Sweden shows monetary rigour not fatal for assets 29 Apr 2014 Economist Paul Krugman’s critique of overly tight central bank policy has lately been directed at Stockholm. Some investors level similar charges against the ECB. At least the Swedish experience shows that financial assets can withstand a period of negative inflation rates.
London gives BoE an emerging economy problem 23 Apr 2014 Foreign capital inflows are supporting a housing bubble in London, and have helped push up sterling - even though the UK’s trade position is almost dire. An unbalanced economy is getting worse. As pre-crisis emerging markets learned, this is a problem with no easy solution.
Fed and gridlock to thank for U.S. deficit decline 22 Apr 2014 Since five years ago, the expected ratio of government debt to GDP in 2019 has fallen from 81.7 pct to 72.5 pct. That’s a handy reduction. The Fed’s low interest rates have made a difference. But politicians can’t take much credit, having mainly just thwarted each other’s plans.
Missing inflation could make Asian bonds frothier 21 Apr 2014 Prices of goods in the region are rising more slowly than expected. Inflation drives bond yields up; a lack of it could send them downward, even though the U.S. Fed is threatening to edge up rates around the world. Asian debt is already pricey – it may get yet more expensive.
Fed unease may yet shrink biggest U.S. banks 17 Apr 2014 A new leverage limit requires the eight largest to add another $68 bln in padding, on top of other rules on capital and liquidity. Janet Yellen still isn’t certain that’s enough. Sure, it’s the Fed’s job to worry. But big banks and their investors are already feeling the pinch.
Market sees UK economy through rose-tinted glasses 17 Apr 2014 Sterling and gilt yields have risen as traders put the best possible gloss on recent economic snapshots and bet on an early 2015 rate rise. Market optimism could well persist, pushing the pound even higher. But there are good reasons for the Bank of England to be less sanguine.
Fine global monetary ideals clash with reality 17 Apr 2014 Central bankers want better bulwarks to protect emerging economies from sharp capital shifts - and to shrink the huge war chests of hard currency. The sentiments are worthy, but it looks like the high watermark of global cooperation in monetary policy passed a few years ago.
Securitisation reboot is harder than it sounds 17 Apr 2014 Central bankers, from the ECB’s Mario Draghi to the Bank of England’s Andy Haldane, want to revive securitisation - a change from regulators trying to kill it. That is a worthy goal when banks are shrinking, but it is tricky to achieve. And there is still a way to go.
Ukrainian rate rise is a sign of desperation 15 Apr 2014 With Russia squeezing an already feeble economy, it will be tough to avoid meltdown. A steep interest rate hike can only delay woes. Since impoverished Kiev cannot count on either citizens ready for huge sacrifices or massive Western financial support, Russia has the upper hand.
Draghi abandons threadbare G7 currency truce 15 Apr 2014 The ECB chief’s promise to ease policy if the euro rises makes him the latest to flout big developed countries’ agreement not to use exchange rates as an economic tool. Competitive devaluations are wars with few winners. But further currency conflict looks almost unavoidable.
Draghi’s latest headache needs more than talk 14 Apr 2014 The IMF’s latest shindig enabled ECB officials to promise action and talk down the euro. ECB chief Mario Draghi avoided euro breakup in 2012 just by pledging to act. He’ll find it harder to sort 2014’s bogeyman, deflation, without actually deploying aggressive monetary policy.
Time to bust China’s “omniscient regulator” myth 10 Apr 2014 The country’s dueling financial watchdogs are undeniably smart. But as shadow banking runs amok, they have limited tools to fight problems they didn’t create. Some reforms are beyond their power, others are tied up in red tape. It undermines the theory that China is crisis-proof.
Draghi remains conventionally unconventional 3 Apr 2014 QE is no longer a dirty word in Europe. ECB head Mario Draghi has given his strongest hint that “unconventional” measures are on the agenda to fight low inflation – and help depreciate the euro. But by talking instead of acting, the central bank has lost the element of surprise.
Central bankers live in silent fear 3 Apr 2014 It’s scary to think what higher policy interest rates might do to a financial system accustomed to virtually free money. Stress tests aren’t foolproof. Yellen et al look calm. They may be overconfident. Or maybe they know that expressing worries could provoke panic.
The question ECB hasn’t answered: why wait? 2 Apr 2014 The latest euro zone inflation numbers show that the European Central Bank is failing to provide price stability, its only mandate. The ECB may not believe that disinflation is here to stay, but even if that’s right, there’s little risk in acting now to help Europe’s economy.
ECB could fight currency war – by buying Treasuries 2 Apr 2014 The euro is at uncomfortable levels partly because quantitative easing is pulling down other currencies. A radical idea is that the ECB could respond by adopting QE and buying U.S. Treasuries. Direct FX intervention would break the rules but might lead to discussion and disarmament.
China’s irrational bank run shows fragile trust 27 Mar 2014 The government stands behind all deposits, which makes savers’ scramble to pull cash from a small rural lender all the more curious. Problems with unofficial shadow lenders may have knocked confidence. The solution is to draw a clear line between what’s protected and what’s not.
Citi’s latest fail should stress Mike O’Neill 27 Mar 2014 The Fed’s rejection of the mega-bank’s buyback and dividend plan is bad news for CEO Mike Corbat. The chairman, however, is more exposed. A similar flub two years ago helped convince him to oust then-boss Vikram Pandit. O’Neill may have to consider more radical action.
Fed offers too little, too late on too big to fail 26 Mar 2014 The watchdog’s researchers reckon big banks benefit from a cheaper cost of funds than smaller rivals thanks to an implicit government backstop. That’s often true, especially during crises. But the Fed ignores more recent data. The behemoths’ advantage is actually shrinking.
U.S. bond yields may ape trailblazing UK shifts 26 Mar 2014 Fixed-income investors are wondering if the Fed will raise rates sooner than expected. They won’t have to think too hard about how to react since a similar situation has already cropped up in Britain. Short-dated bond yields are likely to rise much faster than long-dated ones.