Last night’s blog contained some of the key sparks to watch this year, but I left some for today so as not to overwhelm. While we slept, the Chinese borrowed a page from the French National Bank. In an effort to curb the arbitrage of trading the YUAN in Hong Kong versus the mainland levels under the direct auspices of the PBOC, the Chinese Government raised overnight borrowing rates for those short the yuan in Hong Kong. The rate is only on overnight borrowings so it is intended to make being short against the PBOC cost prohibitive.
Posts Tagged ‘Britain’
Notes From Underground: As the Fires Burn
January 12, 2016Notes From Underground: Canada’s government is a fallen angel while Merkel’s CDU suffers a severe setback
March 27, 2011The weekend news was not economic but political as governments all over the globe suffered major setbacks. The Liberals secured a “NO CONFIDENCE” vote in the Canadian Parliament and bring down the Harper Government. I know that Michael Ignatieff will claim that he is perserving the democratic basis of Canada as the ruling party was brought down on an issue of CONTEMPT. The only thing that appears contemptuous is the ego of Ignatieff. He claims that the TORIES are out of touch and out of control. The election is called for May 2 and then the electors will have the final say on who is out of touch. This will be the fourth general election in seven years and let’s hope the citizens of Canada show their anger and elect an outright majority so Canada can get on governing itself.
Notes From Underground: GDP reports of the North-U.S. and Canada
October 28, 2010Friday morning we will get the third-quarter GDP reports from the U.S. and Canada, both coming out at 7:30 a.m. CST. The U.S. is looking for growth of 2.1 percent and it will give us a good look to see if there was enough growth to support the equity rally and corporate profit picture we have seen this quarter. A bigger number may give the FED the cover to proceed down a less robust QE path and push out a liquidity addition on a glide path that was proposed by ST.LOUIS FED President James Bullard.
Notes From Underground: ENGLAND GROWS AND BIG BEN’S FED MAY SHRINK
October 26, 2010
The best quote to describe today’s market action after the more robust British GDP numbers comes from the column in the London Telegraphby Jeremy Warner. It is an apropos comment that the FED and all policy makers should take to heart and it comes from that master wordsmith, Mike Tyson:
“EVERYBODY HAS A STRATEGY UNTIL I HIT THEM”
Today, the markets got hit from the British GDP number and it might have sent Britsh and possibly U.S. quantitative ease reeling to a later time. The market consensus was for a 0.4 percent increase while the actual number printed at 0.8 percent–double the predicted release. The British pound had been trading very soft against the world’s currencies making the highest high since the first quarter yesterday. The EUR/GBP cross, which reversed off the highs of Monday, immediately droppped another 1.5 percent, closing around 0.8750.
The FOOTSIE also was sold as British interest rates moved higher on the better economic data, with the 10-year GILT gaining 15 basis points. Until today the market had convinced itself that the Brits were following the FED into a new round of QE as the British economy remained mired in tepid growth and the Cameron government was embarking on an austerity budget program. The more robust GDP number may mean that the new round of QE may not be needed or that the BOE under Mervyn King may take a wait-and-see approach.
The depreciation of the POUND has given ENGLAND some economic relief as British goods have become much more competitive within the European Union. As Cameron has reminded the markets, the brunt of British trade is within the EU and since the beginning of 2007 the British currency has dropped 33 percent against its major trading partners. Now the question arises: Why does the British GDP have possible significance for the Bernanke FED? The quick answer is that the FED policy wonks openly admit that they are in unchartered waters in the QE realm and really don’t know the impact that all this liquidity enhancement will have upon the economy.
The huge buildup in the FED‘s balance sheet is unprecedented so there is no historical basis on which to rely. Some of the most dovish FED board members admit this. We ask if it would not be better to proceed slowly now that global growth may be picking up and the global equity markets are pointing to better growth ahead. Yes, I know that the EQUITIES are being lifted on a pool of liquidity and may not mean that the growth is sustainable. But that is why it may be better to hold some QE for a later date.
A reader of ours, KM, maintains that it may be better to invoke a type of POWELL DOCTRINE–come with everything you got–but we wonder if it is better to hold back reinforcements in case of another downturn. Let’s remember that five months ago Bernanke and company were on the center stage discussing ways to remove the QE. By August we were back looking for new ways to enhance QE while the FED began reinvesting all the MBSs that had been rolling off. This shows that the FED has gotten it badly wrong recently and they be in the middle of another possible misstep. If the economy were to turn up faster than recent FED missives have predicted the FED could really be in a terrible bind as it moves to retract an enormous amount of money from the system.
The FED meeting of next week will bring high market volatility for the conventional wisdom has been for a dynamic QE move by the FED. New York FED President, DUDLEY, openly stated that a 500 billion QE add would be the equivalent of a 50-to-75-basis-point ease. How he knows that I don’t know but it must emanate from one of his beloved models. The FED has the cover of the recent S&P and equity rally to stay its hand. Yes, the stocks, bonds and commodities will sell off but it will be a good test of where all these markets will find support when left on their own without more FED injections. BEN BERNANKE it is time to test the waters to see if the previous bouts of stimulus have had any real success before you dig the HOLE DEEPER. While markets are an important source of FEEDBACK, policy makers cannot be held captive to the talking heads and the wall street money machine. WHAT SAY YEA BEN?