Tagged: financial markets

The Weekend Today 29 June 2014

The Economist Buttonwood column sums up where we are right now:

How markets look worryingly like 2007: ‘HAD Rip Van Winkle fallen asleep in early 2007 and woken up today, he might not have realised there had ever been a financial crisis…Of course, the awakening Rip might get a bit of shock if he examined the interest rate on his savings account… But the central dilemma remains. Either central banks are right to be worried about the economy, and to keep rates low, in which case profits will eventually disappoint. Or central banks are wrong, and they will be forced to raise rates more rapidly than the markets expect. Both outcomes seem likely to bring more uncertainty and thus more volatility. The speculative euphoria of 2007 may be missing. But until the outlook becomes clear, few investors want to give up on what has been a winning strategy of owning equities. Investors are reluctant bulls; there seems no alternative’ http://econ.st/1qFURd4

Meanwhile the BIS Annual Report contains a warning for central bankers:

* “The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly.” http://bloom.bg/1jzIiuE
Central Bankers Who Bemoan Low Volatility Share Blame, BIS Says http://bloom.bg/1pCTTRX

* Cleveland Fed Paper: Interest rate risk on the rise at US banks http://bit.ly/1lZew6B

* Fed Shelters Investors From Full Cost of Bonds Selloff, BIS Says  {NSN N7U84P6TTDSY<GO>}

Bank of England:

* BOE’s departing Charlie Bean argues that long term rates could hit 5% {NSN N7X35G6K50XU <go>} while The Economist explains why UK interest rates will still be below 1% this time next year http://econ.st/1sNPz3l
* Mark Carney’s housing pill needs time to let economy digest it http://bit.ly/1sO627L
* BOE’s Jon Cunliffe: UK property obsession threatens to push up household debt pile http://bit.ly/1mIW82J

* Stocks, bonds and commodities all up in first half of this year – for the first time in over 20 years  http://on.wsj.com/Tuo4vu

* Hedge Fund correlation with stocks is at pre-crisis levels http://on.ft.com/1rLLdpo

* How last week’s US court ruling creating a loophole for condensate exports may apply to other commodities other than just oil  http://reut.rs/1m9YnNz

* One table to explain the 9 different schools of economics  http://bit.ly/1pCTtuK

The Day Today 2 June 2014

* Reminiscent of dot-com bubble? The Unstoppable $100 Trillion Bond Market Renders Valuation Models Useless {fifw NSN N6IIC96JTSEH <go>}
* Details emerging ahead of Thursday’s meeting: Draghi Primes ECB to Act as Region’s Inflation Scarcity Alarms Officials {fifw NSN N6IG8Y6TTDS1 <go>} ‘Aside from the prospect of a negative rate, the ECB is working on a proposal for a conditional longer-term refinancing operation and expects to have a plan ready for the June 5 meeting, according to a central bank official familiar with the plans. Details on cost, maturity and the appropriate measure of credit supply have yet to be finalized, the official said, asking not to be identified because the talks are private.
– Spiegel reports the LTRO will be 4yrs in tenor but fixed vs variable rate still TBD
– FT: LTRO will be like BOE FLS http://on.ft.com/1m4KBGq
 
M&A
* Times: Shire secures $5bn funding for US bid http://thetim.es/T5IT0D
* Marathon Oil Announces $2.7 Billion Sale of Norway Business { fifw NSN N6IZNK6KLVRC <GO>}
* Dai-ichi Life targets $5bn Protective deal  {fifw NSN N6J14F6TTDS5 <GO>}

* BBC: Cameron warned UK might quit EU over president – Spiegel http://bbc.in/1oJtpge

* And key date for the government on Thursday with the Newark by-election. BBRG:  Cameron Threatened as Farage’s ‘People’s Army’ Marches on Civil-War Town {fifw NSN N6I8IG6K50XU <go>}

Courage, mon brave

There has been much hand-wringing of late about the US interest rate markets. How could it be that the 10yr is 2.5% when we started the year at 3%? Sure, we had some bad weather, but jobless claims just came in at their lowest level in 7 years! Non farm payrolls were almost 300k! The Fed taper will be done in just a few months! Even the soft housing data rebounded strongly in April!?
Oh but how we worry.
Various explanations have been put forward for the rally in US bonds.
1. Central Bank holdings as FX reserves go up
2. Equities wobbling (near all-time highs?!)
3. G4 central banks leaning back towards dovishness
4. Yellen winning the dovish argument on the FOMC
5. Bernanke telling people rates won’t go back to their long term average of 4% ‘in my lifetime’ http://reut.rs/TkXoy1
 
The final point makes it very clear just how much of a colossal loss of nerve is going on. Since when did we listen to the guy no longer in charge? Sure, he’s close to Yellen, but is it surprising that the man who sanctioned the biggest money drop in US history is somewhat dovish? The detail in that article says it all… some big fund managers are quoted as cursing themselves for not listening to his comments more carefully. No, they’re just frustrated that the market is moving against them, even now the weather effects are out of the way.
At the heart of this lies the expectations for the US economy. It’s not surprising that it is so hard to call. With the patient having spent 7 years on life support, just how will it manage on its own? After all that time can we really believe it will skip out of the hospital? Particularly when housing and banking, the implosion in which brought the world economy to its knees, is so sensitive to interest rates. Let’s not forget that at the same time a new chairman is in charge of the biggest central bank in the world – and only the 3rd in 30 years.
This chart is the key. It’s consensus expectations for US economic growth this year. We’ve run from one side of the boat to the other, starting the year expecting almost 3%, now down to 2.5%.
Janet Yellen is wrong. The Fed’s “dots” do matter, but only because they give us confidence in our view of the US economy. Central bankers have been performing an excellent jedi mind-trick since Lehman went under – “trust us, we will keep pumping the drugs until we’re confident you can leave the hospital”. But markets should have their own confidence now.
The response to the Bank of England Inflation Report gives the clearest signal that the market is capitulating. Every time previously that Carney has signalled on forward guidance, the market has brought forward rate hikes. This time his dovishness saw it pushed back. The guy is in place to ensure that any spike in yields is contained, which means using sterling to weigh on inflation, and macroprudential rules to weigh on the housing market. But it doesn’t mean that there isn’t underlying strength in the UK economy.
What will make the market regain its confidence? It will need something so obvious that it can be grasped with both hands and thrown in the face of the world’s central banks. The key to watch is inflation – and specifically wage inflation. Go back to the Reuters article on Bernanke, where one attendee says they’re “shocked” that 2% inflation was not considered a ceiling. How can anyone be shocked when central bankers will pat themselves on the back for averting another deflationary Great Depression! Even the ECB appear to be putting some kind of asset purchases on the table. For Central Bankers, inflation is a massive result. It’s like (pre Moyes era) Manchester Utd: having good players on the bench makes the team selection a headache you want to have -> employment, wage inflation and growth makes getting behind the curve worthwhile. Raising rates into a recovery will be accompanied by a sigh of relief.
If the central banks have told us anything, it’s that they want to be behind the curve. Markets need to recognise that this means the yield curve is ours for the taking. Courage, mon brave…

The Day Today 28 April 2014

* UK M&A back in the frame with news this morning that Pfizer are back bidding for AstraZeneca, at £60bn this would be the largest ever foreign takeover in the UK http://www.bbc.co.uk/news/business-27185027
* Stocks in Europe Advance on M&A as Tension in Ukraine Boosts Nickel, Wheat {fifw NSN N4QCDD6S972E <go>}

Ahead of UK Q1 GDP data this week…
* BBC: Economic outlook is ‘exceptionally strong’ says CBI – Its latest monthly survey of 675 firms, indicated that growth expectations were the strongest since the CBI started collecting data in 2003 http://www.bbc.com/news/business-27177766
* Times: UK economic growth is picking up speed http://www.thetimes.co.uk/tto/business/economics/article4074317.ece

* Hedge Funds Short on Small-Cap Equities Most Since 2004 as Russell Retreats {fifw NSN N4QE1A6K50Y1 <go>}

ECB:
* *STRONG EURO CAUSED BY CAPITAL FLOWS, NOT MONETARY POLICY: NOYER
*EURO ZONE FACING RISK OF `TOO LOW’ INFLATION, BOF’S NOYER SAYS
https://www.banque-france.fr/fileadmin/user_upload/banque_de_france/publications/RA2013-Lettre-GB.pdf
* Constancio says ECB looking at more than just this month’s inflation data to gauge need for action {fifw NSN N4QHAG6S972R <go>}
http://www.ecb.europa.eu/press/key/date/2014/html/sp140428.en.html

* Iron Ore prices drop to lowest levels in a month, as Chinese news reports that the China Banking Regulator will investigate the use of iron ore as collateral, and that banks are to ask for higher deposits on the letters of credit used to finance purchasing of iron ore {fifw NSN N4QEAT6KLVRR <go>}

* It’s not the “new normal”, it’s the “old normal” [is that just “normal” then??] – Old Normal Returns as Pimco Foresees `New Destination’ for U.S. {fifw NSN N4PH5M6K50XT <go>}

The Day Today 28 Feb 2014

* Ukraine’s New Government Looks to IMF Bailout as Tensions Flare in Crimea {fifw NSN N1P31L6TTDSG <go>} Headlines this morning include: *SEVASTOPOL’S BELBEK AIRPORT BLOCKED BY RUSSIAN TROOPS: AVAKOV, *AVAKOV SAYS CRIMEAN AIRPORT OCCUPATION IS ARMED INTRUSION
* The sell-off in the Chinese yuan continues, with the PBOC “almost paying their own offer” as someone put it to me, with the currency hitting the weak end of the band

* Ahead of the ECB meeting next week, which will bring new staff projections out to 2016, and therefore provide a reason to do something…. Draghi Says ECB Ready to Act to Counter Downside Inflation Risks – “Inflation remaining low for a prolonged period of time is a risk in itself,” Draghi said yesterday. {fifw NSN N1OBRY6TTDSN <go>}

* Though ECB’s Jazbec said yesterday “Its a question whether it would be enough only to cut interest rates” – so will they opt for something more unconventional? We already know the Bundesbank have crossed the rubicon and said they’re not ideologically against unsterilising the SMP purchases (i.e. adding liquidity)
* London Gold Fix Shows Signs of Being Manipulated for Decade, Study Finds {fifw NSN N1O3OS6K50YN <go>}
* Japan’s GPIF cut domestic bond holdings to the least since the fund’s inception in 2006 and said it will invest in infrastructure {fifw NSN N1P65W6JIJVI <go>}
* In the shortest month of the year, a good short was hard to find…global stocks, bonds and commodities rose together for the first time in 7 months {fifw NSN N1OKVZ6JTSE9 <go>}
* Times: Auld acquaintance forgot as Scots firms threaten to go south of border http://thetim.es/1mK1Gvh
 
* WSJ: China’s top legislative body Thursday designated two new national days aimed at highlighting Japanese aggression during WW2 http://on.wsj.com/1fvrNfG
 
* Tonight the BBC will broadcast a documentary about war time London. People lived different lives then and did different things.