Posts Tagged: central banks


The eurozone is “untenable” in its current form and cannot survive unless countries are prepared to cede sovereignty and become a “United States of Europe”, the manager of the world’s biggest bond fund has warned.

The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together.

Persistently weak growth in the eurozone had led to voter unrest and the rise of populist parties such as Podemos in SpainSyriza in Greece, and Front National in France, said PIMCO managing directors Andrew Bosomworth and Mike Amey.

“The lesson from history is that the status quo we have now is not a tenable structure,” said Mr Bosomworth. “There’s no historical precedent that this sort of structure, which is centralised monetary policy, decentralised fiscal policy, can last over multiple decades.”

>> Read More


Lenders saw their customers’ deposits shrink further last month, Bank of Greece data showed on Thursday, while the flight appears to be continuing this month. On the bright side, the European Central Bank gave the local credit sector a fresh liquidity cushion on Wednesday.

February drained Greek bank accounts of another 7.6 billion euros, taking the three-month decline since the end of November to 23.8 billion euros. Consequently, the Greek bank deposit balance stood at 140.47 billion euros at the end of February, the lowest since March 2005, putting great pressure on local lenders’ liquidity.

The European Central Bank slightly eased the pressure on Greek banks on Wednesday, allowing them more access to emergency liquidity assistance (ELA) via the Bank of Greece. The mechanism’s ceiling has been lifted by another 2 billion euros to reach up to 71 billion euros, with a view to a new revision next Wednesday.

However, Frankfurt again made it clear to Greek banks that the additional liquidity is not to be used for the purchase of Greek treasury bills, beyond the total amount of 15 billion euros that has already been met. >> Read More


Germany has auctioned 10-year bonds at a record low yield of just 0.25 per cent, as the European Central Bank’s quantitative easing programme stokes the already ravenous appetite for eurozone debts.

Berlin’s 10-year bond yield has been lower recently – touching a nadir of 0.186 per cent on March 12 – but this is the lowest ever actual borrowing cost enjoyed by Europe’s most creditworthy country.

The Bundesbank, on behalf of the German government, auctioned €3.3bn of the bond maturing in February 2025, after attracting a whopping order book of €7.81bn.

At the last 10-year auction in February investors only placed €4.8bn of bids, and the deal was priced at a yield of 0.37 per cent.


The Bank of Japan maintained its aggressive monetary policy in place on Tuesday despite growing deflationary pressures in the world’s third largest economy.

However inflation expectations flattened, the BoJ saying in its monthly policy statement that year-on-year CPI growth is “likely to be about 0 per cent” due to falling energy prices.

Japan’s inflation target is in focus as the country tries to end two decades of deflation that has contributed to the moribund economy. Two years ago Bank of Japan governor Haruhiko Kuroda set a new 2 per cent inflation target and pledged to hit it “at the earliest possible time, with a time horizon of about two years”. However a steep fall in global oil prices is likely to plunge Japan back into deflation for much of this year.

Otherwise the BoJ stood pat, saying it will continue buying Y80tn worth of assets a year as it attempts to stimulate the economy and revive inflation, in line with expectations.

As usual, its statement appeared relatively upbeat, maintaining the view that the Japanese economy is continuing “its moderate recovery trend.”


Germany’s Dax Index has broken through 12,000 for the first time as sentiment in European equity markets continues to enjoy a boost from the European Central Bank’s €60bn-a-month bond-buying programme, which began last week.

The index nudged above 12,001.98 before falling back slightly. It is trading up 0.81 per cent at 11,998.24 at pixeltime.

European equity markets have started the week on the front foot as as the ECB’s landmark QE programme continues to support sentiment, despite continued uncertainty around Greek debt talks.

The Dax is a total return index, meaning it takes into account the dividends and other cash returns paid by its components, making its journey into record territory easier than some of its peers.


The most important event next week is the FOMC meeting followed by a press conference by Yellen.  In order to maximize its room to maneuver, we expect the FOMC statement will drop the patience that has characterized its forward guidance since last December. 

This represents an evolution in the Fed’s strategy to normalize monetary policy.   They have reduced the time of their forward guidance from around six months (considerable period) to two meetings (patience).  Yellen more or less executed the strategy that Bernanke outlined for tapering. Shifting away from the date-dependent approach to the data-dependent is under Yellen’s leadership. 

The Fed’s biggest concern with the shift is that the markets will misinterpret this as a sign of an imminent hike.  As she did in her Congressional testimony, we expect Yellen to explain that this is not the case.  Indeed the next FOMC meeting April 28-29 and there is practically no chance of a hike then.  However, the June meeting, which is followed by a press conference, is a different story. 

We continue to see June as the most likely time frame for lift-off, but recognize the risk of a short delay, as the Fed did when it began the tapering in December 2013 instead of September as many expected.   The data-dependency comes down to largely two considerations.  First is the continued improvement in the labor market, broadly understood.  Second, is that the FOMC has to be confident that inflation will rise toward 2% in the medium term. >> Read More


The ECB began a programme of buying sovereign bonds, or quantitative easing, on Monday with a view to supporting growth and lifting euro zone inflation from below zero up towards its target of just under 2 percent. 

Bond yields in the currency bloc have collapsed, but record low interest rates so far have not spurred investments that would support growth in recession-hit countries like Italy or Spain. 

“QE is all around us and optimism is in the air,” Varoufakis told a business audience in Italy. “At the risk to sound the party pooper … I find it hard to understand how the broadening of the monetary base in our fragmented and fragmenting monetary union will transform itself into a substantial increase in productive investments. 

“The result of this is going to be an equity run boost that will prove unsustainable,” he said.  >> Read More

Overnight US Market

12 March 2015 - 4:55 am

A day after the Dow’s worst one-day point drop in five months, stocks fell further Wednesday as Wall Street continues to react to the sharp decline in the euro and its impact on global financial assets following the launch this week of a government bond-buying program by the European Central Bank.

The Dow Jones industrial average fell 27.55 points, or 0.2%, to close at 17,635.39 and the Standard & Poor’s 500-stock index dropped 3.92 points, or 0.2%, to 2040.24. The Nasdaq composite index fell 9.85 points, or 0.2%, to 4849.94.

The drop follows the Dow’s 333-point drop Tuesday that sent the blue-chip index back into negative territory for 2015. It was the Dow’s worst 2-day drop since Jan. 27-28. The S&P 500 fell 35 points Tuesday and also fell into the red for the year.

European markets rose after European Central Bank chief Mario Draghi said that the region’s economic recovery was gathering steam, and that it will continue to strengthen as its recently launched bond-buying program takes hold. >> Read More


The day has finally arrived.

The European Central Bank begins its landmark bond-buying programme today, in a bid to help the eurozone’s economic recovery shift up a gear and stave off the threat of a period of sustained deflation.

According to Bloomberg, the ECB has started buying German government bonds this morning.

The central bank is projected to buy up to €850bn in eurozone government bonds until September 2016.

Combined with purchases from the private sector and eurozone institutions, the ECB will purchase €60bn of debt a month. It has said it will extend the programme if inflation fails to take hold. >> Read More


Should Brussels ultimately reject Greece’s proposals, Varoufakis told Italian daily Corriere della Sera:

There could be problems. But, as my prime minister has said, we are not yet glued to our chairs. We can return to elections, call a referendum 

In the interview, Varoufakis said that the response so far by Eurozone partners to his proposals to replace its current debt with bonds linked to nominal growth is “silence.” 

I’d like for Europe to understand that this would be a way of paying back more money, not less,” Varoufakis said of the growth-linked bonds. 

Varoufakis said that the state had the money “to pay pensions and public administration salaries” and he said Greece does not need a new, third loan to pay its bills.

He also criticized the European Central Bank for being “disciplinary” in not letting Athens issue more short-term debt, and said the central bank should buy Greek debt as part of its bond-buying program right away and not this summer, as it has said it would. >> Read More

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Technically Yours,
Team ASR,
Baroda, India.