• Tag Archives ECB
  • German Elections Void of Any Critical Discussion

    The German Bundestag election campaign has seen a total black-out of any discussion of the major crisis that is building in Europe. Nobody is mentioning that Euro crisis, ECB monetary policy, disintegration of the EU, refugee crisis, pension crisis, the municipalities on the brink of insolvency, or the drastic increases in taxation coming AFTER the election that will only lower disposable incomes and extend deflation.
    The politicians, and the press, are in full swing to hide the real trend at foot. The press is running stories why the Germans Love Merkel, yet she has never won even 40% of the popular vote. Even the press outside of Germany is in on the ‘selling’ of Merkel because she is the leader of Europe – good – bad – indifferent.
    Perhaps the monetary policy of the ECB has set the stage for a serious monetary crisis over the coming years that will seriously disrupt the German economy, in one way or another, depending upon the industry. Mario Draghi has experimented with negative rates which has kept the Eurozone governments on life-support – but they have not used the time to reform anything.

    This post was published at Armstrong Economics on Sep 23, 2017.


  • Bill Blain: “Let’s Pretend”

    Blain’s Morning Porridge – Fed Acts, ECB Smoking – but what?
    The Fed acts. Normalisation. Hints of a rate rise in December, confirmation of further ‘data-dependent’ hikes to come next year, and ending the reinvestment of QE income. Exactly as expected – although some say three hikes in 2018 is a bit hostage to the global economy. The effect: Dollar up. Bonds down. Record Stocks. Yellen threw the bond market a crumb when she reminded us low inflation will require a ‘response.’
    Relax. US markets will sweat, but not break. Dollar ascendant.. Yen collapses.. What about Yoorp?
    Not quite as simples in Europe.
    I’m indebted to my colleague Kevin Humphreys on BGC’s Money Market desk for pointing out yet another Northern European central banker with a smug self-satisfied smile on his face this morning.
    Klass Knot (Holland) has been telling us the European reflationary environment is improving to the extent where the tail risk of a deflationary spiral is no longer imminent. He said ‘robust’ economic developments have improved confidence inflation will rise in line with the ECB’s mandated aims. He added the appreciation of the Euro reflects an improving assessment of the EU’s economic success. And, he concludes the ECB should focus on the more important structural and institutional issues facing Europe, rather than the short-term stabilisation and crisis management – WHICH ARE NO LONGER REQUIRED.

    This post was published at Zero Hedge on Sep 21, 2017.


  • Fed’s Asset Bubbles Now At The Mercy Of The Rest Of The World’s Central Bankers

    “Like watching paint dry,” is how The Fed describes the beginning of the end of its experiment with massively inflating its balance sheet to save the world. As former fund manager Richard Breslow notes, however, Yellen’s decision today means the risk-suppression boot is on the other foot (or feet) of The SNB, The ECB, and The BoJ; as he writes, “have no fear, The SNB knows what it’s doing.”
    As we reported previously, In the second quarter of the year, one in which unlike in Q1 fund flows showed a persistent and perplexing outflow from US stocks, a trading desk rumor emerged that even as institutional traders dumped stocks and retail investors piled into ETFs, a “mystery” central bank was quietly bidding up risk assets by aggressively buying stocks.
    The answer was revealed this morning when the hedge fund known as the “Swiss National Bank” posted its latest 13-F holdings. What it showed is that, as rumored, the Swiss National Bank had gone on another aggressive buying spree in the second quarter, and following its record purchases in the first quarter, the central bank boosted its total equity holdings to an all time high $84.3 billion, up 5% or $4.1 billion from the $80.4 billion at the end of the first quarter.

    This post was published at Zero Hedge on Sep 20, 2017.


  • Euro Tumbles On Report ECB Is “Concerned And Divided” Over End To QE

    Talk ’em up, then slam ’em down.
    The familiar pattern of “clear and transparent” central bank communication was on full display moments ago, when following months of build up to an ECB taper announcement, the ECB used its favorite mouthpiece, Reuters, to “trial balloon” that an ECB decision over whether to announce a firm end-date to the central bank’s bond buying could be “put off until December” as a result of disagreement among the ECB council stemming from “concern over Euro strength” which is leading to “uncertainty and divide within the council.”
    As a result, some within the ECB want to be able to “extend or expand” buys if needed, in other words if the EURUSD rises too far above 1.20.
    The highlights from Reuters:
    CONCERN OVER EURO STRENGTH IS LEADING TO UNCERTAINTY AND DIVIDE WITHIN ECB COUNCIL – SOURCES ECB POLICYMAKERS DISAGREE ON WHETHER TO SET FIRM END-DATE FOR BOND-BUYING PROGRAMME IN OCT – SOURCES SOME ECB RATE SETTERS WANT TO BE ABLE TO EXTEND OR EXPAND BUYS IF NEEDED – SOURCES SOME ELEMENTS OF ECB DECISION COULD BE PUT OFF UNTIL DEC – SOURCES And the full report:

    This post was published at Zero Hedge on Sep 19, 2017.


  • Ahead Of Tomorrow’s Historic Fed Meeting, Here Is The Only “Cheat Sheet” You Need

    Ahead of tomorrow’s historic Fed announcement, in which for the first time the Fed is expected to announce the phasing out of bond reinvestment and the shrinking of its balance sheet by roughly $10 billion per month starting in October and November, but fear not the BOJ and ECB will more than offset this decline..

    … there are various other unknowns with which Yellen could still surprise the market, including the Fed’s signalling on policy rates, economic projections, a shift in the “dots”, comments on asset prices and, last but not least, whether Yellen will stay or leave when her term expires in Feb 2018.
    Below, courtesy of ING, is the definitive “cheat sheat” matrix laying out all possible permutations of what can happen tomorrow, as well as the most likely market reaction.

    This post was published at Zero Hedge on Sep 19, 2017.


  • Deutsche Bank: “This Is The $2.5 Trillion Question”

    Next Wednesday, the Fed is widely expected to officially launch its balance sheet reduction or “normalization” process, as a result of which it will gradually taper the amount of bonds its reinvests in the process modestly shrinking the Fed’s balance sheet.
    Very modestly. As shown in the chart below, the Fed’s $4.471 trillion balance sheet will shrink by $10 billion per month in October and November, or about 0.4% of its total AUM. Putting this “shrinkage” in context, over the same time period, the Bank of Japan and the ECB will continue adding new liquidity amounting to more than $400 billion. As a result, in Q4 net global liquidity will increase by “only” $355 billion, should Yellen begin “normalizing” in October following a September taper announcement as expected.

    That much is known, however there are quite a few unknown aspects about the Fed’s upcoming QE unwind, and as a result, Deutsche Bank writes that “the Fed is about to become hugely important for financial assets.”
    Assuming it all goes well, DB forecasts smooth sailing ahead, manifested by “nominal core rates will be relatively stable and the dollar gently weaker. 10s might trade a sustainably lower range 1.8-2.3 percent. There will be more of a gradual risk asset rotation favoring US (growth) equities, EM, some commodities at the expense of (value) equities, Eurostoxx, NKY with credit somewhere in between.”

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


  • BofA: $2 Trillion YTD In Central Bank Liquidity Is Why Stocks Are At Record Highs

    One week ago, in his weekly “flow report“, BofA’s Michael Hartnett looked at the “Disconnect Myth” between rising stocks and sliding yields and succinctly said that there is “no disconnect between stocks & bonds.”

    Why? The reason for low yields and high stocks was simple: trillions in central bank intervention. The result is an era of lower yields & higher stocks, or as the chart above shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:
    1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns; 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return; 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%. Fast forward to today, when in the interim period stocks have continued to rise, hitting new all time highs in both the US and globally, oblivious of any news and fundamental developments – as one would expect from a massive asset price bubble, and in line with what Hartnett has dubbed a Liquidity Supernova.

    This post was published at Zero Hedge on Sep 15, 2017.


  • Trying to Save the Euro from Total Disaster

    European Commission President Jean-Claude Juncker has now come out in a very desperate move telling that those members of the EU who are non-euro countries should introduce the euro ASAP. ‘The euro is destined to be the single currency of the EU as a whole,’ Juncker declared. Juncker then proposed a ‘euro preparation instrument’ to provide technical and financial assistance to make this transition.
    The Euro is in serious trouble because of the total mismanagement of the ECB. Low to negative interest rates have totally failed to stimulate the economy after almost 10 years. Now that rates must rise to try to avoid a massive pension collapse in Europe, the ECB could suffer a major default and will need to be bailed-out itself by the government since it owns 40% of euro-zone debt.

    This post was published at Armstrong Economics on Sep 15, 2017.


  • #FedGibberish!

    Recently on our Twitter feed, @michaellebowitz, we introduced the hashtag #fedgibberish.

    The purpose was to tag Federal Reserve members’ comments that highlight desperate efforts to rationalize their inane monetary policy in the post-financial crisis era. This past week there were two quotes by Fed members and one by the head of the European Central Bank (ECB) which were highly deserving of the tag. We present them below, with commentary, to help you understand the predicament the Fed and other central banks face.
    Lael Brainard
    On September 5, 2017 Fed Governor Lael Brainard stated the following in a speech at the Economic Club of New York:
    ‘We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.’ – ‘There is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy.’

    This post was published at Zero Hedge on Sep 13, 2017.


  • “Crazily Low” Bund Yields Spike Most In 3 Months, Gundlach Warns Of “Massive Risk At These Levels”

    In a curious case of 2015 deja vu, DoubleLine founder Jeffrey Gundlach says German bond yields are “crazily low,” and expects them to rocket higher and rattle the US Treasury market when (if) the ECB scales back its bond purchases.
    The FT reports that Gundlach warns the 10-year German Bund yield would jump to 1 per cent ‘pretty quickly’, from about 0.4 per cent today.
    So far he has been right, just as in 2015 when Gundlach and Gross warned that Bunds were “the short of a lifetime.”

    This post was published at Zero Hedge on Sep 13, 2017.


  • “It Blows My Mind”: 100-Year Austrian Bond With Record Duration 3x Oversubscribed

    As we reported yesterday, Austria was set to make Eurozone history with the first sale of a 100 year bond direct to public markets, bypassing private syndication. It did that later in the day, when the 3.5 billion offering priced tighter than initially marketed, at RAGB 2/2047 +50, at a price 99.502 to yield a paltry 2.112% and with a negligible 2.1% cash coupon.
    What is even more notable is that despite mounting fears of an imminent tapering by the ECB which many have predicted will lead to a new European bond tantrum and blow out in yields, there was tremendous end demand by investors for the offering managed by BofAML, Erste Group, GS (B&D), NatWest and SocGen, mostly fund managers from across the globe, resulting in what ended up being more than 11BN in 208 different bids for the paper, an oversubscription of more than 3x! The breakdown for the final allocation is was follows, courtesy of Bloomberg:
    3.5b 100Y tranche: Book exceeded 10.8b from 208 investors, including 1.5b of JLM interest
    Allocation by geography:
    Eurozone incl. Austria 29% Germany 13% France 4% Spain 3% Other Eurozone 9% Other Europe (non-Eurozone) 55% U. K. 42% Switzerland 9% Americas 12% Middle East 4%

    This post was published at Zero Hedge on Sep 13, 2017.


  • Why Is the Euro Still Gaining Against the Dollar?

    The primary purposes of the incorrectly named ‘unconventional monetary policies’ are to debase the currency, stoke inflation, and make exports more competitive. Printing money aims to solve structural imbalances by making currencies weaker.
    In this race to zero in global currency wars, central banks today are ‘printing’ more than $200 billion per month despite that the financial crisis passed a long time ago.
    Currency wars are those that no one admits to waging, but everyone wants to fight in secret. The goal is to promote exports at the expense of trading partners.
    Reality shows currency wars do not work, as imports become more expensive and other open economies become more competitive through technology. But central banks still like weak currencies -they help to avoid hard reform choices and create a transfer of wealth from savers to debtors.
    The Euro Rallies So how must the bureaucrats at the European Central Bank (ECB) feel when they see the euro rise against the U. S. dollar and all its main trading currencies by more than 12 percent in a year, despite all the talk about more easing? The ECB will keep buying 60 billion euro a month in bonds, maintain its zero interest-rate policy, and keep this ‘stimulus’ as long as it takes, until inflation growth and GDP growth are stable.

    This post was published at Ludwig von Mises Institute on Sept 12, 2017.


  • Austria Makes History With First 100-Year Bond Sale Into Public Euro Markets

    Austria, a country which itself is less than 100 years old, made European history today when it launched a 100-year government bond: the first such deal to be sold into eurozone public markets. While Austria is not the first nation to sell 100 year bonds – last year Ireland and Belgium both sold privately-placed century-long bonds – while Austria itself sold a 70 year bond, Austria’s planned 100-year bond is unique in that it would be the first such debt sold directly into public markets in the eurozone according to the WSJ.
    It is unclear if the lack of a private sale suggests there was no reverse inquiry for the high duration product among institutions, however the return of this highly convex and duration-laden instrument suggests that European yields are unlikely to shoot higher, at least judging by the anticipated demand. On the other hand, yields are about to spike from the perspective of Austria, which is simply seeking to lock in the longest-possible term financing before the ECB begins tapering/tightening, and yields spike, as Fasanara Capital warned yesterday.

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


  • WTF Chart Of The Day: BoJ Now Owns 75% of Japanese ETFs

    While ECB President Mario Draghi faces his own German-bond-market constraints in his hubristic bond-buying-bonanza, cornering him to taper sooner than later; the Bank of Japan appears to have thrown every textbook out of the window and cranked their plunge-protection to ’11’, as Bloomberg reports, The Bank of Japan now holds 75% of the nation’s ETFs.
    Since December 2010 – when The Bank of Japan held no ETFs at all – the central bank has been buying ETFs (doubling its annual buying target to 6 trillion yen in July 2016) as part of unprecedented economic stimulus. While the Nikkei 225 Stock Average has risen 89% since December 2010, the BOJ’s dominance of the ETF market has raised concerns.
    In fact, in a circular vicious cycle, the Bank of Japan’s purchases have helped assets managed by ETFs surge almost 10-fold since the end of 2010 to 25 trillion yen ($230 billion).

    This post was published at Zero Hedge on Sep 11, 2017.


  • Central Banks And Housing Prices: A Tale Of Three Countries (US, Germany and Japan)

    The US Federal Reserve, the European Central Bank (ECB) and Bank of Japan (BOJ) have all been hyper-active in recent decades. But the low-rate policies have not produced the same outcomes.
    The US, after home prices declined in 2008 and 2009, took a while to recover. Only in 2012 did US home prices begin to rise again.

    This post was published at Wall Street Examiner on September 11, 2017.


  • Global Stocks Roar Back To All-Time Highs As Irma, North Korea Fears Fade

    And we’re back at all time highs.
    With traders paring back risk positions on Friday ahead of a weekend full of potential risk events, Monday has seen a global “risk-on” session in which global stocks rose back to record highs and US futures jumped, the dollar gained, Treasuries retreated, while VIX and dollar slumped as appetite for risk returned to global markets after North Korean failed to conduct an anticipated missile test failed to materialize and Hurricane Irma appears to have struck the U. S. with less force than feared. The MSCI All-Country World Index increased 0.3% to the highest on record with the largest climb in more than a week, while that “other” trade also outperformed, as the MSCI Emerging Market Index increased 0.4% to the highest in about three years. Safe havens such as the yen and Swiss franc all also fell.
    Amid the risk-on tone, the dollar registered its biggest gains in the currency markets in ten days. It added 0.5 percent against its perceived safe-haven Japanese counterpart the yen JPY and clawed back ground against the high-flying euro as an ECB policymaker flagged caution about the single currency’s recent rise.

    This post was published at Zero Hedge on Sep 11, 2017.


  • FX Week Ahead: It Could Be Time To Lay Off The USD A Little

    It could be time to lay off the USD a
    little, but inflation midweek could delay any major correction.
    After a week of arguing if the EUR is overvalued and whether the ECB will pinpoint this, we get back to the crux of the matter, which is USD weakness. Across the spectrum, we have seen US Treasury yield pressed back to levels seen in the aftermath of president Trump’s, victory, but we have had two 25bp hikes in the US since then and as such, reflation has been completely priced out and more. Indeed the 2yr is now on par with current Fed funds, so on this basis, another Fed move by year end is also priced out, but futures markets are keeping a 25% probability on the table. We still think at this stage, it is too low.
    As in the title, inflation numbers on Thursday will determine whether the odds can improve, and with plenty more data to consider until the December meeting, we see risk to the USD on the upside this week unless there is an outright collapse in CPI – which seems unlikely given extended weakness in the greenback in recent months. Markets will be looking for the headline rate to see a modest pick up from Oil price, but the core rate may dip slightly. In either case, comparative levels of inflation are not as bad as hyped over, given we are not too far off the 2.0% target unlike Europe and Japan say.
    Little seen ahead of this other than the JOLTS job openings figure on Tuesday as well as the familiar precursor to inflation in producer prices on Wednesday. On Friday though, we also get retail sales as well as production stats and capacity utilisation. All the above are for Aug and will have some degree of flex (in response) due to seasonal factors – as we saw in the non farm payrolls report.

    This post was published at Zero Hedge on Sep 10, 2017.


  • Central Banks Have Purchased $2 Trillion In Assets In 2017

    In his latest “flow report”, BofA’s Michael Hartnett looks at the “Disconnect Myth” between rising stocks and bonds and summarizes succinctly that there is “no disconnect between stocks & bonds.”
    Why? The best, and simplest, explanation for low yields & high stocks is simple: so far in 2017 there has been $1.96 trillion of central bank purchases of financial assets in 2017 alone, as central bank balance sheets have grown by $11.26 trillion since Lehman to $15.6 trillion. Hartnett concedes that the second best explanation is bonds pricing in low CPI (increasingly a new structurally low level of inflation due to tech disruption of labor force) while equities price in high EPS (with little on horizon to meaningfully reverse trend), although there is no reason why the second can’t flow from the first.
    The result is an era of lower yields & higher stocks, or as the chart below shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:
    1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns; 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return; 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%.

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


  • Weekend Reading: The “Real” Vampire Squid

    First, it was Hurricane ‘Harvey’ and an expected $180 billion in damages to the Texas coastline. Now, ‘Irma’ is speeding her way to the Florida coastline dragging ‘Jose’ in her wake. Those two hurricanes, depending on where they land will send damages higher by another $100 billion or more in the weeks ahead.
    The immediate funding needed for relief to Americans is what you would truly deem to be ’emergency measures.’
    But that is not what I am talking about today.
    Nope, I am talking about Central Banks.
    On Thursday, Mario Draghi, of the ECB, announced their latest monetary policy stance:


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


  • Market Talk- September 8th, 2017

    Governments and central banks across the world are still concerned about the lack of inflation or significant growth and we saw evidence again in that today from the Japanese Q2 GDP release. Well below estimate of 4% this mornings release came in at 2.5%. Mario Draghi also commented on growth concerns in yesterdays ECB meeting and it is also being questioned in the Federal Reserve as well. It didn’t help the stock market which closed down -0.65% with financials and exporters leading the decline and this again encouraged the yen dash as we now watch the mid 107’s trade. 10yr JGB’s traded negative for most of the day. One bright spot was the Hang Seng but that was large cap’s reflecting the US holding yesterdays levels. Still worth keeping an eye on the Chinese yuan as yet another stronger set today (6.5032) making this a double digit gain in days. SENSEX closed small up today still helping its impressive 10.5% YTD gain.

    This post was published at Armstrong Economics on Sep 8, 2017.