Posts Tagged: ripple effects

Positives and Negatives of this Week

10 March 2012 - 6:59 am
 

Positives:

1)Greek debt deal finally done, yeah!, CAC use likely guarantees CDS payment, it better, waiting on ISDA
2)Feb Payrolls at 227k, 17k better than expected and two prior months revised up by 61k. Participation rate ticks up
3)Gasoline prices fall a hair after 39 straight days of gains
4)ISM services index rises to 1 year high at 57.3
5)Chinese Feb CPI up 3.2% vs est of 3.4% and the slowest pace since June ’10
6)China cuts GDP growth forecast to more sustainable, non inflationary, less bubblicious level of 7.5% that leans more on consumption
7)India cuts bank reserve requirements to ease bank liquidity squeeze
8)Brazil cuts rates by 75 bps

Negatives:

1)Average hourly earnings in payroll report rise just .1% m/o/m and 1.9% y/o/y, below expectations and still below the rate of inflation, 2)Initial Jobless Claims at 362k, 10k more than expected after 3 weeks below 360k
3)Jan Trade Deficit $3.6b higher than expected, will trim Q1 GDP estimates by up to .3 of a % pt
4)Prices paid in ISM services index rises to highest since Mar ’11
5)Fed discussing another way to price fix long term interest rates?
6)China bank loans, retail sales, IP and PMI services all weaker than expected
7)China cuts 2012 GDP growth rate target to 7.5% after 7 years of 8.0%, less growth, ripple effects everywhere
8)Canada and Australia report unexpected drop in jobs in Feb
9)Brazil’s economy grows just 2.7% in 2011
10)LTRO sell on the news, European bank stock index down 3.5% on the week, Spanish CDS trades at 7 week high, Portugal CDS trades at 5 week high.

 

In a move that will surely shock, shock, the monetary purists out there, the Bank of Japan has just gone and done what we predicted back in May 2011, with the first of our “Hyprintspeed” series articles: “A Look At The BOJ’s Current, And Future, Quantitative Easing” (the second one which discussed the imminent advent of the ¥1 quadrillion in total debt threshold was also fulfilled three weeks ago). So just what did the BOJ do? Why nothing short of join the ECB, the BOE, and the Fed (and don’t get us started on those crack FX traders at the SNB) in electronically printing even more 1 and 0-based monetary equivalents (full statement here). From WSJ: “The Bank of Japan surprised markets Tuesday by implementing new easing policies and moving closer to an explicit price target, the latest sign of growing worries around the world about the ripple effects of the European debt crisis on the global economy. With interest rates already close to zero, the BOJ has relied in recent months on asset purchases to stimulate the economy. In Tuesday’s meeting, the central bank expanded that plan by ¥10 trillion, or about $130 billion. The facility, which includes low-cost loans, is now worth about ¥65 trillion, or $844 billion.” The rub however lies in the total Japanese GDP, which at last check was $6 trillion (give or take), and declining. Which means this announcement was the functional equivalent to a surprise $325 billion QE announced by the Fed. What is ironic is the market reaction: the BOJ expands its LSAP by 18% and the USDJPY moves by 30 pips. As for gold, not a peep: as if the market has now priced in that the world’s central banks will dilute themselves to death. Unfortunately, it is only at death, and the failure of all status quo fiat paper, that the real value of the yellow metal, whose metallic nature continues to be suppressed via paper pathways, will truly shine.

The WSJ explains the BOJ’s stunning decision further:

Only one out of the 11 analysts polled by Dow Jones Newswires had predicted the BOJ to ease this week.

 

Most BOJ watchers had said that while there were concerns over the impact of the strong yen and the European debt crisis, neither financial nor economic conditions had worsened to levels that warranted immediate further action. 

The BOJ policy board also revised the wording of its “understanding of price stability,” saying now it has set a “price stability goal” of 2% or lower in the core consumer price index in the medium- to long-term and a goal of 1% growth for the time being. For calendar year 2011, Japan’s core consumer price index—excluding food prices—was negative 0.3%.

 The bank had come under criticism that its definition of price stability, the goal it seeks to achieve in its fight against deflation, was too convoluted and vague. Such attacks had increased in recent weeks after the U.S. Federal Reserve in late January adopted a more explicit price target. 

Faced with a prolonged deflation, politicians have stepped up their calls on the BOJ to take fresh action, with some threatening to revise legislation to strip away the central bank’s independence from the government.

First of all, don’t get us started on inflation targeting. Or rather, get Dylan Grice started: he will tell you all about it, and then some. >> Read More

 

In a move that will surely shock, shock, the monetary purists out there, the Bank of Japan has just gone and done what we predicted back in May 2011, with the first of our “Hyprintspeed” series articles: “A Look At The BOJ’s Current, And Future, Quantitative Easing” (the second one which discussed the imminent advent of the ¥1 quadrillion in total debt threshold was also fulfilled three weeks ago). So just what did the BOJ do? Why nothing short of join the ECB, the BOE, and the Fed (and don’t get us started on those crack FX traders at the SNB) in electronically printing even more 1 and 0-based monetary equivalents (full statement here). From WSJ: “The Bank of Japan surprised markets Tuesday by implementing new easing policies and moving closer to an explicit price target, the latest sign of growing worries around the world about the ripple effects of the European debt crisis on the global economy. With interest rates already close to zero, the BOJ has relied in recent months on asset purchases to stimulate the economy. In Tuesday’s meeting, the central bank expanded that plan by ¥10 trillion, or about $130 billion. The facility, which includes low-cost loans, is now worth about ¥65 trillion, or $844 billion.” The rub however lies in the total Japanese GDP, which at last check was $6 trillion (give or take), and declining. Which means this announcement was the functional equivalent to a surprise $325 billion QE announced by the Fed. What is ironic is the market reaction: the BOJ expands its LSAP by 18% and the USDJPY moves by 30 pips. As for gold, not a peep: as if the market has now priced in that the world’s central banks will dilute themselves to death. Unfortunately, it is only at death, and the failure of all status quo fiat paper, that the real value of the yellow metal, whose metallic nature continues to be suppressed via paper pathways, will truly shine.

The WSJ explains the BOJ’s stunning decision further:

Only one out of the 11 analysts polled by Dow Jones Newswires had predicted the BOJ to ease this week.

 

Most BOJ watchers had said that while there were concerns over the impact of the strong yen and the European debt crisis, neither financial nor economic conditions had worsened to levels that warranted immediate further action. 

The BOJ policy board also revised the wording of its “understanding of price stability,” saying now it has set a “price stability goal” of 2% or lower in the core consumer price index in the medium- to long-term and a goal of 1% growth for the time being. For calendar year 2011, Japan’s core consumer price index—excluding food prices—was negative 0.3%.

 The bank had come under criticism that its definition of price stability, the goal it seeks to achieve in its fight against deflation, was too convoluted and vague. Such attacks had increased in recent weeks after the U.S. Federal Reserve in late January adopted a more explicit price target. 

Faced with a prolonged deflation, politicians have stepped up their calls on the BOJ to take fresh action, with some threatening to revise legislation to strip away the central bank’s independence from the government.

First of all, don’t get us started on inflation targeting. Or rather, get Dylan Grice started: he will tell you all about it, and then some. >> Read More

 

Former Reserve Bank of India (RBI) governor YV Reddy today said the monetary policy actions to batten down inflation have not had the desired effect so far and opined that what is needed is low inflation even if that means low economic growth in India.

“Monetary policy actions have invariably lagged. The transmission time has been taking too long. We need to see if transmission is going through successfully. It is necessary to make an assessment that the transmission has happened,” Reddy, said.

 The former RBI governor who is credited for successfully anchoring the domestic economy from the ripple effects of the global financial crisis (global recession, global meltdown), said there was long time lag before monetary policy actions reflected into the economy.  

 

He warned, “We are yet to see how the monetary policy actions will pan out. There are demand side pressures which need to be contained. If there is pressure on current account deficit, then this can spill over.” 

On the increasingly popular view that higher economic growth can be a trade-off for higher inflation, he said, this will be highly detrimental. >> Read More

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