Category Archives: ECB

BOE, Central Bank, ECB, Europe, FED, USA

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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Central Bank, ECB, Europe, FED, USA

Jackson Hole Guide: Investors Seek Yellen Job-Market View

Here’s what to look for from the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole,Wyoming, which runs Aug. 21-23.

— Yellen’s keynote: The highlight will be Fed Chair Janet Yellen’s speech Aug. 22 on labor markets at 10 a.m. New York time. She’ll probably reiterate the Fed’s view that there is plenty of room for improvement in the labor market, according to Dean Maki, chief U.S. economist at Barclays Plc in New York.

— In July, the Federal Open Market Committee changed the language of its policy statement to highlight “significant underutilization of labor resources” as a justification for continued easy-money policies, even though the unemployment rate has fallen faster than Fed officials had forecast. The Fed chief will probably “point to measures like the elevated number of workers that are employed part time for economic reasons as evidence” of continued slack, Maki said.

— Yellen “would like to move away from this being a market-moving policy speech and get it back to being more of an academic exercise,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford,Connecticut. “I don’t think that she will use this as a tool to signal anything in terms of the Fed’s thinking, or certainly any meaningful change in the Fed’s thinking.”

— Wage focus: Tepid growth in wages is one area Yellen could choose to explore in more detail if she wants to advance the conversation, said Ethan Harris, co-head of global economics research at Bank of America Corp. in New York.

Stagnant Wages

— Average hourly earnings rose 2 percent in July from the year before, matching the mean increase over the past five years and down from 3.1 percent in the year ended December 2007, Labor Department data showed in the latest employment report. Separately, the employment cost index, a measure of labor cost changes, advanced 2 percent in June from the previous year.

— “A more careful look at wages would be a good place for her to plow some new ground,” Harris said. “They are way too weak, no sign of improvement, and if you’re going to defend why the Fed is going so slowly here, that’s your exhibit A: slow wage growth.”

— Conference participants will be mostly academics and central bankers; economists from major Wall Street banks weren’t invited this year.

— Draghi’s outlook: European Central Bank President Mario Draghi will follow Yellen with the keynote luncheon address. Investors will be seeking further insights into how weak his 18-nation economy is and whether he’s more likely to deploy Fed-style quantitative easing that the ECB has resisted.

Europe Stalls

— The euro area unexpectedly stalled in the second quarter as its three biggest economies failed to grow, adding to the region’s deflation risks. Draghi already committed this month to intensifying the unprecedented stimulus he unveiled in June if the outlook deteriorates.

— Draghi’s challenge may be compounded if Yellen remains focused on boosting the U.S. labor market, according to Alberto Gallo, head of macro credit research at Royal Bank of Scotland Group Plc in London. That’s because her bias toward continued stimulus will keep the dollar weak against the euro.

— Draghi “has tried to push down the euro and has so far won little ground against the dollar,” Gallo said. “The ECB is under even more pressure to do more.”

— Structural woes: Panel discussions on labor-market research presented at the conference may reveal “a growing awareness that underutilized labor resources may be a more permanent fixture,” rather than a cyclical shift, said Eric Green, global head of foreign exchange and rates at TD Securities USA LLC in New York.

‘Hawkish’ Tone

More here : http://www.bloomberg.com/news/2014-08-20/jackson-hole-guide-investors-seek-yellen-job-market-view.html

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ECB, Economy, Europe, FED

Why Currencies Are Poised for More Shifts

The world’s major currencies, which had traded in a relatively stable range, are now in motion — buffeted by different regional growth and interest rates as well as a simmering brew of geopolitical tensions.

Differences are particularly noticeable between the U.S. and Europe, and how far apart currencies in those regions move will be a function of monetary policy at the European Central Bank (while the ECBmeets this week, its major policy actions are likely to come in autumn).

Last week’s economic data confirmed that the euro area and the U.S. are on quite different growth trajectories. Their banking systems are also in different stages of healing. The U.S. is growing faster and mending more quickly, so we should expect a widening diversion in monetary policies. Look for a gradually less accommodating Federal Reserve while the ECB seeks to further loosen its monetary and credit policies. In short, the dollar should continue to appreciate against the euro.

Geopolitical factors also favor a stronger dollar, largely because Europe is more economically and financially exposed to developments in Ukraine and the Middle East than the U.S. Moreover, the euro once enjoyed support from global traders chasing yields on peripheral euro-zone bonds — but there is less capital at work in that realm now.

Read more here : http://www.bloombergview.com/articles/2014-08-04/why-currencies-are-poised-for-more-shifts

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ECB, Europe, FED

Important week for Euro

The European Central Bank announced some measures to ease monetary policy two weeks ago. The euro had been on a downtrend since May and by these measures the ECB increased its support to the economy.

The result?

Two weeks later, EUR/USD stabilized just above 1.35.

This week’s Eurozone economic calendar will be an important test for the euro because investors will be watching to the data in order to give confirmation on the need for additional easing.

Economists are not expecting major changes in economic activity but after the plunge in investor confidence (ZEW survey), the risk is a big disadvantage of these reports.

The rate of the EUR/USD will depend mostly on Eurozone data because the U.S. economic calendar is busy with Tier 2 economic reports. The Fed needs will probably start talking about normalizing monetary policy in September, when the central bank updates its forecasts and Janet Yellen gives a press conference.

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    Tags: u.s, monetary, euro, week, policy, major, ecb, support, will, bank
  • Jackson Hole Guide: Investors Seek Yellen Job-Market View
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    Here’s what to look for from the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole,Wyoming, which runs Aug. 21-23. -- Yellen’s keynote: The highlight will be Fed Chair Janet Yellen’s speech Aug. 22 on labor markets at 10 a.m. New York time. She’ll probably reiterate the Fed’s view…
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  • ECB cuts euro zone rates in surprise move. But ...
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  • ECB’s Draghi takes up new weapon in war on deflation
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ECB, Economy, Europe

Some clue how to trade ECB news 5-Jun-2014

The following are the key points in Goldman Sachs note on the ECB meeting today

1- The rate decision will be announced at 12:45 London time. Given that a deposit cut was telegraphed a month ago, the main question is whether this decision will be in line with market consensus (a 10-15bp cut) or greater (say 20bp). In the former, we expect EUR/$ to be essentially flat into the start of the press conference at 13:30, while the latter could see the cross fall around a big figure into the start of the press conference. 

2- The next stop is the opening statement, which ECB President Draghi will read out during the early minutes of the press conference. This will broadcast what credit easing measures will be taken and reveal the latest inflation forecast. On the former, the strongest signal for EUR/$ downside would come if the ECB gives a headline number for the liquidity impact of credit easing (something like “…the combined measures are ultimately expected to inject EUR200bn in liquidity), while the least favourable scenario is a kind of “rolling” LTRO, for example where banks can get liquidity for new lending every six months. The latter example would likely be a disappointment to the market, taking EUR/$ higher by a big figure or two, while the former could see EUR/$ weaken another big figure or two (especially if credit easing surprises the market, i.e., a 4-year LTRO with broad collateral and favourable haircuts or larger-than-expected ABS purchases). 

3. In FX strategy, the single most important node in tomorrow’s decision tree is the inflation forecast, specifically that for outlying years. If the 2016 forecast is marked down to 1.3% or 1.4%, this would be a de facto strengthening of the ECB’s easing bias, since it would openly acknowledge that further easing measures are needed to bring inflation back to target. We see this as the strongest possible signal for EUR/$ downside, since it subsumes many different kinds of future easing, including Fed-style QE. We think this could take EUR /$ down another big figure or more, as the market updates its reaction function for the ECB. If instead the inflation forecast is left unchanged in the context of a reluctant easing, this will set the stage for EUR/$ to move back up to 1.39. 6. There is obviously lots of ambiguity in all this.

4- A lot will hang on wording, demeanor and emphasis, where there are many shades of grey. However, our basic view remains that the ECB will surprise on the dovish side tomorrow, given the drop in core inflation and the signal sent at the last meeting. 

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ECB, Economy

ECB ready to cut rates and push banks

The European Central Bank is poised to impose negative interest rates on its overnight depositors, seeking to cajole banks into lending instead and to prevent the euro zone falling into Japan-like deflation.

At its meeting on Thursday, ECB policymakers may also launch a loan program for banks with strings attached to make sure the money actually gets out into the euro zone economy.

It will be the first of the “Big Four” central banks – ECB, Bank of England, Bank of Japan and U.S. Federal Reserve – to go the negative interest rate route, essentially charging banks to deposit with it.

Even though the risks are limited of the euro zone entering a spiral of falling prices, slowing growth and consumption, the ECB is increasingly concerned that persistently low inflation and weak bank lending could derail the recovery.

The economy grew just 0.2 percent in the first quarter, and euro zone annual inflation unexpectedly slowed to 0.5 percent in May, official data showed this week, piling additional pressure on the central bank to step in.

“Consensus for action is high so there is a … risk the ECB under-delivers relative to the market’s lofty expectations,” said Andrew Bosomworth, a senior portfolio manager at bond fund Pimco in Munich.

Since ECB President Mario Draghi last month signaled the Governing Council’s readiness to act in June, policymakers have come out in force to discuss the ECB’s toolbox, feeding expectations that a broader stimulus package is in the making.

This is likely to consist of a cut in interest rates, which would push the deposit rate for the first time into negative territory and the offer of longer-term loans linked to further lending. Large-scale asset purchases remain a distant prospect.

Cutting the deposit rate below zero would see the ECB charge banks for parking their excess money at the central bank – a step it hopes will prompt them to lend out the money instead.

Economists in a Reuters poll expected the ECB to cut its main refinancing rate to 0.10 percent from 0.25 percent and the deposit rate to -0.10 percent from zero, on top of launching a refinancing operation aimed at funding firms.

They expect bank lending to rise as a result of such measures, but foresee only a marginal impact on the euro.

The euro has fallen about 4 U.S.-cents against the dollar since the ECB’s May meeting, hitting $1.3586 last Thursday.

http://www.reuters.com/

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BOE, ECB, Economy, FED

Unprecedented stimulus by the Fed and other central banks made many traditional models useless,

If the insatiable demand for bonds has upended the models you use to value them, you’re not alone.

Just last month, researchers at the Federal Reserve Bank of New York retooled a gauge of relative yields on Treasuries, casting aside three decades of data that incorporated estimates for market rates from professional forecasters. Priya Misra, the head of U.S. rates strategy at Bank of America Corp., says a risk metric she’s relied on hasn’t worked since March.

After unprecedented stimulus by the Fed and other central banks made many traditional models useless, investors and analysts alike are having to reshape their understanding of cheap and expensive as the global market for bonds balloons to $100 trillion. With the world’s biggest economies struggling to grow and inflation nowhere in sight, catchphrases such as “new neutral” and “no normal” are gaining currency to describe a reality where bonds are rallying the most in a decade.

http://www.bloomberg.com/

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BOE, ECB, Trading, USA

Pound Rises Most in Two Months on Recovery Signs, #IMF Forecasts #GBP

The pound rose the most in two months versus the dollar this week as manufacturing and production data signaled the U.K. recovery is on track, boosting bets the Bank of England will raise interest rate and is going to nudge higher throughout the course of this month

The pound gained 1 percent this week, Industrial production increased 0.9 percent in February from the previous month and manufacturing output climbed 1 percent.

Growth Estimates

The IMF raised its forecasts for U.K. growth, predicting the economy will grow 2.9 percent in 2014.

Sterling gained 4.4 percent in the past six months, The euro climbed 1.9 percent, while the dollar slid 1 percent.Policy makers kept the benchmark interest rate unchanged at a record-low 0.5 percent at a meeting this week.

Annualized inflation slowed to 1.6 percent in March, from 1.7 percent the month before. The unemployment rate is estimated to 7.1 percent in the three months through February. This may prompt policy makers to consider to raise the interest rate.

Officials said in February there would be scope to maintain record-low rates even after the threshold is reached.

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BOE, ECB, Europe, FED, Trading, USA

Dr Faber predict stock market crash #Stockmarket #nasdaq

Dr Faber is predicting a 1987-type stock market crash this year only it will be worse.

The US technology-heavy Nasdaq plummeted by 3.1 per cent on Thursday night (US time), its biggest one-day drop since November 2011.

Dr Faber, the editor of the Gloom, Boom & Doom Report, has already called for growth stocks to decline this year. He said ridiculous stock valuations were not the crash catalysts, saying the Federal Reserve was also to blame.

“This year, for sure – maybe from a higher diving board – the S&P will drop 20 per cent,” Dr Faber said.

CNBC noted that Dr Faber predicted in August last year a 1987-type crash was looming.

Since then the S&P 500 has risen about 9 per cent.

Mr Grantham said the bust would be particularly painful because “the Fed and other central banks around the world have taken on all this leverage that was out there and put it on their balance sheets.”They will become cheap again. That’s how we will pay for this. It’s going to be very painful for investors,”

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    "The Great Recession--Moving Ahead," a Conference Sponsored by the Swedish Ministry of Finance, Stockholm, Sweden   The Great Recession: Moving Ahead The recession that began in the United States in December 2007 ended in June 2009. But the Great Recession is a near-worldwide phenomenon, with the consequences of which many…
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  • WALL STREET'S BRIGHTEST MINDS REVEAL THE MOST IMPORTANT CHARTS IN THE WORLD
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ECB

Webcast of the ECB press conference 6 March 2014

Press conference following the meeting of the Governing Council of the European Central Bank on 6 March 2014 at its premises in Frankfurt am Main, Germany, starting at 2:30 p.m. CET:

Introductory statement by Mario Draghi, President of the ECB.
Question and answer session. Registered journalists pose questions to Mario Draghi, President of the ECB, and to Vítor Constâncio, Vice-President of the ECB.

http://www.ecb.europa.eu/press/tvservices/webcast/html/webcast_140306.en.html

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