones ‘ Jun 16, 2017.

  • Matt King Is Back With A Dire Warning: “A Significant Un-balancing Is Coming”

    Earlier this week we discussed a chart from Citi’s Hanz Lorenzen, which we said may be the “scariest chart for central banks” and showed the projected collapse in central bank “impulse” in coming years as a result of balance sheet contraction, and which – if history is any indication – would drag down not only future inflation but also risk assets. As Citi put it “the principal transmission channel to the real economy has been… lifting asset prices” to which our response was that this has required continuous CB balance sheet growth, and with the Fed, ECB and BOJ all poised to “renormalize” over the next year, the global monetary impulse is set to turn negative in the coming year.

    This post was published at Zero Hedge on Jun 16, 2017.

  • Key Events In The Coming Busy Week: Fed, BOJ, BOE, SNB, US Inflation And Retail Sales

    After a tumultous week in the world of politics, with non-stop Trump drama in the US, a disastrous for Theresa May general election in the UK, and pro-establishment results in France and Italy, this is shaping up as another busy week ahead with multiple CB meetings, a full data calendar and even another important Eurogroup meeting for Greece. Wednesday’s FOMC will be the main event, with the Fed expected to hike 25bp (see full Goldman preview here), while the BOJ, BOE and SNB all remain on hold.
    Courtesy of BofA, here is the breakdown of key events:
    FOMC the star in a G10 Central Bank week After the eventful UK election, and less than eventful ECB meeting, the week ahead is a busy one, opening with the first round of the French parliamentary elections and with a plethora of data releases and central bank decisions to keep markets occupied. Another important Eurogroup meeting for Greece rounds out a full schedule.
    The FOMC meeting will be the main event of the week, where the Fed will deliver a 25 bps rate hike, in line with market expectations. While very weak retail sales or CPI could dissuade the Fed, this remains a very unlikely scenario absent a collapse in Wednesday’s CPI print. BofA expects lower inflation and growth forecasts, while the dots will show 3 hikes in 2018 and 3.25 hikes in 2019. The press conference will likely be focused on balance sheet normalization and implementation timing.
    No change from BoJ, BOE or SNB

    This post was published at Zero Hedge on Jun 12, 2017.

  • ECB Drops Guidance on Rate Cuts in Step Toward Stimulus Exit

    The European Central Bank ruled out further interest-rate cuts in a sign that it’s moving closer to an exit from its stimulus program.
    The Governing Council, meeting in Tallinn on Thursday, dropped its guidance that rates might fall further, saying only that it now expects borrowing costs to stay at present levels for an extended period. Policy makers reiterated their pledge to increase the size or duration of their bond-buying program if the economy deteriorates.
    While the improving economy has sparked a debate about policy, it wasn’t a certainty how far the ECB would change its guidance at this meeting. President Mario Draghi and his closest allies had sought to talk down expectations for any major shift, arguing the ECB must be extremely cautious in communicating any exit from stimulus amid a lack of convincing inflationary pressure.
    ‘There was really no justification for the ECB to keep on holding on to that reference of the possibility of lower rates,’ Vasileios Gkionakis, a strategist at UniCredit SpA, told Bloomberg Television. ‘Nobody really believed that it would actually manifest, and especially now that growth numbers are picking up.’
    Data on Thursday showed euro-area gross domestic product rose 0.6 percent in the first quarter, stronger than initially estimated.

    This post was published at bloomberg

  • The ECB Offered More, But None of It Was Money

    At the end of March, the European Central Bank (ECB) offered a second round of bank financing. Dubbed TLTRO’s, T for ‘targeted’, the program offered banks a chance to obtain direct funding for up to four years at an incredibly low rate. European banks in TLTRO2 were allowed up to as much as 30% of their outstanding eligible loan books as of January 31, 2017 (netted against any previously drawn TLTRO1 balances).
    The rate for the original TLTRO’s had been set as the MRO rate on the day of the tender. For this second run, banks were given an added incentive where the cost of funding can be as low as the deposit rate. The ECB recognized these liquidity preferences for once, where it did not want to penalize banks for borrowing the funds (at 0% as the MRO rate) and then holding at least some of them idle in the deposit account (at -0.4%). It was a direct acknowledgement that the intended penalty of NIRP in the first place was a misguided academically-driven endeavor.
    To qualify for the reduced funding, banks are to meet certain lending benchmarks up to January 31, 2018. However, the real goal may not be loans at all, especially if banks are merely betting that between now and the 4-year maturity the rate on the deposit account is moved higher as the ECB is tempted to normalize. Why lend and take risk when you can pay a little for none and patiently do nothing as the central bank gives you euros as it once again fools itself?

    This post was published at Wall Street Examiner on June 7, 2017.

  • ECB Removes Reference To Taking Rates “Lower”, Keeps “Well Past” Language

    Super Thursday is officially off to the races with the ECB’s monetary policy announcement issued moments ago, which while keeping all three rates unchanged as consensus expected, has dropped the reference to “or lower” in the rate guidance, referring to the following sentence from the April 27 statement: “The Governing Council expects the key ECB interest rates to remain at their present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.”
    Full statement below:
    At today’s meeting, which was held in Tallinn, the Governing Council of the 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 -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases. Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of 60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

    This post was published at Zero Hedge on Jun 8, 2017.

  • ‘Bail-In’ Era for Europe’s Banking Crisis Begins

    Many Banco Popular investors wiped out. Taxpayers off the hook. What it means for Italy. Banco Popular, until today Spain’s sixth biggest bank, is no more. Its assets, including a massive portfolio of small-business clients, now belong to Banco Santander, Spain’s biggest bank. The global giant now has 17 million customers in Spain, a country of just 45 million people. The price was 1.
    Spain’s Ministry of the Economy revealed that by 3 pm Tuesday, Popular was no longer able to contain the deposit outflow. ‘It had exhausted all its lines of liquidity, both ordinary and extraordinary.’ It had run out of collateral to cover any further lines of emergency liquidity.
    This apparently triggered the intervention by the ECB’s Single Resolution Board (SRB), which decided on Tuesday that the bank ‘was failing or likely to fail’ and would have to be wound down, unless a buyer could be found.

    This post was published at Wolf Street on Jun 7, 2017.

  • Mario Draghi Explains The ECB’s Dovish-Hawk Statement – Live Feed

    What Mario taketh (removed lower rate guidance), he also giveth (keeps “well past” QE language) as Citi notes The ECB came in just about exactly where the market expected it to be leaving EURUSD slightly lower. The question is now whether the ECB have something left in the locker for Draghi’s press conference? If it stays like this, Citi expects EUR to go lower.
    The ECB dropped the easing bias, and reiterated that rates are to stay at present or lower levels past QE horizon, sees QE running until end of December or beyond if needed… and EUR is leaking…

    This post was published at Zero Hedge on Jun 8, 2017.

  • ECB Slashes Inflation Forecasts For 2017-2019

    Yesterday’s Bloomberg “trial balloon” that the ECB would cut its inflation forecasts while boosting GDP expectations was confirmed moments ago, when during his prepared remarks Draghi increased the governing council’s Eurozone GDP expectations as follows:
    2017: from 1.8% to 1.9% 2018: from 1.7% to 1.8% 2019: from 1.6% to 1.7% However, what the market was focusing on was the ECB’s inflation expectations, and it was here that the ECB confirmed that the central bank with the world’s biggest balance sheet has once again failed to stimulate inflation, slashing its forecast for 2017-2019 inflation across the board, blaming it on commodity prices. The new forecast is as follows:
    2017: from 1.7% to 1.5% 2018: from 1.6% to 1.3% 2019: from 1.7% to 1.6%

    This post was published at Zero Hedge on Jun 8, 2017.

  • Gold Prices Steady On UK Election Risk; ECB Meeting and Geopolitical Risk

    Gold Prices Steady On UK Election Risk; ECB and Geopolitical Risk
    by Reuters
    * Gold prices could see strong intraday volatility – analyst
    * UK election, Ex-FBI director testimony, ECB meeting set for later in the day
    * Downside for gold is ‘limited’ (especially in sterling)
    Gold held steady on Thursday as investors awaited cues on market direction amid a number of geopolitical events later in the day that could boost the safe-haven demand for the metal.

    This post was published at Gold Core on June 8, 2017.

  • ECB Preview: “Will He, Or Won’t He”, And Now To Trade The Announcement

    Will he, or won’t he?
    It was supposed to be the ECB meeting when Mario Draghi unveils the “guidance switch”, hinting if not at the (eventual) interest rate increase then at least a small step toward a QE exit. And then the Bloomberg trial balloon hit.
    As reported earlier, a Bloomberg ‘sources’ story suggested that the ECB will cut its inflation forecasts to 1.5% (from 1.7%, 1.6% and 1.7% for 2017, 2018 and 2019, respectively). If confirmed, this would be rather dovish, and may put any “switchover” plans on indefinite hold. According to SocGen, although the report cites the recent fall in energy prices behind the forecast change, this wouldn’t explain the two-tenths change for 2019, which would need to be explained by a downward revision of core inflation (which remained very optimistic at 1.8%).
    The other key elements to focus on will be the risk assessment for growth and the rate guidance. On the first one, the ECB is expected a move to a ‘broadly balanced’ risk profile. That is understandable given the recent trend in business confidence and progress in labour markets. Analysts also expect the ECB to drop the ‘or lower’ and a dropping of the word ‘well’ in ‘well past.”

    This post was published at Zero Hedge on Jun 8, 2017.

  • Euro Tumbles On Reports ECB Will Cut Inflation Forecasts

    EURUSD tumbled this morning, erasing the gains following US payrolls weakness on Friday, after reports that officials familiar with the matter said the ECB’s draft projections show slower consumer-price growth in the three years through 2019 versus March forecasts.
    ‘You saw the German bund jump with stocks right after that news, clearly,’ said Nacho Lopez, an institutional sales officer at brokerage Ahorro Corp. in Madrid, ‘It means we may hear a more conservative tone from the ECB at tomorrow’s meeting.’

    This post was published at Zero Hedge on Jun 7, 2017.

  • Euro Spikes As Headline-Reading Algos Go Wild Ahead Of ECB

    Well that didn’t last long. Just a few short hours after EURUSD dropped on reports that the ECB would cut its inflation outlook, headlines have hit saying the “changes are likely small” and EURUSD has spiked back towards the highes of the day…
    The Algos are busy today…
    Are they trying to run all the stops ahead of Draghi’s big day?

    This post was published at Zero Hedge on Jun 7, 2017.

  • What Europe’s First Official Bail-In Looks Like

    “If you think this has a happy ending, you haven’t been paying attention,” warns MINT Partners’ Head of Capital Markets Bill Blain, as he reflects on what just happened in Europe (that US equities seem happy to brush off as yet another fleshwound to global instability).
    There is a rule in Financial Institutions that any bank that calls itself ‘popular’ generally isn’t. This was proved last night. But, congratulations if you were a holder of Spain’s Banco Popular’s Senior Debt – they did a Zebedee ‘boing!’ on the basis last night’s last minute Santander rescue makes the bonds money good.
    Bad news for the Equity and COCO AT1 holders – who have the distinction of holding the first major bank capital bonds to be bailed-in/wiped out under EU regulations. Banco Popular senior debt is 12 points higher this morning.
    The AT1 perps are trading at 2.6%, down 50 points!!, and even that price looks optimistic. Ahah. We’ve not seen crashes like that since 2008.
    Popular has been desperately seeking a rescue for the last few weeks, but everyone looked the other way. So last night the ECB triggered the ‘Single Resolution Mechanism’ when it determined the Popular’s liquidity crisis was such its equity would be unable to cover debts or other liabilities.

    This post was published at Zero Hedge on Jun 7, 2017.

  • The ECB Has Almost Run Out Of German Bonds To Buy

    One month ago, when looking at the sudden change in ECB bond purchasing patterns, especially of German Bunds, we reported that the central bank may have as little as 4 months of space left in its PSPP program when it comes to German bond purchases. The first thing that caught our eye was that based on calculations from ABN Amro’s Kim Liu, the ECB bought roughly 400 million fewer bonds in Germany in April than its rules allow, suggesting a severe scarcity of eligible bonds.
    “It was by far the largest deviation, at least for Germany, and for me suggests that on top of the political stress and smoothing of purchases, there are scarcity constraints for the Bundesbank,” said Pictet’s senior economist Frederik Ducrozet. “What it means is that the ECB has to be very cautious with its exit and if they don’t taper within less than six months (of ending the programme) something might have to give.”
    In addition to the sharp drop in nominal purchases, the ECB data also revealed that in just six months the average maturity of monthly German debt purchases by the ECB has dropped to under five years from more than 10.

    This post was published at Zero Hedge on Jun 6, 2017.

  • With “Super Thursday” Fast Approaching, This Is What One Trader Plans To Do

    With “Super Thursday” fast approaching, which as a reminder will see a trifecta of “event risk” in the form of the UK general election (which nobody seems to care about), the ECB’s “allegedly hawkish” decision, and James Comey’s Congressional testimony, traders are already putting their hard hats on in a state of self-induced panic.
    But according to Bloomberg’s Richard Breslow that may be unwarranted, because when all is said and done, while nobody knows how markets will react, “the only thing you can be sure of is that any trading being done now solely in preparation for the ‘big day’ is largely a waste of time” and while “these can be important events. And then we’ll inevitably move on.”
    Why? Because as he adds, “personally, I hope there comes a point when a distant market memory can be jogged of moments that have consequences beyond the next central bank reaction.”
    In short, whatever transpires on Thursday, the outcome to risk assets will be whatever the world’s monetary authorities demand.
    That said, here’s what Breslow’s “prep” for “momentous Thursday” looks like:

    This post was published at Zero Hedge on Jun 6, 2017.