05 December 2013 - 22:13 pm
For much of the last decade emerging markets such as China, Brazil and India have ferociously hoovered up foreign direct investment (FDI). They’ve been where economic growth rates and potential returns – if investors pick well – have been most eye-watering.
But according to a new report from the World Bank, this hoover-like ability of the last decade has lost a bit of its suction power.
After peaking at $628bn in 2011, FDI into developing economies fell 6 per cent last year and is expected to register a gain of just 2 per cent this year, according to the World Investment and Political Risk report.
And for the first time since the Multilateral Investment Guarantee Agency (MIGA), an arm of the World Bank, began the survey five years ago, macroeconomic instability is the biggest risk for outside investors when weighing up whether to put capital to work in developing economies. The report finds:
Macroeconomic instability rates at the top of investor concerns for the first time and this concern has tempered the historically bullish investor sentiment.
That in turn has left 37 per cent of investors surveyed by the MIGA unwilling to increase their investments in developing economies over the next 12 months, a proportion that the report says is “somewhat higher” than previously. It adds that 47 per cent intend to put more capital to work in developing economies. >> Read More
05 December 2013 - 22:07 pm
Unlike last month’s surprising rate cut which caught about 95% of forecasters wrong-footed, today the ECB proceeded as expected, and did not cut rates, keeping the MRO rate at 0.25%, the Interest Rate at 0.75%, and the Deposit rate at 0.00%. From the ECB:
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.25%, 0.75% and 0.00% respectively. The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
Now all eyes on Draghi at the press conference in 45 minutes, where Draghi is expected to lower his assessment of European growth once more, and potentially announce some additional non-standard measures.
05 December 2013 - 17:35 pm
As UK Chancellor George Osborne pushes on with his Autumn Statement in Parliament. the Bank of England has held monetary policy steady as it tries to nurture Britain’s economic recovery.
The BoE’s 9-man Monetary Policy Committee voted to hold interest rates at their record low of 0.5 per cent and maintain the stock of the central bank’s gilt purchases at £375bn
The decision to do nothing was widely expected, and follows Mr Osborne’s revelation during his statement that the Office for Budget Responsibility has revised its projections for Britain’s economic growth significantly upward.
Under the leadership of new governor Mark Carney, the BoE has said it will not contemplate raising rates until the unemployment rate falls to 7 per cent from its current 7.6 per cent. Mr Carney and his colleagues have repeatedly stressed that 7 per cent is a “threshold” and not a “trigger” for rate rises.
In November’s quarterly Inflation Report, the BoE said the UK economy was recovering so quickly that there was a 50/50 chance the 7 per cent unemployment threshold would be reached in the last quarter of 2014.
26 November 2013 - 23:05 pm
- US consumer confidence falls
- US house prices increase
- US manufacturing activity grows
- BoE in no hurry to raise interest rates, says Carney
FTSE 100: -0.85%
CAC 40: -0.47%
FTSE MIB: -0.05%
IBEX 35: 0.28%
Stoxx 600: -0.56%
European equities were mixed as US consumer confidence fell to a seven-month low while house prices and manufacturing activity in the world’s biggest economy rose.
The Conference Board’s index for consumer confidence unexpectedly declined to 70.4 in November from a revised 72.4 a month earlier. Economists had predicted a reading of 72.6. >> Read More
25 November 2013 - 5:58 am
Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.
Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.
The warning by bank executives highlights the dangers of one strategy the Fed could use to offset an eventual “tapering” of the $85bn a month in asset purchases that have fuelled global financial markets for the last year.
Minutes of the Fed’s October meeting published last week showed it was heading towards a taper in the coming months – perhaps as soon as December – but wants to find a different way to add stimulus at the same time. “Most” officials thought a cut in the interest on bank reserves was an option worth considering. >> Read More
22 November 2013 - 5:28 am
Is the Fed is about to make a major policy error?
The FOMC thinks it can taper its $85bn monthly bond purchases without tightening monetary policy. It hopes to wind down QE stimulus while at the same time offsetting this by holding down long-term interest rates by mere rhetoric, or “forward guidance”.
That was the basic message from the Fed Minutes – apart from the general confusion, and lack of conviction that anything really works, asTim Duy from Fed Watch says here.
This sort of smooth exit is possible only if you believe in the “creditist” doctrines of Fed chief Ben Bernanke, an outlook that has somehow become orthodoxy in the US and is broadly shared by the markets.
Bernanke seems to work from the assumption that the interest rate is the only thing that matters, as you would expect since he made his name at Princeton studying the “credit channel” causes of depressions. >> Read More
19 November 2013 - 22:43 pm
- Investors wait on FOMC minutes
- Ichan warns of stock market decline
- German confidence rises
- OECD cautions on Eurozone deflation
FTSE 100: -0.38%
CAC 40: -1.12%
FTSE MIB: -1.77%
IBEX 35: -1.57%
Stoxx 600: -0.66%
European stocks declined as investors waited on tomorrow’s release of the US Federal Open Market Committee (FOMC) meeting minutes.
The FOMC minutes are expected to shed further light on the Federal Reserve’s reason behind its decision to maintain its monthly $85bn bond buying programme and keep interest rates near zero.
Most economists expect the Fed to hold off on scaling back quantitative easing until next March, however recent mixed comments from policymakers have fuelled uncertainty. >> Read More
13 November 2013 - 23:02 pm
- BoE in no rush to raise interest rates
- UK unemployment rate falls
- ECB could adopt negative interest rates, say Praet
- Eurozone industrial output declines
FTSE 100: -1.38%
CAC 40: -0.60%
FTSE MIB: -1.43%
IBEX 35: -0.34%
Stoxx 600: -0.58%
European stocks closed lower as the Bank of England (BoE) revealed it was in no rush to raise interest rates despite a pick-up in the economy.
In its quarterly Inflation Report, the central bank gave a positive outlook for the UK economy, lifting its gross domestic product forecasts. >> Read More
12 November 2013 - 22:50 pm
- UK inflation slows
- German inflation holds steady
- China announces new reforms
- ECB policymakers address interest rates
FTSE 100: -0.02%
CAC 40: -0.61%
FTSE MIB: 0.54%
IBEX 35: -0.77%
Stoxx 600: -0.58%
European equities dragged as UK inflation eased back its lowest level in a year and as China announced new reforms to boost growth.
Consumer prices in the UK rose 2.2% in October from a year earlier compared with 2.7% the previous month, according to the Office for National Statistics. Economists had forecast a reading of 2.5%.
The decline was driven by the biggest fall in transport prices since July 2009. >> Read More
11 November 2013 - 16:46 pm
This past week the US was graced with some surprisingly strong economic data.
GDP for Q3 solidly beat expectations, and Non-Farm Payrolls for October were well ahead of the expected pace, even with the government shutdown.
Those strong numbers likely raise the odds that the Federal Reserve will begin the so-called “taper” in December, rather than in, say, March of next year. The “taper” refers to the action of slowing down the pace of the monthly bond purchases that are conducted through QE.
But while the Fed is looking to slow the pace of QE, there’s growing talk that it will find new ways to stimulate the economy using monetary policy. This week, Goldman’s Jan Hatzius arguedthat in addition to tapering, the Fed will reduce the threshold level of unemployment at which it would consider tightening interest rates. Currently the Fed says it won’t think about tightening rates until unemployment falls to 6.5%. Hatzius believes – based on two papers that have been published by Fed economists – that the Fed will lower this level to 6.0%, which constitutes a form of easing inasmuch as it signals to the market that ultra-low rates will remain ultra-low for even longer than is being signaled now. This, theoretically, has the effect of lowering long-term interest rates and providing stimulus that way.
So one one hand, the Fed might engage in some tightening (slowing the pace of QE) while with the other hand do more loosening (reducing the threshold at which it would consider raising interest rates).
So what gives?
There were two fantastic blog posts this week that explain what’s going on. >> Read More