Markets quaff perfectly mixed punch 19 Dec 2013 It sounds like a paradox: stocks go up when the Fed takes some money away. But investors have figured out that central bankers see economies which are strong enough to provide profit growth but too weak for serious tightening. The party could last until inflation reappears.
100 years of Fed competence led to cursed workload 17 Dec 2013 After humble beginnings, lawmakers heaped more and more responsibility on the U.S. central bank. Though it hasn’t always been perfect, its increasing power came from screwing up least. But some worry those many mandates may become too much to manage – if they aren’t already.
Asmussen’s ECB exit will hurt Draghi 16 Dec 2013 Mario Draghi will lose an ally when ECB board member Jorg Asmussen quits to join Germany’s new government. The central bank boss will miss Asmussen’s loyal support - against German hostility, including from Bundesbank chief Jens Weidmann. Draghi may become more timid.
Hugo Dixon: Europe’s post-crisis challenge 16 Dec 2013 The hot phase of the euro crisis may be over. But the zone will limp on for years with low growth and high unemployment unless further action is taken on three fronts: bank balance sheets must be cleaned up, monetary policy loosened and more free-market reforms adopted.
There’s method in ECB sovereign debt muddle 12 Dec 2013 President Mario Draghi seemed to contradict ECB executive board member Peter Praet by hinting he’s not about to demand capital against euro zone banks’ sovereign debt. Investors can expect more mixed messages. It’s hard to gee up lending while trying to become a tough regulator.
Stan Fischer at Fed a fine complement to Yellen 11 Dec 2013 The ex-Bank of Israel governor would provide a conservative balance to incoming Chair Janet Yellen. He’d also boost the Fed’s global and crisis credibility. Making Fischer vice chair would be a savvy choice by the president. Yellen would be smart to encourage him to come aboard.
FX increasingly slave to other markets’ moves 9 Dec 2013 Currencies have been especially tough to call in the past year. When global rates are so uniformly low, moves in the mammoth FX market seem to be a by-product of what’s happening in other, smaller, assets classes. That makes predictions almost impossible.
China anti-bitcoin ruling will shake believers 5 Dec 2013 Beijing won’t allow currency competition. The central bank has barred financial institutions from trading the pseudo-money, while reining in anonymous users. Bitcoin can still be traded, but the authorities are wary. The virtual asset has just lost a lot of its speculative appeal.
UK goes soft on Big Finance 3 Dec 2013 The Bank of England has parked the idea of a 4 pct leverage ratio, days after retreating from tougher risk-weighted capital requirements. It’s a clear break with the Mervyn King era. But UK banks should keep building their buffers: global forces for more capital are here to stay.
Markets see only one shade of Mark Carney 2 Dec 2013 Sterling and gilt yields rose after the Bank of England governor said mortgage lending subsidies would end. Traders saw the move as a proto tightening. Maybe. But the BoE could equally be giving itself room to delay rate rises. Markets see black or white when the picture is grey.
BoE’s small-firm stimulus is blueprint for Draghi 2 Dec 2013 The European Central Bank is reportedly mulling cheap loans to banks to gee up lending. The newly tweaked UK Funding for Lending scheme shows this isn’t easy, and replicating it in the euro zone would be even tougher. But Europe’s businesses need a leg-up even more than the UK’s.
Carney can do more to curb mad UK house subsidies 28 Nov 2013 The Bank of England governor has rightly binned incentives for banks to pile into mortgage lending. Further focusing cheap central bank funding on small companies also makes sense. But Carney is still pulling his punches. He should demand changes to the UK’s Help to Buy scheme.
Chinese “tapering” may worsen U.S. bond woes 27 Nov 2013 Large dependable buyers of Treasuries may be thin on the ground in the coming years. The Fed will trim, and eventually stop, its asset purchases. And now China is talking about halting its reserve accumulation. U.S. bond yields could rise faster and further than expected.
Sub-zero ECB rates could be made to work 25 Nov 2013 The European Central Bank has discussed charging banks for overnight deposits as a way of spurring them to lend. There are risks: banks may pass the cost on to the weakest customers. Still, a tiny negative interest rate would limit the harm - and have a positive symbolic effect.
Gold hasn’t melted down to its base yet 21 Nov 2013 Investor demand for gold is likely to continue falling as Fed tapering pushes up market interest rates. That may in turn affect demand from central banks in emerging markets. Asian jewellery demand offers gold an eventual salvation – but probably below $1,000 per ounce.
Markets may underrate ECB’s propensity to act 18 Nov 2013 To judge from the firmer euro, investors needed less than two weeks to decide that the euro zone central bank’s unexpected rate cut wasn’t a sign it has become more activist. The complacency misses something: the ECB is now willing to act with a much weaker consensus.
The "Abe put" will keep Japanese equities buoyed 18 Nov 2013 Foreign investors have shown most early enthusiasm for the prime minister’s economic programme. But pension reforms and tax breaks for individuals promise more cash inflows. If momentum stalls, the central bank could step in. It all points to a continued boost for Japanese stocks.
QE’s surprising beneficiaries: taxpayers 14 Nov 2013 That’s according to McKinsey, which reckons low interest rates saved western governments $1.6 trillion. Totting up winners and losers is hard, as we can’t know how economies would have fared otherwise. At least the study helps debunk the idea that money-printing only aids the rich.
BoE can escape its self-made forward guidance trap 13 Nov 2013 When the Bank of England linked monetary policy to the labour market, it was unduly pessimistic about unemployment. Governor Mark Carney is now trying to fine tune his message, but he could just simplify: rates will stay at record lows for a while, whatever the jobless rate.
Time for third theory of inflation 12 Nov 2013 What makes prices rise? There are two traditional explanations: a squeeze on supply, or an excess of money. But neither explains why consumer inflation is now slowing in much of the world, most recently in the UK. The answer may in fact be sociological and demographic.