• Tag Archives Monetary Policy
  • Pound Surges As BOE Chief Economist “Leans Toward” Hiking Rates In 2017

    Here we go again.
    One week after the pound surged following the BOE’s unexpectedly hawkish 5-3 vote split, then tumbled after Mark Carney’s speech yesterday which suggested no rate hike is coming any time soon, today, for the third time in almost as many days, all GBPUSD stops were taken out after BoE Chief Economist, Andy Haldane, surprised the market with unexpectedly hawkish comments in his speech in Yorkshire. He said he was leaning toward joining the hawks on the Monetary Policy Committee and considered a vote for a rate increase as early as June. He also said he favors withdrawing some of the August 2016 stimulus in the second half, and that the partial withdrawal of additional stimulus put in place last year would be ‘prudent relatively soon, provided the data come in broadly as expected in the period ahead.’

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

  • Hong Kong Warns: Its Housing Bubble is a ‘Dangerous Situation’

    The HK financial system is ‘very strong’ and ‘can withstand an adjustment in the property market.’
    The Hong Kong dollar is pegged to the US dollar. Hong Kong’s monetary policy is follows the Fed’s monetary policy. The Fed has embarked on a tightening cycle, raising rates four times so far. The Hong Kong Monetary Authority has followed each time. Last week, it raised its policy rate by 25 basis points to 1.5%. This will have consequences for the most expensive and ludicrously inflated housing bubble in the world.
    ‘We have to warn our people about the dangerous situation of the property market at the moment,’ Hong Kong Financial Secretary Paul Chan told Bloomberg TV.
    ‘No one can tell how deep the adjustment will be or what is the appropriate level of adjustment because it is market force,’ he said. ‘It is not up to the government to dictate, but I think it is important for people to recognize it is risky.’
    But he doesn’t expect a repeat of what happened when Hong Kong’s prior housing bubble imploded during the Asian Financial Crisis.

    This post was published at Wolf Street on Jun 20, 2017.

  • Amid Dreary Landscape, Event Funds Stage A Comeback

    The US hedge fund industry is in rough shape as the Federal Reserve’s lift-all-boats monetary policy has made it increasingly difficult to beat the market. US hedge funds endured nearly $100 billion in redemptions last year, as only 30% of US equity funds beat their benchmarks. But as confidence in traditional stock pickers dwindles, so-called ‘event-driven’ funds are attracting renewed interest in investors, particularly in Europe, where near-zero rates and relatively attractive valuations are expected to stoke a boom in M&A activity, Bloomberg reports.

    After these funds experienced some high-profile stumbles in recent years – one such fund managed by John Paulson’s Paulson & Co. posted a 49% loss and endured billions of dollars in redemptions – some Europe-based funds are seeing billions in inflows. Kite Lake Capital Management, Everett Capital Advisors and Melqart Asset Management have garnered billions in fresh investor capital over the past two years.
    ‘Kite Lake Capital Management almost doubled client assets this year, while Everett Capital Advisors nearly tripled its funds since launching in January 2016. The money overseen by Melqart Asset Management has grown 12-fold since the firm started less than two years ago. The three event-driven funds have $1.5 billion in combined assets and invest across Europe, where an increasingly buoyant economy and record-low interest rates are boosting dealmaking. Their resurgence is part of a comeback effort by a hedge-fund industry that’s only now starting to recover from a wave of investor redemptions and years of disappointing returns.

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

  • El-Erian Warns “The Fed No Longer Has Your Back”

    In hiking rates and, more notably, reaffirming its forward policy guidance and setting out plans for the phased contraction of its balance sheet, the Federal Reserve signalled last week that it has become less data dependent and more emboldened to normalise monetary policy. Yet, judging from asset prices, markets are failing to internalise sufficiently the shift in the policy regime. Should this discrepancy prevail in the months to come, the Fed could well be forced into the type of policy tightening process that could prove quite unpleasant for markets.
    Setting aside multiple signs of an economic soft patch and sluggish inflation, the Federal Reserve did three things on Wednesday that lessen monetary stimulus, only the first of which was widely expected by markets: It raised interest rates by 25 basis points, reiterated its intention to hike four more times between now and the end of next year (including one in the remainder of 2017), and set out a timetable for reducing its $4.5bn balance sheet.
    These three actions confirm an evolution in the Fed’s policy stance away from looking for excuses to maintain a highly accommodative monetary policy – a dovish inclination that dominated for much of the aftermath of the 2008 global financial crisis. Rather, the Fed is now more intent on gradually normalising both its interest rate structure and its balance sheet. As such, it is more willing to ‘look through’ weak growth and inflation data.
    This evolution started to be visible in March when Fed officials worked hard, and successively, to aggressively manage upwards expectations that were placing the probability of an imminent rate hike at less than 30 per cent. With that, the hike that followed was an orderly one.

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

  • Mark Hanson: Housing Bubble 2.0 – The End Is Nigh?

    The incredible essay below is reproduced here with permission by Dr. Hunt for Epsilon Theory. If Dr. Hunt is even moderately accurate, which I believe he is, the housing market headwind on deck could be every bit as powerful as what hit at the end of Bubble 1.0.
    Bottom line: The Fed, during Obama, did everything in its power to surge all asset prices – stocks, bonds, real estate, collectables, et al – with no regard for its own guidance, as to when it would take its lead-foot off the accelerator. Now, under Trump, they are doing the exact opposite; looking ‘through’ all the obvious coincident and near/mid term, economic weakening trends in an effort to raise rates as quickly as possible. If, the past 8-years of a Fed in Armageddon-mode created the ‘everything bubble’ (hat-tip Wolf Richter), what will shifting monetary policy into reverse do to said asset price levels?
    Back in Bubble 1.0, the helium came out of house prices when the ‘unorthodox credit and liquidity’ was forced out of the markets all at once precipitated by the mortgage credit market implosion. Quickly, house prices ‘reattached’ to end-user, shelter-buyer employment, income, and credit fundamentals…or, to what end-user, shelter-buyers could really buy using a traditional, 30-year fixed rate mortgage, and a truthful loan application, which was about 30% less.
    What’s really the difference between the ‘unorthodox credit and liquidity’ coming out back then and coming out now from a Fed in reverse? House prices didn’t surpass their 2007 peaks because everybody is working, making more money (with the exception of those in the footprint of tech bubble 2.0). They have been goosed for years by unorthodox demand using unorthodox credit and liquidity (i.e., investors, speculators, flippers, floppers, foreigners, money launderers, options, etc etc) just like in Bubble 1.0.

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

  • NY Fed’s Dudley: ‘Remain Calm!! All Is Well! Flattening Yield Curve Is NOT A Bad Sign For The Economy!!’

    The New York Fed’s President and CEO William (Bill) Dudley just uttered one of the silliest statements of all time at a business forum in Plattsburgh, New York.
    (Bloomberg) – Federal Reserve Bank of New York President William Dudley sounded a positive note on the U. S. economy, saying the central bank wanted to tighten monetary policy ‘very judiciously’ to avoid derailing the expansion that began in mid-2009.

    This post was published at Wall Street Examiner on June 19, 2017.

  • Bi-Weekly Economic Review: Has The Fed Heard Of Amazon?

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    The economic surprises keep piling up on the negative side of the ledger as the Fed persists in tightening policy or at least pretending that they are. If a rate changes in the wilderness can the market hear it? Outside of the stock market one would be hard pressed to find evidence of the effectiveness of all the Fed’s extraordinary policies of the last decade. Even there, I’m not sure QE is actually the culprit that has pushed valuations to, once again, incredible heights. I’m also not sure exactly what the Fed is trying to accomplish and I don’t think it really does either. All evidence points to the nonsensical idea that interest rates need to be raised so the Fed will have room to cut them later. Unfortunately, that is as logical as monetary policy gets these days.
    I may not know what’s going on and Janet Yellen surely doesn’t but the bond market usually does. And unlike Yellen we here at Alhambra do pay attention to what the bond market is telling us. It isn’t a tale of full employment and imminent wage and cost push inflation. It also isn’t a tale of robust growth that needs reining in lest it get out of control and put too many people back to work. So, we are left scratching our collective heads trying to figure out what exactly is motivating Yellen & Co. to try and slow down an economy moving at the speed of a sloth.

    This post was published at Wall Street Examiner by Joseph Y. Calhoun ‘ June 18, 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 Equity Markets Firmer As Oil Stabilizes, Greece Gets Bailout Money

    (Kitco News) – World stock markets were mostly higher overnight. Crude oil prices are firmer today, which helped out the equities. Also, Greece’s creditors approved another release of bailout money for the indebted country, which assuaged European investors. U. S. stock indexes are pointed toward slightly higher openings when the New York day session begins.
    Gold prices are modestly up in pre-U. S. market trading, on a technical and short-covering bounce from solid selling pressure seen earlier this week.
    In overnight news, Russia’s central bank cut its key interest rate by 25 basis points. The Russian ruble rallied on the news.
    The Bank of Japan held its regular monetary policy meeting Friday and made no major changes in its policy.
    The Euro zone’s consumer price index for May was reported down 0.1% from April and up 1.4% from a year ago. The numbers were right in line with market expectations but down from the European Central Bank’s target rate of around 2.0% annual inflation.

    This post was published at Wall Street Examiner on June 16, 2017.

  • Week in Review: June 17, 2017

    The Federal Reserve this week raised the Federal Funds Rate a quarter point to 1.25 percent, bringing the rate to the highest it’s been in eight years. One might now say monetary policy has progressed from a policy of “ultra low” rates to simply a policy of low rates.
    How this will play out over time continues to depend quite a bit on how much the Fed shrinks its balance sheet and how soon a recession descends on the economy.
    Not surprisingly, then, many continue to discuss the best ways to reform the Federal Reserve. But, there’s definitely a wrong way to do this.

    This post was published at Ludwig von Mises Institute on June 17, 2017.

  • The Valium Era

    Don’t Be Fooled by These Calm Markets
    What is happening in the world of money? Well – the most striking thing is: nothing.
    It doesn’t seem to matter what happens. Dysfunction in Washington. Meltdown of the techs. No matter how rough the seas get, the markets glide along… scarcely noticing the storm-tossed waves.
    Thankfully the world’s central planners are so well-versed in egging on the creation of an ever greater mountain of debt and seemingly limitless asset price inflation with their ‘scientific’ monetary policy that a complete blow-up of the the financial system only threatens now and then… most of the time we are in ‘moderation’ mode. Nowadays we are in something that feels like a Valium-induced waking dream. It couldn’t be better… volatility has just served up its greatest disappearance act since the end of the last ‘moderation’. What could possibly go wrong?

    This post was published at Acting-Man on June 16, 2017.

  • Is the Fed Repeating ‘The Mistake of 1937’?

    The esteemed brothers and sisters of the Federal Reserve raised interest rates 0.25% yesterday.
    It was the fourth rate hike since December 2015… and the third in six months.
    Janet Yellen has officially taken to the warpath.
    Phoenix Capital:
    … the Fed is embarked on a serious tightening cycle. One rate hike can be a fluke. Two rate hikes could even be just policy error. But three rate hikes means the Fed is determined.
    But is the Fed repeating ‘the mistake of 1937’?
    Stricken by the Crash of ’29, the American economy was climbing out of its sickbed by 1936.
    Annual GDP growth – real GDP growth – was rising steadily.
    Unemployment was falling, from its 25% high to 14%.
    But by 1936 the Federal Reserve grew anxious, anxious that it was incubating inflation… that its previous loose monetary policy had healed enough.
    It feared any more could start a fever.

    This post was published at Wall Street Examiner on June 15, 2017.

  • Despite Bank Of Canada Hubris, Existing Home Sales Crash In May

    The Bank of Canada is stuck between the rock of a housing bubble (textbook-based trickle-down confidence-inspiration) and a hard place of a housing bubble (total lack of affordability) as it proclaimed this week that it may withdraw stimulus because, paraphrasing, everything was awesome. Well, today’s existing home sales collapse may change that tune quickly…
    Bloomberg reports that in a speech she’s delivering in Winnipeg, Manitoba, Senior Deputy Governor Carolyn Wilkins highlighted how the nation’s recovery is broadening across regions and sectors, giving policy makers ‘reason to be encouraged.’
    ‘As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required,’ Wilkins said in the text of a speech she’s giving Monday.
    ‘At present, there is significant monetary policy stimulus in the system.’

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

  • Pound Spikes As BOE “Hawkish” Vote Surprises Traders

    MPC holds #BankRate at 0.25%, maintains government bond purchases at 435bn and corporate bond purchases at 10bn. pic.twitter.com/0XX5V47QZg
    — Bank of England (@bankofengland) June 15, 2017

    The pound sharply reversed overnight losses (the result of weaker than expected UK retail sales 0.90% Y/Y, exp. 1.7%) rising as much as 0.3% to 1.2794 after the BOE announced it kept rates at 0.25%, however the hawkish surprise was the 5-3 vote, far closer than the 7-1 expected, as two more MPC members , Saunders and McCafferty joined Forbes in calling for a rate hike on the back of rising inflation concerns.
    BANK OF ENGLAND KEEPS KEY INTEREST RATE AT 0.25%; VOTE 5-3 SAUNDERS, MCCAFFERTY JOIN FORBES IN VOTE FOR BOE RATE HIKE Amid market chatter that Forbes would no longer favor a rate hike, the fact that three policy makers voted for a hike sees algo names jumping on the headline, BBg reported.
    As the BOE stated, “Our Monetary Policy Committee has voted 5-3 to keep Bank Rate at 0.25%. The committee voted unanimously to continue with the programmes of corporate bond purchases and UK government bond purchases.” The result on the currency was immediate, sending cable surging on the news of the growing split within the MPC.

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

  • Global Markets Down On More Hawkish Fed, Trump Obstruction Investigation

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    (Kitco News) – World stock markets were mostly weaker overnight. U. S. stock indexes are pointed toward lower openings when the New York day session begins.
    The news reports late Wednesday that special prosecutor Robert Mueller will investigate U. S. President Donald Trump for obstruction of justice has thrown more uncertainty into the world marketplace.
    Gold prices are solidly lower in pre-U. S.-session trading Thursday. The yellow metal is pressured by the hawkish reading the marketplace gave this week’s FOMC meeting.
    The Federal Reserve on Wednesday afternoon raised U. S. interest rates by 0.25%, as expected by most. The Fed said it will also fairly aggressively reduce its big balance sheet of government securities in the coming months. The FOMC statement also said U. S. inflationary pressures have eased a bit recently. However, Fed Chair Janet Yellen at her press conference sounded a more hawkish tone on inflation. After digesting the FOMC statement and Yellen’s remarks, the marketplace deemed this latest Fed meeting as more hawkish on U. S. monetary policy.

    This post was published at Wall Street Examiner by Jim Wyckoff ‘ June 15, 2017.

  • How to Discover Unknown Market Anomalies

    Seasonax Event Studies As our readers are aware by now, investment and trading decisions can be optimized with the help of statistics. After all, market anomalies that have occurred regularly in the past often tend to occur in the future as well. One of the most interesting and effective opportunities to increase profits while minimizing risks at the same time is offered by the event studies section of the Seasonax app.
    As a pertinent example for this, the Federal Reserve Bank of New York published a study in 2011 which examined the effect of FOMC meetings on stock prices. The study concluded that these meetings have a substantial impact on stock prices – and contrary to what most investors would tend to expect, mainly before rather than after the announcement of the committee’s monetary policy decision.

    This post was published at Acting-Man on June 15, 2017.

  • When Will Janet Live Up To Her Reputation?

    I am asking you to put aside all your notions about monetary policy for a moment, and think about the next couple of points with an open mind. Forget about scary Central Bank balance sheets. Fight the urge to worry about the unprecedented quantitative easing programs. Dismiss the warning cries of the frightening levels of debt. Ignore the apocalyptic forecasts of coming stock market crashes. Let’s just have a look at the data. And most of all, let’s not worry about what should be done, but think about what will be done.
    Rightly or wrongly, the Federal Reserve has a dual mandate. They are tasked with maximizing employment and maintaining price stability. Although many will debate what constitutes price stability, the Federal Reserve has interpreted it as a 2% inflation rate. You might think this absurd, so be it. It is what it is. Complaining will get you about as far as yelling at clouds.
    When Janet Yellen took the reins of the Federal Reserve, many pundits predicted a period of exceptionally easy monetary policy as she was widely viewed as a uber dove. But has her reputation proved deserved?

    This post was published at Zero Hedge on Jun 14, 2017.

  • JPM Head Quant Warns Of “Catastrophic Losses” For Short Vol Strategies

    It has been a while since we heard from JPM’s quant guru, Marko Kolanovic, who following the recent FANG crash and quant rotations and ahead of this Friday’s massive S&P op-ex, has published his latest latter, covering everything from the aforementioned market moves, to the ongoing drastic changes in the market structure, to the prevailing low levels of volatility despite the sharp market selloff on May 17 (with no follow through), and finally concludes with his latest near-term market outlook.
    First, when it comes to overall market topology, it should come as no surprise that in a world increasingly dominated by passive strategies, quants and algos, Marko first highlights the significant changes in market structure, of which he writes that “stocks are increasingly caught in powerful cross-currents of passive and quantitative investors.”
    First, some striking facts: to understand this market transformation, note that Passive and Quantitative investors now account for ~60% of equity assets (vs. less than 30% a decade ago). We estimate that only ~10% of trading volumes originates from fundamental discretionary traders. This means that while fundamental narratives explaining the price action abound, the majority of equity investors today don’t buy or sell stocks based on stock-specific fundamentals.
    The next, and perhaps just as important driver is, of course, central banks: “With ~$2T asset inflows per year central bank liquidity creates strong interest rate and policy sensitivity for sectors and styles. Low rates also invite investors to sell volatility.”
    Discussing the recent shift in market correlations, which have become increasingly volatile, Kolanovic notes that their “interpretation has changed.” According to the JPM quant, historically, low correlation meant that stocks were driven by company-specific fundamentals – an environment in which fundamental investors thrive. Now, however, while correlations are low, it is for different reasons – large sector and style rotation driven by quant flows, monetary policy and political developments (e.g. growth-value, low volatility-high volatility, ‘Trump trade’ and its unwind), something we have repeatedly demonstrated over the past month courtesy of the work of RBC’s Charlie McElligott.

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

  • In Gold we Trust: Must See Gold Charts and Research

    In Gold we Trust Report: Bull Market Will Continue
    The 11th edition of the annual ‘In Gold we Trust’ is another must read synopsis of the fundamentals of the gold market, replete with excellent charts by our friend Ronald-Peter Stoeferle and his colleague Mark Valek of Incrementum AG.
    Key topics and takeaways of the report:
    – ‘Sell economic ignorance, buy gold …’
    – Many signals suggest that we are about to face a big shift within the financial and monetary system
    – 5 reasons why the gold bull market will continue
    – Gold’s gains in 2016 dampened due to high expectations of Trump’s growth policy
    – Gold still up 8.5% in 2016 and 10.2% since January 2017
    – Attempt at normalization of U. S. monetary policy will be litmus test for US economy
    – Bitcoin: Digital gold or fool’s gold?

    This post was published at Gold Core on June 13, 2017.

  • The Chinese Trilemma

    The trilemma, also known as the ‘impossible trinity’ is a fundamental thesis of international economics. I’ve covered in detail previously, so this is a short overview.
    It was developed by economists Robert Mundell and Marcus Fleming in the early 1960s.
    In its simplest form, the Mundell-Fleming model says that a country cannot have an open capital account, a fixed exchange rate, and an independent monetary policy at the same time.
    It can have any two out of three, but not all three. A country that attempts to have all three will fail in one of several ways including a reserve crisis, an exchange rate crisis or a recession.
    Despite the warnings that the model provides, China is attempting to pursue the impossible trinity.
    At the Daily Reckoning we’ve covered these Chinese dynamics on our extensively, reporting on the geopolitics at play in China, the global dollar shortage and the indicators of a Chinese collapse.
    An Update on the Chinese Trilemma
    China wants a fixed exchange rate to the dollar, in part to satisfy the Trump administration that it is not a currency manipulator. And China wants an independent monetary policy not tied to the Federal Reserve policy rate, in part to stimulate the economy and keep insolvent SOEs afloat.

    This post was published at Wall Street Examiner on June 12, 2017.