Since I’m 62 years old, my references of social icons goes back to a more simple time. Alfred E. Neuman of Mad Magazine fame would ask, “What, Me Worry?” The other side of the equation would be Arthur Fonzarelli from the television show, “Happy Days.” who would stutter before ever admitting that he was WRONG. The world’s central banks are a reflection of these two icons. It seems that Yellen, Draghi and Kuroda all suffer from both views. They have nothing to worry about and they certainly cannot admit to being wrong. The central banks are under attack from investors and traders for pursuing quantitative easing and negative yields even though the efficacy of such programs is certainly in doubt.
Posts Tagged ‘Yuan’
Being a life-long CUBS fan it is with a sense of irony to note that the nonfarm payroll number almost equaled Friday’s attendance at Wrigley Field. I will venture to guess though that the cheers from the FOMC were louder than all of the voices cheering the CUBS onto victory. Janet Yellen and her insider clique on the FOMC cheered as the softness in the JOBS data provided the rationale for the FOMC not to raise interest rate before the BREXIT vote. Everyone in the financial world knows that the FED is “data dependent” … at least when it fits their needs. Yes, the unemployment rate dropped to 4.7% from 5.0% but this substantial fall calls into question the credibility of the Fed models. The drop in the rate was due to participants leaving the job force, and, more importantly, those departing the labor market are not at the retirement age level but more in the middle of the age timeline, which makes investors challenge the idea of the economy gaining strength.
It’s that time of the month: first Friday and the jobs data is front and center. Consensus is for 152,000 nonfarm payrolls. In my humble opinion it will take a number above 200,000 to put pressure on the FOMC to actually raise rates at its June meeting, or, more importantly, a headline jobless rate of 4.8%. As always, I am highlighting the AVERAGE HOURLY EARNINGS (AHE) as the most important number because it plays to Chair Yellen’s concern about 20 years of stagnant wages. The market is anticipating a tepid rate of 0.2% following April’s gain of 0.3%. A flat wage number would keep the FOMC on hold.
Here we go again. Bank of Japan Governor Kuroda “shocked and awed” the markets by taking BOJ deposit rates into negative territory in a HYBRID sort of way as it is a three-tiered methodology that does not apply to money already being held at the BOJ in reserve. Also, money that is deemed regulatory-type capital will receive ZERO interest and won’t be punished with a surcharge, but any new funds making it onto the reserve balance sheet of the BOJ will receive NEGATIVE INTEREST RATES. Kuroda-san delivered this shock after promising last week that the BOJ would not go negative on its deposit rate. Kuroda will learn hat if you keep intentionally pumping the markets with disinformation the markets will have their time when the BOJ needs it the most, like maybe selling off the massive JGB portfolio on its balance sheet. But through the power of negative compounding of interest earnings Kuroda has brought Stevie “Guitar” Miller’s words to life:
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.
It was ECB President Mario Draghi who declared war on the German economic model of GROWTH THROUGH AUSTERITY, but it was the Chinese central bank that fired the first real shot in response to the “intervention” by Super Mario. As usual, Draghi proposed an increase in the ECB QE program (possibly in December) and also mentioned taking deposit interest rate even more negative. The EURO, of course, depreciated by as much as 3 percent while Draghi stoked the fires of a possible liquidity increase.
When holiday markets quash volume and new items repetitive, it provides an opportunity to catch up with some general concepts in a style I like to call “Quick Hitters.”
There is now rampant talk about a revived FED QE4 program, most powerfully talked about by Bridgewater’s Ray Dalio and Larry Summers (from the genetically powered economics family of Samuelson and Arrow). On December 24, Santelli and I considered the possibility of QE4 (see clip below). I posed this question to all investors: How would the equity markets react if the FED had to reignite its large asset purchases?
Mao, Deng and Xi, oh my! It seems whenever China releases economic data, the U.S. markets and its developed market cousins either go into an orgasmic paroxysm or a spasm of pain. Readers of Notes know that I have criticized the Chinese economic releases as fiction and my rational was simple. If the Politburo would not allow GOOGLE to operate without restraint within China why should I trust any “official data.” Many times I have referred to GDP and PMI figures hitting the predicted market consensus as a greater feat of financial engineering than Jack Welch’s record of beating Wall Street’s forecast’s for GE earnings by a penny every quarter while Jack was CEO.