Archive for the ‘Mexican CB’ Category

Notes From Underground: Forward Guidance Takes a Step Backward

October 22, 2013

Today the markets received the long-awaited data on the U.S. job situation and the major beneficiary seemed to be the HFT algorithms that had the number two seconds early. The stock indices, currencies and precious metals all reversed early movements and rallied just prior to the public release. Setting aside the trading action, the data continues to reflect a very tepid recovery. Nonfarm payrolls grew by 148,000 making the FED’s September 18 decision look credible. More important, the average hourly earnings grew less than expected and kept the pace of wage growth very anemic. The FED has communicated that it is the jobs rate that the markets should be mindful of when anticipating any future action to raise rates. The FED has told the markets that an UNEMPLOYMENT LEVEL of 7.0% or maybe 6.5% will be a threshold target that could prompt the FED into action.


Notes From Underground: Macroprudential Regulation Versus Tapering

September 10, 2013
While I was away…
Friday, the unemployment report was much as expected in terms of nonfarm payrolls, wages and hours worked. The biggest surprise was that the previous two months had downside data revisions, but certainly nothing to dispel the FED‘s upcoming move to taper its large-scale asset purchase program.
Also, on Friday the Mexican Central Bank unexpectedly cut its lending rate by 25 basis points to 3.75%. The surprise was that the Mexicans had the backbone to cut in the face of rising U.S. interest rates. The Mexican peso reacted to the rate cut by RALLYING, proving the point that correlating all emerging markets is a fool’s paradise. The inflation rate in Mexico has dropped below the bank’s desired level of 4% as slowing global growth has led to weaker growth¬† and slowing prices. The PESO rallied has continued during the last two days even as President Nieto’s energy and budget plans have been met with a show of public demonstrations. The peso remains well below the highs it made in May but has held up in relation to the other emerging market currencies. A currency that rises in face of an unexpected cut in interest rates is something to watch. (The reverse, of course, was the Aussie dollar and its reaction to central bank cutting rates. )

Notes From Underground: The Fed’s Zero Rate, Quantitative Easing Policies Are Stock Market Fundamentals

March 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.