Category Archives: FED

NFP :: What to watch for ?

  • U.S. economy added 533,000 jobs during the first three months of the year

What do we need to analyse ?

-To keep pace, job creation would need to accelerate in April
-Watch which sectors of the economy are adding jobs.
-Flirting with Full Employment
-Average hourly earnings
-The participation rate … its been a bit of a puzzle
Note:
After NFP we will get another risk of a gap open on Sunday/Monday ( 7 May )

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  • 85
    America has allowed its oil companies to export oil as announced in private letters to oil companies. This will, for sure, cause a stir in the global oil markets and lead to lower prices. Global oil prices previously soared due to the fall in the supply of oil- stoppage of oil exports…
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  • 83
    When President Obama took office in 2009 at the height of the recession, the annual budget deficit came in at 10.1 percent of gross domestic product -- a level not seen since the end of World War II. In the five years since, the budget deficit has been sliced more…
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  • 82
    Perhaps the most notable development in the run-up to Friday's jobs report is just how low the bar has been set. The fact that the survey period over which the U.S. Bureau of Labor Statistics collected data for the report (the week that included the 12th of February) coincided with…
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  • 77
    Most people that discuss the "economic collapse" focus on what is coming in the future.  And without a doubt, we are on the verge of some incredibly hard times.  But what often gets neglected is the immense permanent damage that has been done to the U.S. economy by the long-term…
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No central bank had considered any of these measures

Who would have thought that six years after the global financial crisis, most advanced economies would still be swimming in an alphabet soup – ZIRP, QE, CE, FG, NDR, and U-FX Int – of unconventional monetary policies? No central bank had considered any of these measures (zero interest rate policy, quantitative easing, credit easing, forward guidance, negative deposit rate, and unlimited foreign exchange intervention, respectively) before 2008. Today, they have become a staple of policymakers’ toolkits.

Indeed, just in the last year and a half, the European Central Bank adopted its own version of FG, then moved to ZIRP, and then embraced CE, before deciding to try NDR. In January, it fully adopted QE. Indeed, by now the Fed, the Bank of England, the Bank of Japan, the ECB, and a variety of smaller advanced economies’ central banks, such as the Swiss National Bank, have all relied on such unconventional policies.

One result of this global monetary-policy activism has been a rebellion among pseudo-economists and market hacks in recent years. This assortment of “Austrian” economists, radical monetarists, gold bugs, and Bitcoin fanatics has repeatedly warned that such a massive increase in global liquidity would lead to hyperinflation, the US dollar’s collapse, sky-high gold prices, and the eventual demise of fiat currencies at the hands of digital krypto-currency counterparts.

None of these dire predictions has been borne out by events. Inflation is low and falling in almost all advanced economies; indeed, all advanced-economy central banks are failing to achieve their mandate – explicit or implicit – of 2% inflation, and some are struggling to avoid deflation. Moreover, the value of the dollar has been soaring against the yen, euro, and most emerging-market currencies. Gold prices since the fall of 2013 have tumbled from $1,900 per ounce to around $1,200. And Bitcoin was the world’s worst-performing currency in 2014, its value falling by almost 60%.

To be sure, most of the doomsayers have barely any knowledge of basic economics. But that has not stopped their views from informing the public debate. So it is worth asking why their predictions have been so spectacularly wrong.

The root of their error lies in their confusion of cause and effect. The reason why central banks have increasingly embraced unconventional monetary policies is that the post-2008 recovery has been extremely anemic. Such policies have been needed to counter the deflationary pressures caused by the need for painful deleveraging in the wake of large buildups of public and private debt.

In most advanced economies, for example, there is still a very large output gap, with output and demand well below potential; thus, firms have limited pricing power. There is considerable slack in labor markets as well: Too many unemployed workers are chasing too few available jobs, while trade and globalization, together with labor-saving technological innovations, are increasingly squeezing workers’ jobs and incomes, placing a further drag on demand.

Moreover, there is still slack in real-estate markets where booms went bust (the United States, the United Kingdom, Spain, Ireland, Iceland, and Dubai). And bubbles in other markets (for example, China, Hong Kong, Singapore, Canada, Switzerland, France, Sweden, Norway, Australia, New Zealand) pose a new risk, as their collapse would drag down home prices.

Commodity markets, too, have become a source of disinflationary pressure. North America’s shale-energy revolution has weakened oil and gas prices, while China’s slowdown has undermined demand for a broad range of commodities, including iron ore, copper, and other industrial metals, all of which are in greater supply after years of high prices stimulated investments in new capacity.

China’s slowdown, coming after years of over-investment in real estate and infrastructure, is also causing a global glut of manufactured and industrial goods. With domestic demand in these sectors now contracting sharply, the excess capacity in China’s steel and cement sectors – to cite just two examples – is fueling further deflationary pressure in global industrial markets.

Rising income inequality, by redistributing income from those who spend more to those who save more, has exacerbated the demand shortfall. So has the asymmetric adjustment between over-saving creditor economies that face no market pressure to spend more, and over-spending debtor economies that do face market pressure and have been forced to save more.

Simply put, we live in a world in which there is too much supply and too little demand. The result is persistent disinflationary, if not deflationary, pressure, despite aggressive monetary easing.

The inability of unconventional monetary policies to prevent outright deflation partly reflects the fact that such policies seek to weaken the currency, thereby improving net exports and increasing inflation. This, however, is a zero-sum game that merely exports deflation and recession to other economies.

Perhaps more important has been a profound mismatch with fiscal policy. To be effective, monetary stimulus needs to be accompanied by temporary fiscal stimulus, which is now lacking in all major economies. Indeed, the eurozone, the UK, the US, and Japan are all pursuing varying degrees of fiscal austerity and consolidation.

Even the International Monetary Fund has correctly pointed out that part of the solution for a world with too much supply and too little demand needs to be public investment in infrastructure, which is lacking – or crumbling – in most advanced economies and emerging markets (with the exception of China). With long-term interest rates close to zero in most advanced economies (and in some cases even negative), the case for infrastructure spending is indeed compelling. But a variety of political constraints – particularly the fact that fiscally strapped economies slash capital spending before cutting public-sector wages, subsidies, and other current spending – are holding back the needed infrastructure boom.

All of this adds up to a recipe for continued slow growth, secular stagnation, disinflation, and even deflation. That is why, in the absence of appropriate fiscal policies to address insufficient aggregate demand, unconventional monetary policies will remain a central feature of the macroeconomic landscape.

Read more at http://www.project-syndicate.org/commentary/unconventional-monetary-policies-and-fiscal-stimulus-by-nouriel-roubini-2015-02

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What To Expect From NFP?

 

The following are the expectations for today’s US December jobs reports as provided by the economists at 15 major banks.

Goldman: Change in Nonfarm Payrolls (Dec): 230k Unemployment Rate (Dec): 5.7%.

Deutsche: Change in Nonfarm Payrolls (Dec): 200k Unemployment Rate (Dec): 5.7%.

Morgan Stanley: Change in Nonfarm Payrolls (Dec): 240k Unemployment Rate (Dec): 5.7%.

Nomura: Change in Nonfarm Payrolls (Dec): 232k Unemployment Rate (Dec): 5.7%.

SEB: Change in Nonfarm Payrolls (Dec): 230k Unemployment Rate (Dec): 5.7%.

Citi: Stay long USD into payrolls. With 240k the median expectation (Citi 220k), we think pressure points touch on both the headline print and revisions with 250k + 40k revisions and 200k – 40k revisions respectively sensitive levels. For policy, wages (0.2%MoM e) and unemployment (5.7% e) could matter more. Undershoots on unemployment and ticks up in wages will be very positive USD and potentially hit higher beta FX.

RBS: Market focus is obviously on US NFPs. Consensus is ~240k; RBS estimate is 225k with upside risks on holiday hiring. Unemployment rate likely to fall by 0.1pp to 5.7%. short EUR/USD and long USD/ZAR on a strong number (225k+). Long AUD/USD on a disappointment.

BNPP: Our economists are more optimistic than the market, expecting a 275k gain in December nonfarm payrolls, just below the impressive three-month trend of 278k. The unemployment rate should fall to 5.7% and as labour market slack is eroded we suspect the Fed and market participants will increasingly focus on measures of wage growth. The bar for the employment data to alter the Fed’s plans to hike in mid-year appears quite high – a stronger reading is unlikely to rush the Fed into move in Q1 given the low CPI profile, while one weak report would do little to alter the picture of what has been a very robust trend. The USD rally appears set to continue in 2015, but with markets already positioned for the move, tactical flexibility if warranted in our view.

SocGen: All the forward indicators we have seen point to the main themes being maintained – strong NFP, falling unemployment and subdued wage growth. We’re looking for 305k 5.6% and a +0.1% hrly earnings increase which should keep the annual rate at 2.1%. That of course, is much better in real terms now, than it was a year ago! The 2013 monthly average NFP gain was 194k, the average so far in 2o14 (Jan-Nov) is 241k, an indication of the acceleration we have seen.

BTMU: Our NFP model predicts an NFP print today of 210k, which is a little less than the consensus 240k – which coincidentally is exactly the discrepancy for the whole of 2014. The model average for 2014 is at 211k while the actual NFP average for 2014 stands at 241k. So our model is pointing to something around consensus which would certainly help confirm steady jobs growth in the US and would confirm that nearly 3mn jobs were created in 2014. Other employment variables are also pointing to continued strength.

Credit Suisse: The recent payroll trends look impressive, with ten consecutive increases of at least 200K, the longest such streak since the mid-1990s, and the 6- and 12-month averages at cycle highs. We project another strong month for nonfarm payrolls at 250K (Consensus: 240K). We expect the unemployment rate to remain steady at 5.8% (Consensus: 5.7%). We look for a 0.2% mom improvement in average hourly earnings (in line with consensus), which would push the year-on-year rate to 2.2%, the high end of the 1.9%-2.2% range of recent years.

BofA: While we look for another strong jobs report, we do not expect a repeat of November which showed job growth of 321,000. We look for nonfarm payrolls to increase 250,000 in December, which is in line with the 6-month average of 258,000. We look for private payrolls to increase 240,000 and the public sector to add 10,000 jobs. The leading indicators suggest continued strength in the labor market with the conference board labor differential narrowing two points to -10.6, initial jobless claims continuing to fall and manufacturing surveys showing further growth. Among the components, we anticipate a slowdown in retail hiring after the growth of 50,000 in November. It seems that the holiday shopping season started earlier this year, prompting greater hiring in November, but likely less in December. We also see risk of a slight slowdown in manufacturing job growth as suggested by the regional surveys. Along with solid job growth should come a decline in the unemployment rate. We look for the unemployment rate to slip to 5.7% from 5.8%. Household job growth is extremely noisy, increasing only 4,000 in November after average growth of 458,000 in September and October. We think we should see a bounce higher in December, which will likely push the unemployment rate lower. We also look for little change in the labor force participation rate, which has been moving sideways in a choppy fashion in recent months.

Standard Chartered: ‘Regression to the mean’ is our expectation for Friday’s employment data (08:30 ET). November’s 321,000 non-farm payroll (NFP) print is unsustainable, in our view. We look for a drop to 240,000 in December, closer to trend (the one-year average in payrolls is 228,000/month). This would be consistent with recent US data, such as softer ISM surveys and durable goods data, which suggest that Q3-2014’s GDP outperformance (5.0% q/q SAAR) may not have been repeated in Q4-2015 and may not be sustained in Q1. Still, a 240,000 payroll reading would be interpreted as robust. The unemployment rate is likely to resume its downtrend after plateauing at 5.8% in the past two months. We see a 0.1ppt drop to 5.7%, but note that a planned annual revision to the household survey introduces higher-than-usual uncertainty.

Credit Agricole: We look for a 215K rise in December nonfarm payroll employment, with the unemployment rate holding steady at 5.8%. Based on data at hand, nonfarm payroll growth likely moderated in December, rising 215K following a 321K advance in November. Initial unemployment claims fell to 289K in the week ending 13 December, down 6K from the November average. This is supportive of +200K payroll gains. Employment indexes on the Empire State and the Philly Fed manufacturing surveys are consistent with solid manufacturing employment, with both remaining at positive levels in December. However, manufacturing jobs likely rose by less than the 28K pick-up in November. Private service-providing payroll growth also likely softened from the previous 266K increase (the strongest since January 2012), though we will confirm our projection on incoming service-sector survey data.

Danske: The main event is the US employment report for December. We expect total payrolls to show a gain of 195,000 in December, which is below consensus expectations of 240,000. The main reason for our below-consensus call is that we expect some payback from the strong November gain of 321,000

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  • 57
    U.S. economy added 533,000 jobs during the first three months of the year What do we need to analyse ? -To keep pace, job creation would need to accelerate in April -Watch which sectors of the economy are adding jobs. -Flirting with Full Employment -Average hourly earnings -The participation rate…
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The (Real) Bank of America

David Matsuda had never been a mariner or an administrator before he became the head of the U.S. Maritime Administration in 2009. He had been a government lawyer and a congressional staffer, focusing on railroad issues; the ringtone on his phone was the choo-choo of a train. Matsuda had never been a banker, either. This was relevant because MarAd, in addition to its basic duties involving vessels and ports, ran a perennially troubled $2 billion credit program that had propped up U.S. shipbuilding since the Great Depression. When Matsuda took the helm, the program was sinking again, heading for its worst defaults since a massive loan to help the billionaire investor Sam Zell build cruise ships had gone bust in 2001. Whatever Matsuda’s Washington career had prepared him for, it hadn’t prepared him to be Uncle Sam’s repo man on the high seas.

“It was like walking into a nightmare,” says Matsuda, 42, a former transportation adviser to the late Democratic Senator Frank Lautenberg. “I looked around and said, ‘Guys, what’s happening?’”

The Bush administration’s last MarAd loan guarantee, a $140 million deal to help a politically connected firm build two “superferries” to shuttle passengers around Hawaii, imploded shortly after Matsuda arrived. MarAd got stuck with the ferries, which it eventually offloaded to the Navy. Then a marine services outfit with a MarAd loan went bankrupt, prompting panicky meetings about whether seizing its collateral—a supply boat at work in Nigeria’s offshore oil industry—would spark an international incident. Then another dying shipping company missed a payment on a loan secured by four double-hulled oil tankers. After weeks of confusion, MarAd’s lawyers informed Matsuda he needed to arrest the four football-field sized ships.

“Honestly, I didn’t even know you could arrest ships,” he recalls.

MarAd struggled just to locate the tankers, which were scattered around the Gulf of Mexico and the Eastern Seaboard. One captain apparently turned off his transponders to evade detection. “They were moving from port to port to avoid us,” an official recalls. “We’d go looking for a ship, they’d be gone before we got there.” The four ships were finally tracked down in three states; federal marshals had to board them, place them under arrest and claim them for the government. MarAd ended up selling them for scrap, recovering just $7 million of the $88 million it was owed.

This is what can happen, Matsuda says, when a little marine agency like MarAd is assigned to evaluate big-money credit deals. “It’s never going to lure financial talent away from Wall Street,” says Matsuda, who left the government in 2013 and is now a transportation consultant in Washington. “It’s not a bank.”

No, MarAd is not a bank. It’s more accurate to say it runs the shipbuilding-loan division of a much larger bank—in fact, America’s largest bank.

 Read more: http://www.politico.com/magazine/story/2015/01/federal-loans-bank-of-america-113920.html#ixzz3OCjcDWzN

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5 THINGS TO WATCH AT THE DECEMBER FED MEETING

The Federal Reserve holds its last policy meeting of the year on Tuesday and Wednesday, resulting in plenty of material to be scoured for clues about when interest rates will start inching up. The central bank’s policy committee releases its statement and new economic projections at 2 p.m. Wednesday, followed by Chairwoman Janet Yellen’s press conference at 2:30 p.m. Here are five key things to keep an eye on.

A ‘CONSIDERABLE TIME’ TO SAY GOODBYE?

THE LABOR MARKET

OIL PRICE SPILLOVERS

INFLATION EXPECTATIONS, FINANCIAL STABILITY

OVERSEAS OUTLOOK

 

Full Text can be found here : http://blogs.wsj.com/briefly/2014/12/16/5-things-to-watch-at-the-december-fed-meeting/

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Why you should care about bonds even if everyone is talking about stocks

The US stock market gets all the attention, but the bond market is where the real fortunes are made. Chris Arnade, a former bond trader, describes the unsmiling, powerful markets that move companies and governments

On Wall Street, nearly everybody trades either stocks or bonds. Stock traders are the smiling guys with short hair, button-up blue Brooks Brother shirts, and dark navy pinstripe suits. Bond traders are the same guys, only without the smile.

Stocks do well when the world is doing well and bonds mostly do well when things are going badly. This makes bond traders widely disliked. It is not cool to smile when things are going badly for everyone else.

I traded bonds for 20 years. During that time, countless friends, relatives, friends of relatives, drunk strangers and strange drunks asked me: “What stock should I buy?”

Nobody asked me about bonds. Maybe I should have smiled more.

Stocks seem easy. They are a single price that tells a story on how a company is doing: Apple at $100? Great! Bank of America at $15? Not so hot.

Bonds don’t seem easy. They have a yield, they have price, they have maturity, and they have a coupon. There are government bonds, there are corporate bonds, there are bonds issued by cities. Bonds are individual contracts to pay back a debt. They have a lot of moving parts.

Stocks are how you make money and bonds are how you borrow money. Everybody likes making money, nobody likes borrowing money.

bonds
Specialist Henry Becker, left, directs trading at the post that handles AIG on the floor of the New York stock exchange. Stocks extended their decline and bond prices jumped a day after Wall Street’s steady collapse on the week of the crisis.

http://www.theguardian.com/business/2014/nov/03/bond-market-matters-talking-stocks

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    http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech986.pdf https://www.bloomberg.com/news/articles/2017-06-28/draghi-s-prudence-warning-confirmed-by-reaction-to-his-own-words      
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A Checkpoint with this Week’s Expected End of QE

 

What’s New: With the curtain falling on the Fed’s QE. let’s take a look at what’s been happening of late for US Treasuries. The yields on the 10-, 20- and 30 year Treasuries have generally trended downward since the end of 2013.

The latest Freddie Mac Weekly Primary Mortgage Market Survey last Thursday puts the 30-year fixed at 3.92%, well off its 4.53% 2014 peak during the first week of January and its lowest rate since June 2013.

 

Here is a snapshot of the 10-year yield and 30-year fixed-rate mortgage since 2008.

A log-scale snapshot of the 10-year yield offers a more accurate view of the relative change over time. Here is a long look since 1965, starting well before the 1973 Oil Embargo that triggered the era of “stagflation” (economic stagnation with inflation). I’ve drawn a trendline connecting the interim highs following those stagflationary years. The red line starts with the 1987 closing high on the Friday before the notorious Black Monday market crash. The S&P 500 fell 5.16% that Friday and 20.47% on Black Monday.

Here is a long look back, courtesy of a FRED graph, of the Freddie Mac weekly survey on the 30-year fixed mortgage, which began in May of 1976.

A Perspective on Yields Since 2007

 http://www.advisorperspectives.com/dshort/updates/Treasury-Yield-Snapshot.php

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THINGS TO WATCH IN FRIDAY’S JOBS REPORT

The Labor Department’s initial estimate of August job growth on Friday is expected to show another solid month of hiring. Economists surveyed by The Wall Street Journal forecast the economy added 225,000 jobs, which is roughly in between the 12-month average of 214,000 and the 3-month average of 245,000. The unemployment rate is expected to drop to 6.1% after ticking up to 6.2% in July. Beyond those headline figures, here are five things to watch on Friday.

Read the 5 things to watch here :  http://blogs.wsj.com/briefly/2014/09/04/5-things-to-watch-in-fridays-jobs-report-2/

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The Fed Is Not As Powerful As We Think

This past week marked the annual gathering of bankers, financial officials, and other economic experts hosted by the Kansas City Federal Reserve Bank in Jackson Hole, Wyoming. On Friday, Fed Chair Janet Yellen and European Central Bank head Mario Draghi both spoke; in a slow week for the markets, these speeches received the bulk of the econ media’s attention, and Yellen’s remarks were heralded for days as the week’s major financial event.

Zachary KarabellZACHARY KARABELL

Zachary Karabell is an author, money manager, and commentator. His most recent book is The Leading Indicators: A Short History of the Numbers That Rule Our World.

This emphasis on the utterances of the Fed chair is only one aspect of a deification of the Fed and whoever heads it. The elevation of the Fed chair to current heights is not benign. It fosters an unhealthy dependency and excuses policymakers and market participants from making their own judgments, as well as their own mistakes.

More problematic, however, was the topic of Yellen’s speech: the labor market. Don’t get me wrong. The labor market is a crucial economic topic. But the notion that the Fed should be responsible for the labor market is both new and flawed. The so-called “dual mandate” of the Fed is to focus on price stability and on employment. But the idea that the Fed can do much to affect employment is, at the very least, questionable.

The pronouncements of the chair of the Federal Reserve now occupy a special place in the financial ecosystem. The Fed chair regularly appears before Congress to give an assessment of the economy, and these appearances receive considerably more attention in media and financial circles than equivalent briefings by the Treasury secretary, let alone the chairpersons of the National Economic Council or the Council of Economic Advisers.

 

http://www.slate.com/articles/business/the_edgy_optimist/2014/08/janet_yellen_jackson_hole_speech_let_s_stop_deifying_the_fed.html

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Reminder :: Quantitative easing alone will not do the trick

Very low inflation poses a mounting threat to the economic stability of the eurozone. The rate of consumer price inflation has been below 1 per cent since October, and hence far below the European Central Bank’s (ECB) target of just below 2 per cent. This highlights the degree of weakness in the eurozone economy – and reinforces it – notwithstanding the optimism generated by a return to modest growth. And it further increases doubts over debt sustainability across the currency union: without a healthy dose of inflation, it is much harder for households, firms and governments to reduce their debt burdens.  To make things worse, in the most indebted countries, such as Greece, Portugal, Spain and Italy, inflation is even lower than the eurozone average. In response, many observers argue that the ECB should employ unconventional tools like quantitative easing (QE) to boost inflation. The problem is that QE alone is unlikely to be effective without a significant change in the ECB’s approach to monetary policy. The ECB needs to manage people’s expectations about the future path of demand, income and inflation more forcefully if it is to generate a proper economic recovery across the Eurozone. 

 

See more at: http://www.cer.org.uk/insights/quantitative-easing-alone-will-not-do-trick#sthash.00rBSkSf.dpuf

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