The central banks were in play today and while the Bank of England held to its present course, the Bank of Japan declared that they were now in full battle gear and announced a very aggressive monetary policy agenda. I was surprised by the tenacity of the announced program and certainly by its timing. The recent movements in the YEN, and,especially the EUR/YEN crossrate meant that the BOJ and the Japanese Finance Ministry had some breathing space to allow some of the ill effects of the Cypriot crisis to calm. No such by the BOJ as they “damned the torpedoes and announced full speed ahead.” If other central banks wish to muddle about that is their business but the Japanese are determined to end the deflation that has plagued their economy. The steps that the BOJ announced, which had the greatest impact on the YEN and the Nikkei were:
Posts Tagged ‘SPS’
Yes, another day and the markets had to try to understand the significance of Cyprus. The newswires were filled with analysts claiming this was a “tempest in a teapot” and that the doomsayers were blowing the Cypriot problem into a pseudo crisis. Again, a world that is highly leveraged is subject to a “single spark starting a prairie fire” and the fear of contagion and an electronic bank run are very real if the major policy makers don’t invoke the trust of the electorate and investors. The perceived actions by IMF Director Lagarde (the joker) and the liquidationist mentality being thrust from Berlin and Chancellor Merkel (the thief) have created a situation where European bank depositors are nervous, especially so in the peripheral banks. THE MAIN COMPONENT OF THIS UNCERTAINTY WAS THE MOVE IN THE FRONT MONTH EURIBOR CONTRACTS,AS THE JUNE 2013 FELL 10 TICKS ON A DAY WHEN OTHER INTEREST RATES WERE LOWER. NOTHING SAYS BANK FEARS THEN A COUNTER MOVE IN THE EURIBOR AND LIBOR MARKETS. An increase in bank yields with equity markets falling is a sign about the fear in the bank deposits market. It seems that the policy makers that are leading the previously “revered” TROIKA (IMF,European Commission and ECB) have initiated fear for a mere pittance.
Notes From Underground: The Fed’s Zero Rate, Quantitative Easing Policies Are Stock Market FundamentalsMarch 10, 2013
The continued parade of stock market analysts who proclaim the equity market is rallying merely on Fed monetary policy instead of market fundamentals have spent far too much time doing case studies and not reading economic history. Interest rates as the variable signaling the cost of money are a very critical element and a key fundamental of the economy and especially the equity markets. U.S. multinational corporations are sitting on record piles of cash and also reporting strong profits. Much of the growth in profits can be attributed to two factors: Very low borrowing costs and continued pressure on wages. The FED has created the low interest rates and has hoped that the profitability resulting from low borrowing costs would bleed into higher wages and thus the need for increased hiring. The problem is many fold on the lack of success in aiding jobs creation. Globalization has kept pressure off wages and the deleveraging of the private balance sheets has meant that downward pressure remains on demand.
The recent Italian elections wound up in a very inconclusive result. In a political lineup of the three Bs–(no Chuck, not Biggio, Berkman and Bagwell)–Bersani, Berlusconi and Beppe, the Italian populace dealt a massive defeat to Brussel-appointed technocrat Mario Monti. The vox populi raised its voice against continuing austerity and will look to whatever government is formed to be one of a pro-growth economic agenda. The biggest loser from the Italian election may in fact be another Italian, ECB President Mario Draghi. If European nations say no to more austerity then Draghi’s program of doing anything to stem the Euro crisis comes to an end. WHY? The Outright Monetary Transactions (OMT) are based upon ECB intervention and the quid pro quo of conditionality of acceptance of austerity budgets. If you accept that the basis of OMT is a form of quantitative easing and the recipients of the QE won’t accept the severity of conditionality that is demanded by the ECB, then emperor Draghi is truly naked and not dressed in a fine Italian suit.
Tomorrow the Bank of England (BOE) and European Central Bank will grace us with their interest rate announcements. The BOE is expected to hold overnight rates at 0.5% and to keep the QE program at its present level of 375 billion pounds. The current weakness in the British pound will keep Governor Mervyn King from tampering with present policy, and, with a new Governor of the BOE in July, it makes no sense to expend any type of easing before the change of leadership unless some new crisis emerges. Current BOE policies and renewed weakness in the British economy have driven the EUR/GBP rate to 15-month highs, thus putting the pound in the middle of the “currency wars.”
Last night , Prime Minister Noda decided to call for new elections in Japan and that automatically ends this session of the DIET. The elections will take place in a month and the present unpopularity of the DPJ means that the LDP is the favorite. It seems that Noda was willing to call elections on the promise that the new parliament would work toward some type of election reform. Hopefully some of the readers of NFU will help fill in the specifics about the issues of election reform. The YEN was sold off on the news of Parliament’s dissolution because the present strength of the YEN and its negative impact on Japanese manufacturing is certain to be an issue. The LDP’s leader, Shinzo Abe, has been very vocal about the BOJ/MOF doing more to raise inflation in the Japanese economy and to be more aggressive in efforts to weaken the YEN. While the YEN weakened, the NIKKEI index held its overnight gains even as the S&Ps, DOW and NASDAQ were knocked lower following President Obama’s press conference.
Tomorrow is UNEMPLOYMENT FRIDAY and the markets are geared up for headline driven action. The U.S. jobs report is expected to be 145,000 nonfarm payrolls and a rate of 8.2%, no change in the length of the work week at 34.4 hours and average hourly earnings rising 0.2%. The most significant data points will be manufacturing and construction jobs. Last month’s manufacturing jobs growth was weak and an increase is needed to put a more positive flavor to the report. I bring up construction jobs only because the HOUSING STOCK PRICES have risen dramatically and if homebuilders are increasing their work load then construction employment ought to be increasing–just looking for some synthesis between the real economy and stocks.
Notes From Underground: Irony of Ironies … In the Land of Fiscal Austerity and Budget Cutting Circumcision is OutlawedAugust 13, 2012
The news is so slow that some ridiculous headlines just creep in, but I wonder what the Greeks think. If the fiscal sheriffs from the TROIKA only took the tip it wouldn’t have been so bad but the German creditors took the entire reproductive assemblage. Ok, enough. New word out of Germany is that a Berlin-based think tank has filed a new case against the legality of the ESM but is asking the Federal Constitutional Court to allow the EUROPEAN COURT of JUSTICE (ECJ) to hear the case and decide if the stability mechanism is legal under EU law. The Eurosceptic group EUROPOLIS is asking for European to determine the legal status of any European bailout program.
The better-than-expected NFP number–163,000 net job gains–was above the consensus of 105,000. Average hourly earnings and hours worked were weaker than projections while the over all rate went up to 8.3%, leaving all the talking heads with something to either like or dislike. In my mind it is highly doubtful that the unemployment data was responsible for the 2% increase in the S&Ps, which brings back the Spanish and Italian 2-YEAR NOTES as the key variable.
Wednesday brings the FOMC announcement on interest rates. Can the FED really ease more at this juncture? It seems that the financial world has come to believe that Draghi’s comments from last week were intended to prod the Bernanke-led FED to promote a greater monetary response to a drastically imploding debt crisis in Europe. I don’t believe that Chairman Bernanke will be pushed into further monetary action–outside of some kind of extended language–for the FED wants to keep the onus where it belongs … the POLITICAL POLICY ARENA. If Bernanke were to get aggressive at this juncture, the controllers of fiscal policy would get an election pass and the REPUBLIC WOULD BE ILL SERVED. The pundits are all opining that the FED’S non-action will result in a dramatic sell off of RISK. I think that is a wrong read as a passive statement will put pressure on Congress and the White House to actually take the lead and find some compromise to the FISCAL CLIFF SYNDROME.