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Tue, 28th March 2017

Anirudh Sethi Report

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Archives of “bank of england” Tag

Ghana central bank suprises with interest rate cut to 23.5%

Ghana’s central bank has cut its main policy rate by 200 basis points this month after the west African economy saw a drop in inflation at the start of the year.

The move to lower rates to 23.5 per cent marks only the second rate cut since 2011 after interest rates were trimmed back in November. Analysts polled by Bloomberg had forecast no change this month.

David Stockman Offers “More Proof Of Janet Yellen’s Idiocy”

During the last 129 months, the Fed has held 86 meetings. On 83 of those occasions it either cut rates or left them unchanged.

So you can perhaps understand why Wednesday’s completely expected (for the last three weeks!) 25 bips left the day traders nonplussed. The Dow rallied over 100 points that day.

Traders understandably believe that this monetary farce can continue indefinitely, and that our Keynesian school marm’s post-meeting presser was evidence that the Fed is still their friend.

No it isn’t!

Our monetary politburo has expanded its balance sheet by a lunatic 22X during the last three decades and in the process has systematically falsified financial asset prices and birthed a mutant debt-fueled of simulacrum of prosperity.

But once it begins to withdraw substantial amounts of cash from the canyons of Wall Street as per its newly reaffirmed “normalization” policy, the whole house of cards is destined to collapse.

There will be a stock market implosion soon, and that will in turn generate panic in the C-suites as the value of stock options vanish. Like in the fall of 2008 — except on an even more sweeping and long-lasting scale — corporate America will desperately unload inventories, workers and assets to appease the robo-machines of Wall Street.

But there is nothing left to brake the casino’s fall.

Upcoming Week :Fed speakers, Russia probe, Isis fight

With a rate rise in the books investors get to hear from a handful of Federal Reserve speakers next week. On the geo-political front a hearing on Russia’s interference in the US presidential election and a meeting on combatting Isis take the spotlight.

Here’s what to watch in the coming days.

Fed speakers

“Moreover, we’d also look for clarification on the addition of ‘symmetric’ in the press statement when it came to defining the inflation reaction function,” strategists at RBC Capital Markets said. “Our sense is that this was in an effort to put an end to inflation level targeting—also not a dovish development.”

Ms Yellen will deliver the opening keynote at the Federal Reserve System Community Development Research Conference in Washington on Thursday. Through the week, investors also get to hear from voting members of the monetary policy setting Federal Open Market Committee, including Chicago Fed president Charles Evans, Dallas Fed president Robert Kaplan and Minneapolis Fed president Neel Kashkari — the only voting FOMC member to dissent at the March meeting and who has explained his rationale for the move on Friday.

On the economic data front, the calendar is fairly light but investors will keep an eye on fourth quarter current account deficit figures due Tuesday and durable goods orders slated for Friday.

Russia probe

Why China Unexpectedly Hiked Rates 10 Hours After The Fed

As we reported on Wednesday evening, something interesting took place on Thursday morning in Beijing: in a case of eerie coordination, China tightened monetary conditions across many of the PBOC’s liquidity-providing conduits just 10 hours after the Fed raised its own interest rate by 0.25% for only the third time in a decade.

The oddly matched rate hikes, prompted Bloomberg to think back to the mysterious “Shanghai Accord” of February 2016, which took place during the peak days of last year’s global capital markets crisis, and whose closed-door decisions – to this day kept away from the public – prompted the market rally that continues to this day. As Bloomberg wrote, the coordinated “response suggests that pledges by the Group of 20 economies a little over a year ago in Shanghai to “carefully calibrate and clearly communicate” policies may not have been hollow after all.”

That said, it was not the first time the People’s Bank of China has acted on the heels of a Fed move. At the peak of the financial crisis, the PBOC cut lending rates after six of its counterparts, including the Fed, had announced a simultaneous rate cut. That October 2008 move enhanced China’s emerging reputation as a global player on the international economic-policy circuit. “Growth divergence is morphing into growth synchronization,” said Chua Hak Bin, a Singapore-based senior economist with Maybank. “Policy divergence was also a narrative for those expecting a strong dollar, but that is moving now to policy synchronization.”

Coordinated or not, as of last night financial conditions in China, like in the US, have become incrementally tighter even if both the Chinese and US stock markets failed to respond accordingly.

Greenback Consolidates Losses as Yields Stabilize

The US dollar remained under pressure in Asia following the disappointment that the FOMC did not signal a more aggressive stance, even though its delivered the nearly universally expected 25 bp rate hike.  News that the populist-nationalist Freedom Party did worse than expected in the Dutch elections also helped underpin the euro, which rose to nearly $1.0750 from a low close to $1.06 yesterday.  European activity has seen the dollar recover a little, but the tone still seems fragile, even though US interest rates have stabilized and the 10-year Treasury yield is back above the 2.50% level. 
The US premium over Germany on two-year money peaked a week ago near 2.23.  After the US yield fell in response to the Fed’s move, the spread finished near 2.12%, from which it has not moved far.  Initial euro support has been found a little above $1.07.  The first retracement target of the run-up is a little below there at $1.0690.  The other retracement targets are seen near $1.0675 and $1.0655. 
Few expected the Wilders in the Netherlands to have a say in the next Dutch government.  He drew about 13% of the vote and will hold about 20 seats, which is five more than currently.  Prime Minister Rutte’s party appears to have received the most votes and 33 seats, down from 41.  The other coalition partners did worse.  In particular, the disastrous showing of Labor means that Dijsselbloem, the current finance minister and head of the Eurogroup of finance ministers is unlikely to hold his post.  Labor may have less than 10 seats in the new parliament, down from 38.  The other coalition partner, Liberals, lost eight seats.  

Atlanta Fed Slashes Q1 GDP Forecast To Just 0.9% Hours Before Fed Rate Hike

While it may not be the very definition of irony, we do find the fact that the Atlanta Fed has just cut its Q1 GDP forecast from 1.2% to 0.9%, a number which if confirmed would be the lowest quarterly print in year, just two hours before the Fed’s rate hike quite humorous. As a reminder, the number was as high as 3.4% one and a half months ago.

From the Atlanta Fed

Latest forecast: 0.9 percent — March 15, 2017 

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.9 percent on March 15, down from 1.2 percent on March 8. The GDP growth forecast declined 0.3 percentage points on Friday when the February estimate of the model’s latent dynamic factor used to forecast yet-to-be released GDP source data declined after the employment situation release from the U.S. Bureau of Labor Statistics (BLS). The forecast for first-quarter real consumer spending growth inched down from 1.6 percent to 1.5 percent after this morning’s retail sales report from the U.S. Census Bureau and the Consumer Price Index release from the BLS.

 

Japan Begins QE Tapering: BOJ Hints It May Purchase 18% Less Bonds Than Planned

With the Fed expected to further tighten financial conditions following its now guaranteed March 15 rate hike, and the ECB recently announcing the tapering of its QE program from €80 to €60 billion monthly having run into a substantial scarcity of eligible collateral, the third big central bank – the BOJ – appears to have also quietly commenced its own monteary tightening because, as Bloomberg calculates looking at the BOJ’s latest bond-purchase plan, the central bank is on track to miss an annual target, by a substantial margin, prompting investor concerns that the BOJ has commenced its own “stealth tapering.”

While in recent weeks cross-asset traders had been focusing on the details and breakdown of the BOJ’s “rinban” operation, or outright buying of Japan’s debt equivalent to the NY Fed’s POMO, for hints about tighter monetary conditions and how the BOJ plans to maintain “yield curve control”, a far less subtle tightening hint from the BOJ emerged in the central bank’s plan released Feb. 28, which suggests a net 66 trillion yen ($572 billion) of purchases if the March pace were to be sustained over the following 11 months. As Bloomberg notes, that’s 18 percent less than the official target of expanding holdings by 80 trillion yen a year.

Some more details: the central bank forecast purchases of 8.9 trillion yen in bonds in March, based on the midpoint of ranges supplied in the operation plan. Maintaining that pace for 12 months will see it accumulate about 107 trillion yen of debt. At the same time, 41 trillion yen of existing holdings will mature, leaving it with a net increase of 66 trillion yen, well below the stated goal of 80 trillion yen.

Upcoming Events for this week

The European Central Bank was just a teaser! Plenty more central banker action this week, amongst other things:

TUESDAY 14 March 2017:
China 
  • February industrial production, fixed-asset investment growth & retail sales
WEDNESDAY 15 March:
U.S.:
  • Inflation and retail sales data for February
  • Oh yeah … and its Federal Reserve FOMC decision day! :-D. A hike is very widely expected. And don’t miss the statement & press conference
THURSDAY 16 March:
Japan:
  • BOJ announcement, likely no change (Kuroda presser to follow later)

EUR/CHF hits the highest since December 8. Mystery abounds.

EUR/USD up almost 100 pips today

Here is one theory:

The Eurozone economy is out of the deflationary-crisis mode. Draghi drove down government borrowing costs and the economy is beginning to turn the corner. In addition, yesterday he signaled that policy is shifting towards neutral.

Here is another theory:

Eurozone political risks are as high as ever. There is an election on Wednesday on the Netherlands that will almost certainly end in gridlock. That will be followed by a vote in France at the end of April where one of the leading candidates wants to quit the euro.

On top of that, sight deposit data shows recent SNB intervention. FX holdings at the central bank were up 3.8% in February, the biggest rise since December 2014.

A third theory:

The SNB is preparing to do more, in the form of cutting rates deeper and the insiders are getting their money out of franc.

The market is laser-focused on the Fed decision on March 15, but about 14 hours later, the SNB decision could steal the show

Fed to make sequential hikes until ‘something breaks’: Jeffrey Gundlach

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Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said on Tuesday he expects the Federal Reserve to begin a campaign this month of “old school” sequential interest rate hikes until “something breaks,” such as a U.S. recession.

Gundlach, who oversees more than $101 billion at Los Angeles-based DoubleLine, said U.S. economic data support a rate increase as soon as the next Fed policy meeting on March 14-15, and further rises this year, after a series of false starts in 2015 and 2016.

“Confidence in the Fed has really changed a lot,” Gundlach said on an investor webcast. “The Fed has gotten a lot of respect with the bond market listening to the Fed” now that economic data support the tough rhetoric from Fed officials.

New York Fed President William Dudley, whose branch of the U.S. central bank serves as its eyes and ears on Wall Street and who generally spends a couple of hours a week planning policy with Fed Chair Janet Yellen, played a key role in orchestrating the messaging of a March rate hike.