This post was published at World Alternative Media
Janet Yellen and company pretty much followed the script during last week’s Federal Open Market Committee meeting, raising interest rates another .25 percent and signaling three rate hikes in 2018.
We tend to focus primarily on Federal Reserve actions, but it’s important to remember the Fed isn’t the only central bank game in town. While it nudges interest rates slowly upward, the European Central Bank is standing pat on economic stimulus. And there’s no indication that is going to change in the near future.
With its latest rate hike, the Federal Reserve has pushed the Federal Fund Rate to 1.5%. That’s the highest we’ve seen since 2008. Even at that, we’re still well below the 5.25% peak hit during the last expansion.
Meanwhile, ECB chair Mario Draghi announced back in October that quantitative easing would live on in the EU.
This post was published at Schiffgold on DECEMBER 18, 2017.
Authored by Clive Hale via The View From The Bridge blog,
As long time readers will know we do not put much credence in end of year forecasts; nor in fact forecasts in general; the Fed and the Met Office being stand out examples.
As an alternative to what is going to happen in 2018 (“Markets will fluctuate”…attrubuted to J. P. Morgan) we have put together some memorable quotes we have picked up dutring the course of 2017.
Firstly the reality about forecasting –
“Forecasts are financial candy. Forecasts give people who hate the feeling of uncertainty something emotionally soothing.” Thomac Vician Jnr student of Ed Seykota.
And equally damning is this – The Illusion of Certainty
“Many of us smile at old fashioned fortune tellers. But when the soothsayers work with computer algorithms rather than tarot cards, we take their predictions seriously and are prepared to pay for them.” – Gerd Gigerenzer
“Our industry is full of people who got famous for being right once in a row.” Howard Marks
And then we have forecasts with added hubris for good measure…
“Inflation is not where we want it to be or where it should be” Mario Draghi
This post was published at Zero Hedge on Dec 18, 2017.
Did Senators Lee and Rubio (and Hatch) just go full “Leeroy Jenkins”?
A surprise China rate hike (and disappointing retail sales) sparked weakness in Chinese stocks…
Mario Draghi managed to talk the Euro and Bund yields lower (despite attemptting to raise inflation forecasts)…
Since the FOMC meeting, Bonds and Bullion are well bid as stocks and the dollar sink…
This post was published at Zero Hedge on Dec 14, 2017.
Just don’t mention ‘Antonveneta.’ By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. A blame game has begun in Italy that risks casting a bright light on the leadership of both the Bank of Italy and Italy’s financial markets regulator Consob. The controversial decision to award the central bank’s current Chairman Ignazio Visco a fresh six-year mandate despite presiding over one of the worst banking crises in living memory has ignited a tug-of-war between political parties and the president, who makes the ultimate decision on who to appoint as central bank chief.
The first to cast aspersions was Italy’s former premier Matteo Renzi, who, no doubt in an effort to distract from his own party’s part in the collapse of Monte dei Paschi di Siena (MPS), called into question the supervisory role of both the Bank of Italy and Consob during Italy’s banking crisis.
Silvio Berlusconi, a key player in the center-right coalition whose party came out on top in recent elections in Sicily, was next to join the fray. ‘The Bank of Italy did not exercise the control that was expected of it,’ he told reporters in Brussels in response to a pointed question about Visco.
This post was published at Wolf Street on Nov 22, 2017.
This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
November 15 – Bloomberg (Nishant Kumar and Suzy Waite): ‘Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. ‘Have we learned our lesson? It depends what the lesson was…’ Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market ‘could have been dealt with differently.’ And in the ‘so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.’ ‘If you took all of the obvious problems from the financial crisis, we kind of solved none of them,’ Einhorn said… Instead, the world ‘went the bailout route.’ ‘We sweep as much under the rug as we can and move on as quickly as we can,’ he said.’
October 12 – ANSA: ‘European Central Bank President Mario Draghi defended quantitative easing at a conference with former Fed chief Ben Bernanke, saying the policy had helped create seven million jobs in four years. Bernanke chided the idea that QE distorted the markets, saying ‘It’s not clear what that means’.’
Once you provide a benefit it’s just very difficult to take it way. This sure seems to have become a bigger and more complex issue than it had been in the past. Taking away benefits is certainly front and center in contentious Washington with tax and healthcare reform. It is fundamental to the dilemma confronting central bankers these days.
This post was published at Wall Street Examiner on November 18, 2017.
Yesterday’s torrid, broad-based rally looked set to continue overnight until early in the Japanese session, when the USD tumbled and dragged down with it the USDJPY, Nikkei, and US futures following a WSJ report that Robert Mueller had issued a subpoena to more than a dozen top Trump administration officials in mid October.
And as traders sit at their desks on Friday, U. S. index futures point to a lower open as European stocks fall, struggling to follow Asian equities higher as the euro strengthened at the end of a tumultuous week. Chinese stocks dropped while Indian shares and the rupee gain on Moody’s upgrade. The MSCI world equity index was up 0.1% on the day, but was heading for a 0.1% fall on the week. The dollar declined against most major peers, while Treasury yields dropped and oil rose.
Europe’s Stoxx 600 Index fluctuated before turning lower as much as 0.3% in brisk volumes, dropping towards the 200-DMA, although about 1% above Wednesday’s intraday low; weakness was observed in retail, mining, utilities sectors. In the past two weeks, the basic resources sector index is down 6%, oil & gas down 5.8%, autos down 4.9%, retail down 3.4%; while real estate is the only sector in green, up 0.1%. The Stoxx 600 is on track to record a weekly loss of 1.3%, adding to last week’s sell-off amid sharp rebound in euro, global equity pullback. The Euro climbed for the first time in three days after ECB President Mario Draghi said he was optimistic for wage growth in the region, although stressed the need for patience, speaking in Frankfurt. European bonds were mixed. The pound pared some of its earlier gains after comments from Brexit Secretary David Davis signaling a continued stand-off in negotiations with the European Union.
In Asia, the Nikkei 225 took its time to catch up to the WSJ report that US Special Counsel Mueller has issued a Subpoena for Russia-related documents from Trump campaign officials, although reports pointing to North Korea conducting ‘aggressive’ work on the construction of a ballistic missile submarine helped the selloff. The Japanese blue-chip index rose as much as 1.8% in early dealing, but the broad-based dollar retreat led to the index unwinding the bulk of its gains; the index finished the session up 0.2% as the yen jumped to the strongest in four-weeks. Australia’s ASX 200 added 0.2% with IT, healthcare and telecoms leading the way, as utilities lagged. Mainland Chinese stocks fell, with the Shanghai Comp down circa 0.5% as the PBoC’s reversel in liquidity injections (overnight net drain of 10bn yuan) did little to boost risk appetite, as Kweichou Moutai (viewed as a bellwether among Chinese blue chips) fell sharply. This left the index facing its biggest weekly loss in 3 months, while the Hang Seng rallied with IT leading the way higher. Indian stocks and the currency advanced after Moody’s Investors Service raised the nation’s credit rating.
This post was published at Zero Hedge on Nov 17, 2017.
Mario Draghi gave the keynote speech at the Frankfurt European Banking Congress this morning in which he focused on the strong outlook for the Eurozone economy and how his monetary policy is playing a vital role. The speech was peppered with upbeat phrases and adjectives like solid, robust, unabated, endogenous propagation, resilient, remarkable and ongoing. According to Draghi.
The euro area is in the midst of a solid economic expansion. GDP has risen for 18 straight quarters, with the latest data and surveys pointing to unabated growth momentum in the period ahead. From the ECB’s perspective, we have increasing confidence that the recovery is robust and that this momentum will continue going forward. Draghi is confident that future growth will be unabated for three reasons.
Previous headwinds have dissipated; Drivers of growth are increasingly endogenous rather than exogenous; and The Eurozone economy is more resilient to new shocks. In terms of previous headwinds, Draghi notes that global growth and trade have recovered, while the eurozone has de-leveraged.
This post was published at Zero Hedge on Nov 17, 2017.
Mark Thornton of the Mises Institute and our good friend Claudio Grass recently discussed a number of key issues, sharing their perspectives on important economic and geopolitical developments that are currently on the minds of many US and European citizens.
A video of the interview can be found at the end of this post. Claudio provided us with a written summary of the interview which we present below – we have added a few remarks in brackets (we strongly recommend checking the podcast out in its entirety – there is a lot more than is covered by the summary).
We currently find ourselves in a historically and economically significant transition period. The already overstretched bubble in the markets is still expanding, but we now see bold moves by the Fed to reduce its balance sheet, at the same time the ECB plans to taper, overall presenting us with a fairly deflationary outlook. This reversal of the expansionary policies of the last decade can be seen as the first step toward a potentially ferocious correction in the not-too-distant future.
The ECB is trapped, as it already holds 40% of euro zone sovereign debt. At the same time, Spain, Italy and Greece continue to potentially present major challenges, as a banking crisis could easily reemerge in these countries [ed note: banks in Europe have managed to boost their capital ratios, but the amount of legacy non-performing loans in the system remains close to EUR 1 trn. Moreover, TARGET-2 imbalances have recently reached new record highs, a strong sign that the underlying systemic imbalances remain as pronounced as ever]. Mario Draghi intends to reduce the ECB’s asset purchases from EUR60 billion to EUR30 billion per month. He may soon realize that if the ECB does not buy euro zone bonds, no-one will.
This post was published at Acting-Man on November 14, 2017.
The Bank of Italy, when it was headed at the time by Mario Draghi, knew Banca Monte dei Paschi di Siena SpA hid the loss of almost half a billion dollars using derivatives two years before prosecutors were alerted to the complex transactions, according to documents revealed in a Milan court.
Mario Draghi, now president of the European Central Bank, was fully aware of how derivatives were being used to hide losses. Goldman Sachs did that for Greece, which blew up in 2010. It is now showing that Draghi was aware of the problems stemming from a 2008 trade entered into with Deutsche Bank AG which was the mirror image of an earlier deal Monte Paschi had with the same bank. The Italian bank was losing about 370 million euros on the earlier transaction, internally they called ‘Santorini’ named after the island that blew up in a volcano. The new trade posted a gain of roughly the same amount and allowed losses to be spread out over a longer period. We use to call these tax straddles.
This post was published at Armstrong Economics on Nov 13, 2017.
The ECB faces the Devil’s Alternative that Frederick Forsyth mentioned in one of his books. All options are potentially riskly. Mario Draghi knows that maintaining the so-called stimuli involves more risks than benefits, but also knows that eliminating them could make the eurozone deck of cards collapse.
Despite the massive injection of liquidity, he knows that he can not disguise political risks such as the secessionist coup in Catalonia. The Ibex reflects this, making it clear that the European Central Bank does not print prosperity, it only puts a floor to valuations.
The ECB wants a weak euro. But it is a game of juggling to pretend a weak euro and at the same time a strong economy. The European Union countries export mostly to themselves. Member countries sell more than two-thirds of their goods and services to other countries in the eurozone. Therefore, the more they export and their economies recover, the stronger the euro, and with it, the risk of losing competitiveness. The ECB has tried to break the euro strength with dovish messages, but it has not worked until political risk reappeared. With the German elections and the prospect of a weak coalition, the results of the Austrian elections and the situation in Spain, market operators have realized – at last – that the mirage of ‘this time is different ‘in the European Union was simply that, a mirage.
This post was published at Ludwig von Mises Institute on 11/09/2017.
The global risk levitation continues, sending Asian stocks just shy of records, to the highest since November 2007 and Japan’s Nikkei topped 22,750 – a level last seen in 1992 – while European shares and US equity futures were mixed, and the dollar rose across the board, gains accelerating through the European session with EURUSD sumping below 1.16 shortly German industrial output shrank more than forecast, eventually dropping to the lowest point since last month’s ECB meeting. Meanwhile soaring iron-ore prices couldn’t provide relief to the Aussie as the RBA held rates unchanged as expected; Oil traded unchanged at 2.5 year highs, while TSY 10-year yields rose while the German curve bear steepened, both driven by selling from global investors.
The Stoxx Europe 600 Index edged lower, erasing an early advance, despite earlier euphoria in stocks from Japan to Sydney, which reached fresh milestones. Disappointing reports from BMW AG and Associated British Foods Plc weighed on the European index as third-quarter earnings season continued. Earlier, the Stoxx Europe 600 Index rose as much as 0.3%, just shy of a 2-year high it reached last week. Maersk was among the worst performers after posting a quarterly loss, saying a cyberattack in the summer cost more than previously predicted. Spain’s IBEX 35 gains crossed back above its 200 day moving average. European bank stocks trimmed gains after European Central Bank President Mario Draghi said that the problem of non-performing loans isn’t solved yet, though supervision has improved the resilience of the banking sector in the euro region. Draghi was speaking at a conference in Frankfurt.
Over in Asia, equities rose to a decade high, with energy and commodities stocks leading gains as oil and metals prices rallied. The MSCI Asia Pacific Index gained 0.8 percent to 171.40, advancing for a second consecutive session. Oil-related shares advanced the most among sub-indexes as Inpex Corp. rose 3.7 percent and China Oilfield Services Ltd. added 4.6 percent. The MSCI EM Asia Index climbed to a fresh record. The Asia-wide gauge has risen 27 percent this year, outperforming a measure of global markets. The regional index is trading at the highest level since November 2007. Hong Kong’s equity benchmark was at its highest since December 2007 as Tencent Holdings Ltd. advanced for an eighth session. Australia’s S&P/ASX 200 index closed at its highest level since the financial crisis.
This post was published at Zero Hedge on Nov 7, 2017.
Recently, Fine Gael party PR machine promoted as a core economic policy achievement since 2011 election the dramatic reduction in Ireland’s unemployment rate. And in fact, they are correct to both, highlight the strong performance of the Irish economy in this area and take (some) credit for it. The FG-led governments of the recent years have been quite positive in terms of their policies supporting (or at least not hampering) jobs creation by the MNCs. Of course, they deserve no accolades for jobs creation by the SMEs (which were effectively turned into cash cows for local and central governments in the absence of any government power over taxing MNCs), nor do they deserve any credit for the significant help in creating MNCs’ jobs that Ireland got from abroad.
Now, to briefly explain what I mean by it: several key external factors helped stimulate MNCs-led new jobs creation in Ireland. Let me name a few.
ECB. By unleashing a massive QE campaign, Mario Draghi effectively underwritten solvency of the Irish State overnight. Which means that Dublin could continue avoiding collecting taxes due from the MNCs. And better, Mr Draghi’s policies also created a massive carry trade pipeline for MNCs converting earnings into corporate debt in Euro area markets. The combined effect of the QE has been a boom in ‘investment’ into Ireland, and with it, a boom of jobs. OECD. That’s right, by initiating the BEPS corporation tax reform process, the arch-nemesis of Irish tax optimisers turned out to be their arch blesser. OECD devised a system of taxation that at least partially, and at least in theory, assesses tax burdens due on individual corporations in relation physical tangible activities these corporations carry out in each OECD country. Tangible physical activity can involve physical capital investment (hence U. S. MNCs rapidly swallowing up new and old buildings in Ireland, that’s right – a new tax offset), an intangible Intellectual Property ‘capital’ (yep, all hail the Glorious Knowledge Development Box), and… err… employment (that is why Facebook et al are rushing to shift more young Spaniards and Portuguese, French and Dutch, Ukrainians and Italians, Poles and Swedes… into Dublin, despite the fact they have no where to live in the city).
This post was published at True Economics on Tuesday, November 7, 2017.
Central bank quantitative easing is a little like a zombie. It dies – but it never really dies.
There’s been a lot of focus on the Federal Reserve raising interest rates and unwinding its balance sheet. Sometimes it’s easy to forget the Fed isn’t the only game in town. While most people consider QE dead and buried in the US, it remains alive and kicking in other parts of the world.
Yesterday, the European Central Bank (ECB) announced it would extend its bond-buying program deep into 2018, continuing the flow of easy money into the European Union. ECB President Mario Draghi said the central bank would cut its bond purchases in half beginning in January, a faint hint at eventual normalization. But the central bank president left the door open to backtracking.
Draghi said the EU’s economy is improving, but still needs support.
Domestic price pressures are still muted overall and the economic outlook and the path of inflation remain conditional on continued support from monetary policy. Therefore, an ample degree of monetary stimulus remains necessary.’
This post was published at Schiffgold on OCTOBER 27, 2017.
ECB President Mario Draghi is now walking back QE.
This is not a surprise to our readers. I’ve been forecasting this exact development, (as well as the Euro’s spike to 120) since August 2016 (by the way, the Euro was at 109 back then and everyone thought it would soon reach parity with the $USD as it collapsed). Still, why is Draghi doing this?
Because the bond market was in revolt, with yields beginning to rise. Rising yields= falling bond prices. Falling bond prices over time= bear market in bonds. Bear market in bonds = SYSTEMIC reset.
We explain all of this in our bestselling book The Everything Bubble: The End Game For Central Bank Policy. If you’ve yet to pick up a copy, grab one now. You’ll immediately know more about how the financial system works (as well as what’s to come) than anyone else in your social circle.
The bottomline is as follows…
This post was published at GoldSeek on 26 October 2017.
Following up to our earlier preview of today’s critical ECB announcement, here is Bloomberg macro commentator Tanvir Sundhu, who says not to sweat what Draghi says today as the ECB will be able to avoid a “taper tantrum” (for now) and as a result the risk isn’t that the ECB is going to set off a sustained bond bear market, but – due to the shortage of monetizable assets – “it’s that it might find itself low on ammunition if the economy or prices suddenly turn south.”
From Sundhu’s latest Macro View:
No Taper Tantrum In Sight, But ECB Ammo Running Low
Markets will avoid a taper tantrum when the ECB announces its well-telegraphed plan for reducing QE today.
Bond spreads and volatility are well-behaved, supporting carry trades in the near-term.
Lower QE purchases for longer has become consensus: 30 billion euro per month for nine months beginning from January. This will strengthen forward guidance and may limit moves higher in the euro.
Given the need to buy more time, Mario Draghi’s caution about any tightening of financial conditions amid low core inflation means that policy won’t stray too far from the middle ground.
Within its self-imposed limits on QE purchases, the ECB needs to be able to further ease at any point while keeping bond-market volatility contained.
This post was published at Zero Hedge on Oct 26, 2017.
Today’s ECB meeting is expected to be one of the most important in recent years: Mario Draghi has signaled, and is widely expected to announce a blueprint of what the central bank’s QE tapering will look like beyond 2017, and while no actual tightening will be implemented – either via rates of asset purchases – the ECB is expected to announce it will cut its 60bn/month bond purchases in roughly half starting in January 2018 and lasting for the next 9-15 months.
Courtesy of RanSquawk, here are the key parameters of Thursday’s meeting:
Rate Decision due at 1245BST/0645CDT and Press Conference at 1330BST/0730CDT The ECB is widely expected to keep all rates on hold, with rate hikes not expected until after conclusion of current QE programme The ECB is expected to unveil a road-map for reducing the pace of asset purchases given rhetoric from Draghi at the previous press conference Consensus far from clear on how much the ECB will reduce purchases by and how long they will be extended for RATE/ASSET PURCHASE EXPECTATIONS
DEPOSIT RATE: Forecast to remain unchanged at -0.40%. The rate was last adjusted in March 2016, when it was cut by 10bps. REFI RATE: Forecast to remain unchanged at 0.00%. The rate was last adjusted in March 2016, when it was cut by 5bps. MARGINAL RATE: Forecast to remain unchanged at 0.25%. The rate was last adjusted in March 2016, when it was cut by 5bps. ASSET PURCHASES: Views on this front are particularly wide-ranging. A Reuters poll suggests that the ECB will start trimming monthly asset purchases to EUR 40bln from current EUR 60bln in January. Views are mainly split on whether this will be via a 6- or 9-month extension. However, Bloomberg News reports that the Bank will half purchases to EUR 30bln (a view backed by recent source reports) while extending the programme by 9-months in order to take the total size of purchases to around EUR 2.5trl; a level seen by some as their maximum purchase limit. (Discussed in greater detail later on in the report)
This post was published at Zero Hedge on Oct 26, 2017.
Gold prices fell to the lowest in 3 weeks against all major currencies in London on Wednesday, falling as world stock markets rose after Wall Street set fresh all-time highs despite growing expectations of tighter central-bank policy in the US, UK, and Eurozone.
UK government Gilt yields jumped to their highest since February followed stronger-than-expected GDP growth for Q3, while US 10-year Treasury yields rose to fresh 7-month highs of 2.45% after news reports said Republican lawmakers advised President Trump to pick “hawkish” economist John Taylor as the next chair of the Federal Reserve.
“Nothing less than the big ‘taper’ plan for next year is expected from Mario Draghi” at tomorrow’s European Central Bank press conference, says CNBC.
Eurozone stock markets edged higher on Wednesday but London’s FTSE100 slipped and the UK-focused FTSE250 held flat after new GDP figures said economic growth held at 1.5% per year in the third quarter of 2017.
This post was published at FinancialSense on 10/25/2017.
Don’t assume the euro will rally when the ECB makes its expected “hawkish” announcement of QE taper plans, according to Bloomberg FX commentator Vassilis Karamanis. In fact, there’s an argument for the opposite occurring. Karamanis explains why the most anticipated move in the markets on Thursday may again be a fade.
Euro Bears May Get Their Chance When Draghi Speaks: Macro View
Policy makers have done a very good job communicating their plans since the idea of a taper first caught traders’ attention. The consensus case is now for the ECB to signal a nine-month extension to its asset-purchase program at a reduced pace of around 30 billion euros a month.
Unless Mario Draghi sounds hawkish (by not talking down the euro or by suggesting interest rates will rise soon after the end of QE), euro bears could take it as a signal to chase a move toward October lows.
This post was published at Zero Hedge on Oct 24, 2017.
The main risk event in the coming week, in addition to a barrage of corporate earnings, will be the ECB’s long-awaited announcement of what the central bank’s QE tapering will look like. Conveniently, thanks to a trial balloon released on October 12, we already know the general parameters of this phasing out of monetization: ECB officials are considering cutting their monthly bond buying by at least half, from 60BN to 30BN, starting in January and keeping their program active for at least nine months, with some potential reference to a lengthening of the maturity of purchases.
According to a Bloomberg survey, the ECB will likely keep buying for about nine months to take the program to just over 2.5 trillion, respondents said before the ECB’s Oct. 26 decision. That’s consistent with what some officials see as the limit in the market under current rules. ECB President Mario Draghi is predicted to announce his first interest-rate increase in early 2019.
This post was published at Zero Hedge on Oct 22, 2017.