Negative yields can go much more negative 2 Feb 2015 Investors now pay for the privilege of owning almost a quarter of euro zone government debt. The practice sounds strange, but monetary theory calls for it. If deflation sets in, yields could keep falling. The result might be the end of cash, or a new theory about interest rates.
Russian central bank chooses banks over rouble 30 Jan 2015 A surprise interest rate cut suggests the central bank is more concerned about the economy than the value of the currency. Worries about the banking sector’s solvency could explain the move. The downside: Russia could end up with both high inflation and a deep recession.
Review: What the Great Depression taught the Fed 30 Jan 2015 Ben Bernanke is an expert on the famous crash. But Barry Eichengreen argues in his new book that the Fed boss during the 2008 crunch hadn’t learnt the lessons of the boom preceding the bust. Bernanke’s knowledge helped with crisis management, but it is too early to say how much.
ECB-induced distortions sprout in debt markets 29 Jan 2015 Mario Draghi’s asset-purchase plans are warping bond markets. The most obvious and benign consequence is a drop in yields. But there are also insidious effects. Investors shun anything the ECB won’t buy. And market liquidity will become patchier as the programme progresses.
Fed keeps head when all about are loosening theirs 28 Jan 2015 The U.S. central bank added a hint of “international” concern to its latest statement. Yet American growth is stronger than in markets where policymakers are easing further. The Fed is still poised to raise rates gradually – as long as overseas events don’t infect its home turf.
Monetary easing is the dominant trend 28 Jan 2015 The vogue in central banks is to reduce the cost of money: at least nine have eased in January. That suits a time of spreading disinflation and poor growth. The Fed, which updates markets today, is sitting tight. So is the BoE. But they may get caught up and delay rate rises.
Currency market still scarred by Swiss trauma 28 Jan 2015 Brutal swings seen just after the Swiss central bank suddenly abandoned its franc cap have faded. But price signals and perplexing moves suggest the extraordinary gyrations left their mark. Singapore’s surprise easing and continued Swiss official musings will add to the jitters.
ECB, Syriza have broken euro zone’s German spell 27 Jan 2015 The European Central Bank’s easing and the Greek anti-austerity party’s electoral victory show the euro zone is breaking free of German dominance. With loose monetary policy and banking union, it seems ready for growth-friendly policies that don’t ignore economic reality.
Monetary mess threatens gains from oil oversupply 27 Jan 2015 Too much production accounts for about half of the oil price slide, by one calculation. The surplus of cheap crude should boost oil-importers’ GDP. But the gains may not materialise, thanks to central banks’ ultra-low interest rates and wobbling anti-deflation credentials.
Central bankers struggle with expanded toolkit 26 Jan 2015 The pre-crisis belief that monetary policy was no more than the non-political setting of the policy interest rate is long gone. Yellen, Draghi and the others now have six ways to shape the financial system. Their status: done, devalued, discredited, doubtful, daunting and denied.
ECB quest to even out euro credit costs is working 26 Jan 2015 Banking union and the promise of QE closed the gap between borrowing costs in the euro zone’s core and periphery in 2014, data shows. Now bond-buying is here, credit availability in southern Europe should pick up. But recovery requires a recent rally in demand to persist.
ECB bazooka a water pistol for emerging markets 23 Jan 2015 Between Mario Draghi’s bond-buying plan and the Bank of Japan’s ongoing splurge, central banks are pumping out $1.5 trillion a year in cheap money. The surprise should boost emerging markets wary of rising rates. But fading growth and falling prices will overwhelm the stimulus.
Fudge on loss-sharing weakens ECB’s massive attack 22 Jan 2015 At 1 trln euros or more, the European Central Bank’s long-expected bond-buying programme is powerful enough to impress markets and push down the euro. But partial nationalisation of any losses amounts to policy fragmentation. It risks undermining the euro zone’s foundations.
Markets give Mario Draghi instant reward 22 Jan 2015 The European Central Bank president gave anxious investors more monetary easing than they expected. They responded by giving the ECB’s asset purchase plan a head start. The euro and regional bond yields both fell. Draghi may be smug now, but he still has to push up inflation.
Economic reality could upend Fed message, too 21 Jan 2015 Following last week’s Swiss upset, Canada’s central bank set investors spinning again. The oil price-inspired rate cut from Ottawa seems out of step with stable inflation. But it shows how changing conditions could yet make the Fed’s careful expectations management look futile.
Canada’s shock rate cut hurts global risk appetite 21 Jan 2015 First Zurich, now Ottawa. Days after the Swiss central bank abruptly reversed a cornerstone policy, the Bank of Canada upended market expectations with a 25 bps easing. The Canadian dollar plunged. Unpredictable policy generates volatility and fear, hurting economic prospects.
Euro zone QE-by-country not as bad as it sounds 20 Jan 2015 The ECB’s bond-buying programme may leave national central banks on the hook for potential defaults. The goal is to soothe German fears on subsidising weaker countries. Sceptics see a fissure in the monetary union. The fears are exaggerated, but perceptions matter.
ECB’s mission possible: surprise markets 20 Jan 2015 Investors are so geared up for 600 billion euros of quantitative easing that its arrival could underwhelm. Yet Mario Draghi has a reputation for bending markets to his wishes. High uncertainty about how bond-buying will work means the ECB boss still has scope to over-deliver.
Swiss franc shock will shake up Polish banking 16 Jan 2015 Austria’s Raiffeisen has 2.9 bln euros of Swiss franc loans in central Europe’s biggest market. It’s also under pressure in Russia and Ukraine, and relatively undercapitalised. If Raiffeisen retreated, other foreign operators like BNP Paribas and UniCredit could benefit.
Greek banks’ SOS looks like message to voters 16 Jan 2015 Two Hellenic lenders have already applied for emergency liquidity assistance from their central bank. While precautionary, such calls for help used to be more discreet. Flagging the banks’ difficulties could be a way to warn the electorate ahead of the Jan. 25 elections.