Beware of Falling Rates
The People’s Bank of China cut rates Friday, in its first down move since 2012. Is this the next phase of a competitive devaluation after the latest round of Abenomics was fired by the BoJ on October 31? The JPMorgan economist quoted in our lead story does not think so. I do.
I also see trouble brewing in Russia, exacerbated by Friday’s 40 basis point rate cut in China. Remember, Russia made big headlines in the wake of economic sanctions imposed subsequent to the Ukraine situation when it announced it would be exporting vast quantities of oil, denominated not in dollars but in yuan.
If China is indeed planning to devalue in lockstep with Japan, Russia will be forced to either add weakening RMB to its reserves or exchange them for dollars (or rubles, I guess).
There are always consequences.
Quote of the Day
With both Japan and China easing, the pressure on other central banks in the region to respond is rising
Bruce Kasman, global economist at JPMorgan Chase, in the FT story “Asian central banks seen eying rate cuts”
Asian central banks seen eying rate cuts
Late on Friday, the People’s Bank of China announced a 40 basis point reduction to the benchmark one-year lending rate, its first broad easing of monetary policy since 2012.
***DA: Competitive devaluation.
Central Banks in New Push to Prime Pump
Jon Hilsenrath in Washington, Brian Blackstone in Frankfurt and Lingling Wei in Beijing – WSJ
Two major central banks moved Friday to pump up flagging global growth, sending stock markets soaring but raising new questions about the limitations of a seven-year effort to use monetary policy to address economic problems.
Fund boards, management go on high alert around bond liquidity
Jessica Toonkel – Reuters
U.S. fund firms are taking extra measures to make sure they don’t get stuck holding hard-to-sell bonds in the event that fixed income markets see a massive race to the exits when interest rates start to rise.
***DA: That is my biggest fear – everyone thinks they will be able to hit the sell button at the same time when the tide turns.
The $400 Billion Bond Mismatch Keeping Bears at Bay Endures
Susanne Walker – Bloomberg
Even in the $100 trillion market for bonds worldwide, one of the most persistent dilemmas facing potential buyers is a dearth of supply.
***DA: Not enough until the day there becomes too much.
The $31 Billion Bet Against Brazil’s New Finance Minister
Ye Xie and Filipe Pacheco – Bloomberg
Whoever is tapped by Brazilian President Dilma Rousseff to oversee the government’s finances in her second term, one thing is clear: There’s plenty of work to be done to win over currency investors.
***DA: Currency stability and South America do not seem to mix.
No-one ever expects the PBOC
Izabella Kaminska – Financial Times
The People’s Bank of China likes to act unexpectedly. And Friday’s surprise announcement of a Chinese rate cut only confirms that being unexpected is indeed the PBOC’s preferred communications strategy.
***DA: Sort of like the Spanish Inquisition.
Fed Plans to Tighten Commodities Rules for Banks
Nathaniel Popper – Dealbook – NY Times
The Federal Reserve is preparing to unveil new restrictions aimed at making it harder for Wall Street banks to make big bets in the commodities markets, according to testimony on Friday from the Fed governor Daniel K. Tarullo.
New York Fed Is Criticized on Oversight
Peter Eavis – Dealbook – NY Times
The government agency that watches over Wall Street came in for repeated rounds of criticism on Friday at a Senate hearing into its regulatory track record.
ECB Official Calls for Gov’t Action to Help Growth
Jens Weidmann said in the text of a speech in Madrid on Monday that low interest rates and stimulus measures can boost short-term demand but that central bank action “cannot permanently boost growth prospects.”
Foreign-Exchange Scandal Raises Odds of Restructuring
Michael J. Casey – MoneyBeat – WSJ
If we can draw any hope from the recent revelations of price rigging by banks’ foreign-exchange trading desks, it is that they open the door to a long overdue restructuring of the world’s biggest, most important market.
Bring On the Currency Wars
Alen Mattich – MoneyBeat – WSJ
Central bankers struggling against weak growth and falling inflation have come up with a cunning plan: shift the problems onto someone else.
Peter Thiel Explains Why Bitcoin Isn’t Money
John Carney – MoneyBeat – WSJ
Billionaire technology investor Peter Thiel thinks Bitcoin has a problem: the government won’t shoot you for it.
Start-up FX platforms squeeze data fees
Joel Clark – Financial News
Changes to the foreign exchange market are bringing a new focus on the prices charged for market data.
Indexes & Index Products
Irish stock exchange says fáilte to active ETFs
Chris Flood – Financial Times
The Irish stock exchange last week cleared the way for more active mutual fund managers in Europe to enter the rapidly growing exchange traded fund industry. The ISE will allow active managers to keep their trading strategies hidden after dropping its requirement for the daily disclosure of the portfolio constituents of actively managed ETFs.
Swiss Central Bank Chief Warns on Impact of Gold Vote
Andrew Morse – WSJ
The head of the Swiss National Bank reiterated concerns that a popular vote on requiring the central bank to keep a fifth of its assets in gold would hinder its ability to conduct monetary policy.
Gold: worth its weight?
Gillian Tett – Financial Times
A decade ago, when Alan Greenspan was chairman of the mighty Federal Reserve, he was infamous for delivering ambiguous, Delphic speeches that nobody could understand. No longer. I recently had a chance to interview Greenspan, 88, at the Council on Foreign Relations, regarding an updated version of his latest book.
Swatting the Gold Bugs
There are idiots. There are morons. Then there are gold bugs. It would be a full time job fighting their insanity, and doing so is like kicking a manure pile: it raises a stink and a cloud of flies. But sometimes it just has to be done.