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Central Bank News Link List - Aug 29, 2014 - Euro inflation slows as Draghi hints at more ECB stimulus

August 29, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

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Expect Another Strong Employment Report Next Week

August 29, 2014 by EconMatters   Comments (0)

By EconMatters

Sleepy August Closes Out
Lost in what is one of the lowest trading volume weeks of the year, and a really sleepy August month in general where many folks are getting to use some vacation time before markets start getting serious again in September after the Labor Day Holiday was another week of better than average economic data. 

Initial Jobless Claims

I will avoid the minor revisions, and stick with the reported numbers but Jobless claims had a stellar month of August. First on 8/7 we had 289k Initial jobless claims, then on 8/14 we had 311k jobless claims, and on 8/21 we had 298k, and we close out the month with another 298k Initial jobless claims. The 4-week average is 299,750 for the month of August.

The underlying fundamentals in the job market keep getting better each month, and the manufacturing reports and other economic surveys all showed strong employment components which likewise support the strong showing this month for Initial Jobless claims.
ADP Employment Report
We will get a first look at private payrolls next Wednesday with the ADP Employment Report which will set the tone for next Friday`s Employment report, and the jobless claims data for August suggests another plus 200k employment gain for the month, but just how robust is the question.
While much of the market focus for the month was on Fed Policy and Geo-Politics, the economic data has been coming in better than expected for the entire month; shoot even housing data on the whole has been coming in better than expected, so I am leaning towards a 250k plus Employment Report for next Friday.
Important FOMC Forecast Meeting in 3 Weeks
If we get another strong employment report next Friday, this will really up the ante for the rest of the September economic data moving into the all-important Wednesday September 17th Quarterly FOMC Meeting Announcement, FOMC Forecasts and Chair Press Conference where many market participants have noted will potentially be when Janet Yellen signals to financial markets the Rate Hiking Timeline.
Ergo expect participants coming back from vacation to watch the ADP Employment Report real carefully, and early positioning to begin ahead of the Friday Employment Report, and if we get another strong employment report next Friday, expect some major positioning in front of the critical quarterly Fed Meeting on the 17th, with all hell breaking loose from a portfolio reallocation standpoint for the fourth quarter if Janet Yellen signals the Rate Hike Timeline for financial markets, and it is sooner than currently priced into financial markets. 
Moreover, even though the mid-summer timeline for the first rate hike is theoretically priced into financial markets, in actuality as James Bullard has stated several times, the market is severely complacent with actually positioning itself for even this mid-summer rate hike, procrastination at its finest! And if the Timeline gets moved up to March, or hinted at in the FOMC Meeting, Forecast or Press Conference this will trigger the start gun for some serious ‘portfolio rebalancing’ in many asset classes.
September Fireworks
Therefore, September is not going to be nearly as sleepy as August from a trading standpoint, and probably everything that worked in August will get “taken out to the woodshed” in September. Expect a ramp up in volatility (for real this month), and traders better bring their seatbelts this month as I expect major market moves in many asset classes like currencies, precious metals, credit markets, stocks and bonds as the economic data is just too good for the Fed not to move the first rate hike up to March of 2015. It all gets started next Friday with the highly anticipated Employment Report for August!

© EconMatters All Rights Reserved | Facebook | Twitter | Email Subscribe | Kindle

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Angola maintains rates on stable inflation

August 28, 2014 by CentralBankNews   Comments (0)

    Angola's central bank maintained its benchmark BNA rate at 8.75 percent after inflation rose by 0.09 percent in July for an annual rate of 6.98 percent, up from 6.89 percent in June.
    The Bank of Angola (BNA), which raised its rate by 50 basis points last month, said credit to the economy in July was up by an annual 19.5 percent to 3.295 billion kwanza. The BNA raised its rate last month to stimulate growth in credit as inflation is expected to continue to trend downward.
    The BNA also said total sales of foreign currency in the first seven months amounted to $19.858 billion, an increase of 63.33 percent from the same period in 2013.
    The average exchange rate of the kwanza rose by 0.51 percent in July from June for a rate of 97.08 to the U.S. dollar, slightly firmer from the start of the year at 97.61.
    July's rate cut by the BNA was the first change in rates since November 2013 and the central bank also reduced the rate on its standing lending facility by 25 basis points to 9.75 percent.
    Last month the International Monetary Fund (IMF) forecast that Angola's inflation rate would rise to 7.5 percent by the end of the year due to the one-off effects on new tariffs on imports before continuing the downtrend through 2015 and beyond.

    The growth of Angola's economy is expected to ease to 3.9 percent this year as the expansion in agriculture slows from last year and due to a temporary drop in oil production in the first half.
    For 2015 growth is forecast by the IMF to accelerate to 5.9 percent as oil production recovers and non-oil economic activity remains robust.
    Angola's government has targeted economic growth this year of 5 to 7 percent after 4.10 percent growth last year, down from 5.2 percent in 2012.

    www.CentralBankNews.info

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Egypt pushes back policy meeting to Monday, Sept. 1

August 28, 2014 by CentralBankNews   Comments (0)

    The Central Bank of Egypt (CBE) has changed the date for the meeting of its Monetary Policy Committee to Monday, Sept. 1 from Thursday, Aug. 28.
    The central bank did not provide any reason for the adjustment in a brief statement.
    At its previous meeting on July 17, the CBE surprised financial markets by raising its key interest rates by 100 basis points in a preemptive move to anchor inflation expectations and limit a general increase in prices following the government's price increase on several regulated items, including fuel, electricity and tobacco, as part of its plan to reduce budged deficits.
    Egypt's headline inflation rate jumped to 10.61 percent in July from 8.2 percent and the core inflation rate rose to 9.35 percent from 8.76 percent.
    In addition to raising the benchmark overnight deposit rate by 100 basis points to 9.25 percent, the CBE last month also raise the overnight lending rate to 10.25 percent, the rate on its main operation to 9.75 percent and the discount rate to 9.75 percent.


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European Bond Market: Bubble of all Bubbles!

August 28, 2014 by EconMatters   Comments (0)

By EconMatters


European Bond Rush
Right now investors in European Bonds are running over each other all in an effort to front run what the Big Banks have been begging the ECB to begin a bond buying program similar to the United States’ QE bond buying program.


Tourism has its Limitations
It is hilarious as European yields are already ridiculously low right now, how much lower do they think these yields can go, and if they could go measurably lower what difference would it make, obviously low yields and borrowing costs aren`t what troubles Europe right now. It is the fact that these countries have one business advantage on a global basis, tourism and that is it. These countries that make up the European Union are basically socialist stores of historical wealth, outside of Germany, they just aren`t competitive on many fronts compared with the United States, South Korea and China.
Big Banks Begging for more Central Bank Handouts!
But let’s be honest the ECB doesn`t need to buy any bonds, the banks are just begging for more handouts of cheap money, and more government programs that they can take advantage of like the primary dealers did with the Federal Reserve`s QE stimulus program. It is all about ‘gaming’ the system, especially when it is too hard to actually do some research - figure out markets, and strategically differentiate between good and bad stocks, asset classes, and investment themes. Just beg the Central Banks for more “stimulus” that they can front run, or game the financial system for risk free returns that takes no real market skill whatsoever. 
Big Banks Should Be Begging for Structural Reforms by Governments!
The big banks should be putting pressure on the governments to overhaul their noncompetitive business practices in these European Countries, they should be begging for structural reforms in these countries. However that would be much too hard, when these banks can just beg the ECB for more cheap stimulus programs, like that is going to help any more than the 15 basis point current borrowing costs in Europe! 
Mario Draghi even alluded to this in his Jackson Hole speech last week, that he can only do so much for what ails Europe, and the real solution for European growth must come in the form of structural reforms, and making these countries more competitive like South Korea, China and the United States on a global competiveness scale; shoot even Mexico is starting to get their act together compared to Europe.
Who is the Bond Sucker that the Big Banks are going to Sell to?
But like I always say ‘Any idiot can buy bonds with ridiculously low yields’ just who is the greater fool that you are going to sell these duration bonds to over the next five and ten years? Remember bond yields just two years ago before central banks started incentivizing this search for yield insanity? Do you think the Debt-to-GDP Ratios for the European countries have gotten measurably better? Without major structural reforms, and don`t hold your breath anytime soon bond investors, you just got suckered into buying European bonds because you were so freaking greedy, that you have pushed European Bonds into the bubble of all bubbles, for the same bonds that three years ago you wouldn`t touch with double and triple these yields! 
Talk about greed getting in the way of rational investing, it is the trick that Grifters use to scam marks; appeal to their greed motive, and then watch as the fools step all over themselves giving their hard earn money to the Grifters! So unless there is miraculously some kind of structural reform nirvana in Europe all the cheap money isn`t going to solve the lack of competitiveness of these countries in Europe on a global basis, weakening the Euro by another 10% isn`t going to cure why no European country can compete with South Korea, China, or the United States. Furthermore, the Debt-to-GDP Ratios are only going to grow much higher than they were when investors thought the European Union was going to collapse and these same bonds that they are currently jumping over themselves to buy were absolutely worthless! [So which story are you going to stick with Bond Investor, were these same bonds mispriced then, or are they mispriced now?]
Rinse, Repeat…then Beg for Bailouts once again!
Anybody buying European Bonds, (I guess all the big banks think they will be bailed out once again when all these European bonds are completely worthless), when European yields quadruple from current yield levels, and all these worthless bonds on the banks books make the subprime mortgage write-downs look like Childs play in comparison. Talk about central banks setting up for the next financial crisis where the big banks all become insolvent again with more worthless assets on their books, all these European bonds at current yield levels are so mispriced that the losses for those that hold these on the books for five and ten years’ time is going to be staggering!
Insolvency Risk Greater than Ever!
 
Portugal 10-Year Bond Yield

For example, Portugal has a Debt-to-GDP Ratio of 129.00 with a 10-year bond yield in the 3% range; it was 16% in 2012 with a lower Debt-to-GDP Ratio. Italy has a Debt-to-GDP Ratio of 132.60 with a 10-year bond yield in the 2.4% range; it was 7% in 2012 with a lower Debt-to-GDP Ratio. France has a Debt-to-GDP Ratio of 91.80 with a 10-year bond yield in the 1.25% range; it was 3.5% in 2012 with a lower Debt-to-GDP Ratio. How about Greece, it has a Debt-to-GDP Ratio of 175.10 with a 10-year bond yield in the 5.6% range, it was over 40% in 2012 with a lower Debt-to-GDP Ratio. Spain has a Debt-to-GDP Ratio of 93.90 with a 10-year bond yield in the 2.14% range; it was over 7% in 2012 with a lower Debt-to-GDP Ratio. I could literally do this all day across the European Union, one gets for the most part the same results with lower Debt-to-GDP Ratios or slightly smaller with 10-year bond yields which just two years ago were three and four times higher, and the European Union no more competitive on a global basis then they were during the ‘Insolvency Crisis’. 
Italy 10-Year Bond Yield
Rising Debt-to GDP Ratios & Bubbly Yields Failing to Properly Price ‘Haircut Risk’!
 
France 10-Year Bond Yield

The point is nothing has changed idiot bond investors, are you really this stupidly oblivious to risk because the ‘Yield Trade’ is really in fashion right now in financial markets? Where do you think these same bond yields will be in ten years? Do they think that Europe will get their financial house in order? Do they really think half of these bonds are even worth anything in 10 years? Just two years ago, which by my math, there are a lot of two year time periods in a 10-year bond duration, the entire European Union with better overall Debt-to-GDP Ratios compared to present was on the verge of collapse, what has changed besides Central Banks incentivizing you to chase Yield? 
Greece 10-Year Bond Yield
Going to need ‘a lot’ of Greater Fools to offload this European Bond Garbage
 
Spain 10-Year Bond Yield

You do know that Yield is supposed to represent the risks associated with you as an investor getting paid back in full on the debt, do you really think the current yield is representative of the ‘haircut’ you will be forced to take on these bonds if the European Union implodes or dissolves? I love your optimism in finding a ‘greater Fool’ to buy these Grifter Bonds off of you Big Banks, I guess in a couple of years we will be back to 15 Billion Dollar Write-off Quarters like 2008, and more Bank Bailouts for Stupid Investment Decisions or should I say Stupid Risk Taking! 
Not Exactly ‘Rocket Scientists’!
Bond Investors are some of the stupidest people in financial markets, this is going to be hilarious watching this all explode in their faces once again! You would think that after the financial crisis which when you break it all down came down to loading up chasing levered yield plays, just ask Merrill Lynch about falling in love with Yield, that investors would be better able to calculate risk in trade configurations. But just as JP Morgan illustrated so succinctly in the ‘Whale Fiasco’ excessive Greed gets the Big Banks every time! Have fun picking up those Yield Nickels in front of the Bond Reset Steamroller when the European Bond Bubble Bursts!

© EconMatters All Rights Reserved | Facebook | Twitter | Email Subscribe | Kindle

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Central Bank News Link List - Aug 27, 2014 - India central bank seen intervening to weaken rupee

August 27, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

          www.CentralBankNews.info

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Turkey holds repo rate, cuts overnight fund rate 75 bps

August 27, 2014 by CentralBankNews   Comments (0)

    Turkey's central bank maintained its benchmark repo rate at 8.25 percent, as expected, but continued to nudge down its overnight interest rate corridor and repeated its guidance from July that it would maintain a tight monetary policy stance by "keeping a flat yield curve until there is a significant improvement in the inflation outlook."
    The Central Bank of the Republic of Turkey (CBRT) cut the overnight rate on marginal funding, the ceiling of its interest rate corridor, by 75 basis points to 11.25 percent but maintained the borrowing rate, or the floor in the corridor, at 7.5 percent.
    The CBRT also cut the borrowing rate for primary dealers via repo transactions by 75 basis points to 10.75 percent and the lending rate at its late liquidity window by 75 basis points to 12.75 percent while it kept the borrowing rate at zero percent.
    The Turkish central bank has been slowly rolling back its sharp rate hike in January in response to volatility from capital outflows and a plunge in the value of the lira currency. So far it has cut its benchmark repo rate by 175 basis points since May after raising it by 550 points on Jan. 28.

    In January the CBRT also shifted its overnight rate corridor sharply upwards by raising the funding rate to 12.0 percent from 7.75 percent and the borrowing rate to 8.0 percent from 3.5 percent.
    Last month the central bank cut the borrowing rate to the current 7.50 percent and with today's cut in the funding rate to 11.25 percent, the central bank continues to shift the rate corridor downwards.
    The CBRT said the negative impact of exchange rate developments since mid-2013 year on inflation are gradually decreasing but high food prices continue to delay an improvement in the outlook for inflation.
    "In this respect, the Committee also evaluated the possible impact of the drought and the geopolitical risks on the inflation outlook," the central bank said, adding that loan growth continues at reasonable levels in response to its tight policy stance and private demand is modest.
    Turkey's headline inflation rate rose to 9.32 percent in July from 9.16 percent in June but still down from 9.66 percent in May, the high for this year.
    Economists had expected to sticky inflation rate to limit the central bank's room to cut its benchmark rate in light of a decline in global risk appetite and signs that the United States remains on track to raise rates at some point in 2015.
    The Turkish government, including Prime Minister Recep Tayyip Erdogan who won the election earlier this month and assumes office on Aug. 28, has kept up pressure on the central bank to lower rates further to boost economic growth. However, so far the bank's governor, Erdem Basci, has resisted the pressure, helping maintain the credibility of the central bank with global investors.
    Basci has been under pressure ever since the sharp rate hikes in January, determined to bring inflation back to the bank's 5.0 percent target in 2015.
    After plunging in January to a low of 2.34 to the U.S. dollar in late January from 2.15 at the start of the year, the lira rebounded in response to the central bank's rate hikes.
    But this month it has drifted lower, along with bonds, reflecting some discomfort among investor over Erdogan's views of monetary policy and his plans to expand his role to one that combines head of state with the executive power of running the government.
    But the lira gained in response to the bank's decision to maintain rates today. The lira was trading at 2.15 to the U.S dollar today, up from 2.16 yesterday.
   Turkey's GDP expanded by 1.7 percent in the first quarter of this year from the previous quarter for annual growth of 4.3 percent, slightly down from 4.4 percent in the fourth quarter of 2013.

    www.CentralBankNews.info

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Central Bank News Link List - Aug 26, 2014 - BOJ to stay bullish on prices as it cuts Japan GDP estimate: sources

August 26, 2014 by CentralBankNews   Comments (0)

Here's today's Central Bank News' link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don't miss any important news.

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Hungary maintains rate at 2.10 percent, as signaled

August 26, 2014 by CentralBankNews   Comments (0)

    Hungary's central bank held its base rate steady at 2.10 percent, living up to its word that it would freeze rates after 24 consecutive rate reductions.
    The National Bank of Hungary on July 22 cut its rate by 20 basis points, for a cumulative reduction of 490 points in its policy rate since August 2012, but added it was ending the two-year easing cycle as the rate had now reached a level that would ensure price stability and provide enough support for economic activity.
    At his press conference, central bank President Gyorgy Matolcsy then said the bank planned to maintain rates at that level until the end of 2015.
    In today's statement, the central bank did not make further comments.
    Last month the central bank said inflationary pressures were likely to remain moderate for an extended period and the negative output gap was expected to close gradually.
    Hungary's headline inflation rate rose to 0.1 percent in July after three months of deflation. In its June quarterly inflation report, the central bank lowered its forecast for inflation this year to an average of zero percent, sharply down from its March forecast of 0.7 percent.

    For 2015 the bank forecast inflation of 2.5 percent, with prices moving into line with the bank's 3.0 percent inflation target in the second half of the year.
    Hungary's Gross Domestic Product expanded by 0.8 percent in the second quarter from the first for annual growth of 3.9 percent, up from 3.5 percent in the first quarter.
   The bank has forecast growth this year of 2.9 percent and 2.5 percent in 2015, up from 1.1 percent in 2013.

    www.CentralBankNews.info

  

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