Posts Tagged ‘Mexican Central Bank’

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.


Notes From Underground: The ECB and BOE Meet Tomorrow and the Market Expects No Change

May 4, 2011

The market’s attention turns to the ECB and BOE rate decisions. Any rate change would be a surprise as the U.K.‘s data has been weak of late as the austerity budget is beginning to be a drag on the British economy. The policy makers in England are content to let rates stay on hold as it helps to weaken the POUND against the EURO. It will be more interesting to hear from the ECB through Trichet to see if the Europeans are content with the present inflation situation, especially as the EURO has made new highs for the last 18 months. The recent strength of the EURO is a problem for the debt-stressed countries and with the U.S. on hold for an “extended period” any move by the ECB would put more upward pressure on the EURO currency. Let’s see if Trichet surprises us by discussing the recent strength of the EURO. The post-meeting press conference will be waiting to hear if Trichet loses the vigilant language.