Archive for the ‘RBNZ’ Category

Notes From Underground: Its a Very Cold Day In July … When Bundesbank Capitulates

July 23, 2014

The financial press is filled with articles about the recent EURO weakness. During the last week the EU currency has fallen about 1.5 percent. Many pundits have opined that it is the Ukraine situation and Gaza that have made investors uneasy, thus the move into U.S. dollars. In a July 22 Bloomberg article, “Draghi Cedes Euro Control to Yellen on Fed Bets,” it is suggested that the DOLLAR is rising in anticipation of moves by the FED, especially now that the ECB has gone to negative yields on reserves. The problem for the Fed argument is that yields in the U.S. have actually softened during the last week and Fed communication has been muddled over when interest rates might possibly rise. When the ECB announced a negative interest rate June 5 the EURO/DOLLAR made a low of 1.3503. Today we are trading at 1.3465, a little below the 1.35 low but well below that day’s close of 1.3650.

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Notes From Underground: A Single Spark Can Start a Prairie Fire (Mao)

June 11, 2014

The tinder of the financial world has dried under the roaring blaze of asset appreciation. Global bond and equity prices reflect that all is well and the world’s major central banks have control of the world’s finances. But in the parlance of Mao, a single unexpected spark can initiate a huge fire. (Also, it is important to note that Mao never missed a PMI number either.) Financial history is replete with events of which investors and bankers were never aware of the depth. It was only in 2007 that Chairman Bernanke called the housing situation and its financial repercussions, “well contained.” Today, the news brought two events that can have far greater impacts than the markets’ calmness revealed.

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Notes From Underground: Hilsenrath’s June 3 Article Provokes Some Angst

June 10, 2014

We can say that the markets are afloat in the Sargasso Sea: The home of the doldrums. It is quiet and listless as the market awaits the winds of change. But from where does the whispers of wind arise? A piece by Jon Hilsenrath in the June 3 Wall Street Journal online (h/t R.F.). The Hilsenrath piece cites Fed officials who are worried about the tranquility presiding in the markets and the possible financial risk that arises from complacency. Hilsenrath cites the low spread between investment-grade corporate debt and U.S. Treasury bonds, the lowest since July 2007. Also, homage is paid to the recent lows made in the VIX and its 74-week run below its long-run moving average. Increased global political risk has barely budged the needle on various other risk barometers.

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Notes From Underground: Pritchard Raises An Important Issue– Is China Exporting Deflation?

April 24, 2014

The equity markets were gaga over the news from Apple and Facebook and trying to push through March’s highs when Twitter was busy raising the issue about a possible Russian incursion into Eastern Ukraine. The “breaking news” failed to gather strength and the markets were soon back into positive territory. Just as the equity markets were absorbing the Russian rumors, the precious metals were making recent lows on the back of stock market strength and better economic news from the U.S. For all you technical-oriented market watchers, the gold and silver both put in outside reversal higher days so we will watch to see if there is any follow through in the metals market tomorrow.

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Notes From Underground: CRUNCH TIME! Liquidity Addition Coming Through Strengthening ABS

April 22, 2014

If my radar is right, the coming European Central Bank QE program will be a concoction of asset-backed securities in an effort to remove non-performing loans from bank balance sheets. There have been a multitude of  “conjectures” about how the ECB is going to pump liquidity into a very low growth economy. Previously it seemed that some at the ECB wished to install negative yields on bank reserves. This would be an experiment fraught with danger as it could cause great problems for the money funds that have recently returned to Europe. The problem for money market funds was epitomized in a statement from Bank of New York Mellon’s CFO Todd Gibbons after today’s earnings release and reported in tomorrow’s Financial Times:”If the eurozone were to go to negative rates that would actually present the opportunity for us to charge for deposits and we are giving that very serious consideration.” The idea of  “negative interest rates on reserves” has been bandied about as some members of the ECB board have tried to stem the euro currency’s recent strength. It has been surmised that charging banks for parking excess reserves at the ECB would force European banks to reverse course and put the funds out to lending rather than having to pay a fee for the safety of the ECB.

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Notes From Underground: The Reserve Bank of New Zealand Stands Alone

March 12, 2014

This afternoon the little bank from down under announced it was raising its overnight cash rate (OCR) by 25 basis points to 2.75%. There is no question that the New Zealand economy has been growing (as has private credit for housing) but the KIWI has been elevated by the strength of the economy and the huge global demand for New Zealand commodities–dairy and other agricultural products. Previously, the RBNZ has refrained from raising the OCR because of the strength of the KIWI versus the Aussie dollar and other commodity-based currencies. But the improvement in global financial conditions gave Governor Graeme Wheeler reassurance for increasing the interest rate. Wheeler noted that “the high exchange rate remains a headwind to the tradables sector. The bank doesn’t believe the current level of the exchange rate is unsustainable in the long run.” The market had been expecting the Bank to raise rates  so the initial market reaction was a short selloff but within two minutes the KIWI was trading higher and actually closed on its high of the day in the spot market. If the RBNZ doesn’t intervene, which it shouldn’t, the NZ currency should hold up on the crosses, especially with the high yield on its 10-year note. Finally, one bank breaks out of the pack, even in the face of a potential slowdown in China.

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Notes From Underground: Investing in the Time of Hilsenrath

October 30, 2013

In the biggest news story of the day, Jon Hilsenrath reported that New Zealand bank Governor Wheeler led his board to hold the line on interest rates. (NOTE: Hilsenrath didn’t report the New Zealand news as he was too busy trying to impact U.S. markets with a tweet here and a tweet there.) The RBNZ did note that the global economic recovery remains “patchy.” The KIWI bank seems content to allow rates to remain on hold for two major reasons: 1. The macroprudential regulations instituted to slow house price inflation need more time to work–New Zealand instituted regulations on loan-to-value mortgages; and 2. “The exchange rate remains high and is a headwind to the traded goods sector. Sustained strength in the exchange rate that leads to lower inflationary pressure would provide the bank with greater flexibility as to the timing and magnitude of future increases in the OCR. Fiscal consolidation is also expected to continue weighing on demand over the next few years.”

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Notes From Underground: Putin Says Russian Central Bank Sells 12,000 OUNCES of Gold …

October 29, 2013

(to Pay for Escorts for U.N. Opening Party)

In response to a WSJ headline today, “Gold fades From Investment Picture,” the Russian President announced that dollars were needed in New York. The Russian Central Bank made delivery on 120 Comex contracts by moving the gold to New York and receiving funds for deposit in New York so as not to violate U.S. rules on currency amounts. The Russian delegation to the U.N. opening party needed funds for escorts and booze. Putin assured global financial markets that delivering 12,000 ounces of gold from Russian vaults was a mere dip into petty cash. Seriously, CNBC was all atwitter that central banks were initiating gold sales … all 120 COMEX CONTRACTS. Too bad that the U.N. meetings weren’t in Mumbai for the Russians could have received a $270 premium over the world market price. It’s a major non-story unless tapering is linked with the sale. Maybe Putin really has inside info on Fed intentions.

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Notes From Underground: A Few Bits of Information In Support of Some Previous Notes

August 20, 2013

First, Bloomberg News [BN] ran a story yesterday, “Spain Lenders’ Bad Loan Ratio Reached Record 11.61%.” This is up from 9.65% a year earlier. All we continue to read and hear from the press and financial pundits is how the Spanish economy has turned the corner and it is time to buy the Spanish banks and Spanish sovereign debt. The non-performing loans are a problem in any economy, but the 25%-plus unemployment rate makes the NPL data a much greater problem. Again, I’d rather miss the first part of a European rally than get caught when the perceptions fail to become reality.

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