01 November 2014 - 9:41 am
In short, it’s a busy start to November.
After central bank action this week from the Federal Reserve, Bank of Japan, and Reserve Bank of New Zealand, two major European central banks take centre stage in the week ahead.
In the US, the latest check on the labour market and a dose of politics are in store.
Here’s what to watch for:
All eyes are set on the monthly non-farm payrolls report due next Friday. The US economy is expected to have added 234,000 jobs in October, while the unemployment rate is projected to remain unchanged at 5.9 per cent.
Other key economic reports set for release next week include the ISM manufacturing survey and the trade balance. Also out next week: auto sales for October.
US mid-term elections
Republicans will try to take control of the Senate in the US mid-term elections next week. The results will have implications for the last two years of President Barack Obama’s term in office.
Polls show Republicans have a slight edge, although key races in Georgia, Iowa and Kansas could end up swinging the election in Democrats favour.
European Central Bank
The ECB is expected to keep its main refinancing rate unchanged at 0.05 per cent when it announces its decision on Thursday. Markets will be listening for comments from ECB president Mario Draghi on speculation that the central bank will start to purchase corporate bonds. >> Read More
30 October 2014 - 5:57 am
Stocks closed lower Wednesday after the Federal Reserve, as expected, said it is ending its stock-friendly ‘QE’ program.
The Dow Jones industrial average fell 31.44 points, or 0.2%, to 16,974.31 and the Standard & Poor’s 500 index dipped 2.75 points, or 0.2%, to 1982.30.
The Nasdaq composite index dropped 15.07 points, or 0.3%, to 4549.23.
Quantitative easing, the bond-buying experiment the Federal Reserve hatched during the financial crisis, was phased out by the Fed, which concluded a two-day meeting Wednesday.
At the same time, the Fed pledged to keep its benchmark short-term interest rate near zero for a “considerable time” after the bond buying ends. >> Read More
30 October 2014 - 0:24 am
When no lessor man that WSJ’s Jon Hilsenrath struggles to find anything dovish among the rubble of the QE-ending FOMC statement, it appears the dovish observers have something to worry about…
Via WSJ’s Jon Hilsenrath,
The Federal Reserve on Wednesday said it would stop its long-running bond purchase program at the end of October, ending a historic experiment that has stirred intense debate about its effects in markets even though the central bank said it accomplished its main goal of reducing unemployment.
At the same time, the Fed upgraded its assessment of the job market’s performance while pointing to some short-term downside risks on inflation. It stuck to an assurance that short-term interest rates will remain near zero for a “considerable time.”
Taken together, the moves mark a vote of confidence by the Fed in the U.S. economy, which appears to have grown at a pace near 3% or more in the third quarter. That’s a much better performance than rivals in Japan and Europe and a hopeful sign for the world economy when growth in China appears to be flagging.
Pointing to “solid job gains” and a falling unemployment rate, the Fed said a range of labor market indicators suggest that labor market slack is “gradually diminishing.” In the process it struck from the statement an earlier assessment that labor market slack was substantial, a phrase investors have been watching closely for signs the Fed is becoming more confident about the economy. >> Read More
27 October 2014 - 20:34 pm
The European Central Bank has kicked off its latest monetary easing programme with €1.7bn worth of covered bond purchases in its first week.
The ECB started buying covered bonds – highly rated bank debt backed by underlying assets like mortgages – early last week, as part of a plan to boost its balance sheet by about €1tn to revive growth and stave off the threat of deflation.
The central bank is also set to start buying other asset-backed securities in a separate but related programme. But hitting the €1tn target will be tricky in the covered bond and ABS markets, given their size and the ECB’s insistence on only snapping up more highly rated debt.
Coupled with sagging growth and the undiminished danger of deflation in the common currency area, that has led to speculation that the ECB will eventually have to embark on a full “quantitative easing” programme and buy eurozone sovereign debt.
20 October 2014 - 16:08 pm
The European Central Bank has started to buy covered bonds, launching its latest attempt to stave off a vicious bout of economic stagnation in the currency area.
A spokesperson for the ECB confirmed that the central bank had begun purchasing the assets on Monday,
The purchases are the first in a bond-buying programme which is expected to see the ECB place billions of euros of covered bonds and asset-backed securities on its balance sheet over the next two years in an attempt to revive lending and growth across the region. >> Read More
16 October 2014 - 10:30 am
Never before have quasi-omnipotent financial gods had so few powers. A lot is being written about central bank policies now as the Federal Reserve ends its primary quantitative easing (QE) program and the limitations of central bank easing become increasingly apparent in Europe and Japan.
Let’s start by listing the tools central banks have on hand. Strip away the fancy footwork and econospeak mumbo-jumbo, and what’s left is:
1. Offer cheap credit to the banking sector, the idea being that the banks will use the free money to make loans to households and businesses. These new loans would inject the central banks’ new money into the real economy.
2. Buy bonds to push interest rates down and buy mortgages to support the housing market.
3. Provide unlimited liquidity so banks and key financial institutions facing a liquidity crunch have a lender of last resort.
The basic idea here is that central banks provide a buffer against financial crises. When short-term loans come due and the borrower has run out of cash, rather than slip into insolvency they can borrow short-term money from the central bank. >> Read More
10 October 2014 - 7:04 am
Eurogroup President Jeroen Dijsselbloem on Thursday sharply dismissed critics of the European Central Bank’s efforts to fight a stall in the eurozone economy.
Asked at the IMF-World Bank meetings in Washington why “everyone” says the ECB’s stimulus efforts are too small, Dijsselbloem bristled, noting that its programs are only just beginning.
“Not everyone is saying it won’t be enough,” he retorted, adding “all these people who are absolutely sure it won’t be enough don’t know what they are talking about.”
“Because how can we know the effect when these operations are yet to take place?”
The ECB in June decided to start its TLTRO program — or targeted longer-term refinancing operation, which injects liquidity into the economy through banks — which so far has grown slowly. >> Read More
02 October 2014 - 17:43 pm
The European Central Bank has left interest rates on hold as it prepares to unveil details of its plan to buy hundreds of billions of euros’ worth of private sector assets to stave off economic stagnation in the currency area.
The central bank’s governing council kept its benchmark main refinancing rate at 0.05 per cent
The deposit rate charged on a portion of banks’ reserves parked at the ECB stayed at 0.2 per cent.
The rate hold comes as Mario Draghi, ECB president, prepares to unveil details of the central bank’s plan to buy bundles of loans repackaged as asset-backed securities, alongside covered bonds, to spur lending in the region. >> Read More