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It Is Always About Money (Video)

December 9, 2016 by EconMatters   Comments (0)

By EconMatters


We discuss the massive drop in ESPN subscribers this year, and how this relates to those massive NBA Television Broadcasting Deals that were based upon much higher subscriber bases going forward, and how this filters down into larger salary caps for NBA Franchises leading to $20 Million Dollar annual player contracts guaranteed for 5 years.

The math doesn`t add up for this vertically integrated supply chain. Somebody is going to be left holding the bag here and losing a bunch of money over the next decade. These player salaries seem out of whack with the changing dynamics of the skinny bundle, streaming media habits and shrinking subscriber bases.

Many of these television deals may have to be renegotiated on the fly by necessity as the media landscape is changing dramatically underneath the feat of the NBA, Network and Cable television, the Advertising Industry, and NBA Franchises half of which are already losing money under the current NBA structured finance model.

Donatas Motiejunas contract fiasco serves as another example of how in the NBA when it comes to money nobody has a clue what they are doing from a negotiations standpoint. The NBA is one of the poorest run and managed organizations in all of sports, and as we noted before it wouldn`t surprise us if the NBA is bankrupt in 5 to 10 years.

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Equities Look Like A Good Short Here (Video)

December 8, 2016 by EconMatters   Comments (0)

By EconMatters


We discuss some of the structural issues aside from the valuation issues why we think this is a good place to short equities over the next week. I like the price and setup considerations for this short play in equities!

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Ukraine holds rate, expects to cut in 2017 if risks ease

December 8, 2016 by CentralBankNews   Comments (0)

    Ukraine's central bank paused in its easing cycle by leaving its benchmark discount unchanged at 14.0 percent, saying this was "prompted by the need to mitigate inflation risks to enable the NBU to meet the inflation targets for 2017-18."
     But the National Bank of Ukraine (NBU), which has cut its rate by 800 basis points this year and 1,600 points since embarking on an easing cycle in August 2015, also said that if the risks to price stability abate, "the NBU will continue easing monetary policy next year as this move will help reduce borrowing costs and support economic growth."
    Today's decision by the NBU follows its guidance in October that it was going to continue to ease its policy as long as inflation continued to decelerate.
    Ukraine's inflation rate eased to 12.1 percent in November from 12.4 percent in October but was up from 7.9 percent in September and a 2016-low of 6.9 percent in June, a rise the central bank had expected due to an increase in administered prices and base effects.
    While the NBU said inflation was bound to reach its target of 12 percent by the end of the year and the targets for 2017 and 2018 were "within reach,"  it cautioned that the risks of a continued decline in inflation had risen, prompting its decision to "adopt a cautious approach to easing."
    The first risk stems from the government's decision to raise the minimum wage, which  in itself will only have limited impact on inflation. However, higher household income will fuel consumption and this could add an additional 1 percentage point to headline inflation, the bank said.
    "Accordingly, to buffer the effects from a rise in the minimum wage, NBU has decided to pursue a more restrained monetary policy," it said.
    In addition, the central bank said there was further uncertainty due to "heightened political tensions" and a slower pace of the implantation  of reform measures, which means there is a high probability of further delays to international financing payments.
    The NBU targets inflation of 12 percent this year and then 8 percent, plus/minus 2 percentage points in 2017, and 6.0 percent, plus/minus 2 points, for 2018.
    After plunging in 2014 and 2015, Ukraine's hryvnia has been more stable since April this year, trading at 25.6 to the U.S. dollar today, down 6.1 percent this year.
    Ukraine's economy grew by an annual rate of 1.8 percent in the third quarter, up from 1.4 percent in the second quarter as it continues to pull out of the recession in 2014 and 2015.
    In October the central bank lowered its forecast for growth in 2017 to 2.5 percent from 3.0 percent and the 2018 forecast to 3.5 percent from 4.0 percent. The 2016 forecast was left at 1.1 percent compared with a contraction of 9.9 percent in 2015.
    As part of its third review of Ukraine's economic reform program, the International Monetary Fund (IMF) on Nov. 18 said the country needed more time to implement policies, including an adoption of its 2017 budget that is consistent with targets, along with policies to safeguard financial stability and tackle corruption.

    The National Bank of Ukraine issued the following statement:

"The Board of the National Bank of Ukraine has decided to leave the discount rate unchanged at 14% per annum. This decision was prompted by the need to mitigate inflation risks to enable the NBU to meet the inflation targets for 2017-2018.
In October 2016, annual headline inflation stood at 12.4%, which was broadly in line with the NBU forecast. The acceleration of headline inflation was mainly attributed to upward adjustments in administered prices and base effects.
At the same time, the fundamental factors did not exert any inflationary pressure. In October, core inflation remained flat compared to previous month, standing at 6.5% y-o-y. Inflation remained on the projected path, reflecting moderate consumer demand, high supply of food products due to a high harvest and prudent monetary policy.
In November 2016, according to the NBU estimates, inflation moderated slightly in line with the projected disinflation path. The further slowdown in annual core inflation contributed to the deceleration of inflation. In addition, price increases for unprocessed foods were moderate due to a higher supply of these food products. Moderate price increases for unprocessed foods offset inflationary pressure from higher fuel prices driven largely by global price developments and the reflection of upward adjustments in administered prices in price statistics.
At the same time, the impact of higher hryvnia exchange rate volatility on inflation was limited in November. The impact of fundamental factors, including more favorable external price environment for Ukrainian exporters and strong grain exports, was partially offset by heightened political tensions. However, overall, the supply of foreign currency in the interbank market exceeded the demand for it. As a result, the NBU mainly purchased foreign currency to replenish international reserves.
Headline inflation is bound to reach the target level of 12% by the end of the year. Also, the inflation targets for 2017 and 2018 (8%+/-2 pptsand 6%+/-2 ppts respectively) remain within reach.
However, the risks to further inflation developments have increased since the previous monetary policy meeting, prompting the NBU to adopt a cautious approach to easing monetary policy to meet the declared targets.
First, the NBU has taken into account the need to buffer the effects from a sharp rise in the minimum wage in 2017. According to the NBU’s estimates, the government’s initiative to raise the minimum wage will have a limited impact on inflation. However, higher households' income will fuel consumption growth, which could add an additional 1 percentage point to headline inflation.
Accordingly, to buffer the effects from a rise in the minimum wage, NBU has decided to pursue a more restrained monetary policy.
Also, the NBU has taken into account other risks.
First, uncertainty has increased due to heightened political tensions.
Second, there is a high probability that there will be further delays to disbursements of official financing due to the slow pace of implementation of program measures.
Should the risks for price stability abate, the NBU will continue easing monetary policy next year as this move will help reduce borrowing costs and support economic growth.
The decision to keep the key policy rate unchanged at 14% is approved by NBU Board Decision No. 475-рш, dated 8 December 2016, On the Key Policy Rate.
The next meeting of the NBU Board on monetary policy issues will be held on 26 January 2017 according to the schedule approved and published on the NBU’s website."


    www.CentralBankNews.info

Serbia keeps key rate, sees inflation in target range

December 8, 2016 by CentralBankNews   Comments (0)

    Serbia's central bank left its key policy rate at 4.0 percent, saying it expects inflation to enter its tolerance range early next year due to rising domestic demand, helped by its past rate cuts, and a gradual rise in global oil prices and inflation.
     However, low food prices will continue to exert disinflationary pressures, said the Bank of Serbia (NBS), which has cut its rate by 50 basis points this year.
    As in the past, the NBS also underlined that "persistent uncertainties in the international financial and commodity markets also mandate caution in monetary policy conduct."
    Serbia's inflation rate rose to 1.5 percent in October from 0.6 percent in September, hitting the lower limit of its 2017 target range of 3.0 percent, plus/minus 1.5 percentage points.
    Last month the central bank lowered the inflation mid-point target to 3.0 percent from 4.0 percent.
    Serbia's economy grew by an annual rate of 2.6 percent in the third quarter, up from 1.9 percent in the secondquarter while the unemployment rate eased to 13.8 percent from 16.6 percent.
    Last month the central bank's vice-governor, Veselin Pjescic, was quoted as saying the central bank had room to lower its key rate.

    The National Bank of Serbia issued the following statement:

"At its meeting today, the NBS Executive Board decided to keep the key policy rate at 4.0%.
The Executive Board expects inflation to remain low and stable, moving within the target tolerance band as of early 2017 (3.0%±1.5 pp). Inflation will enter the target tolerance band owing to the effects of past monetary policy easing, rising domestic demand, and the gradual recovery of global oil prices and inflation in the international environment, notably the euro area as Serbia’s most important foreign trade partner. In contrast, relatively low food production costs will continue to generate disinflationary pressures for some time yet. 
Persisting uncertainties in the international financial and commodity markets also mandate caution in monetary policy conduct. As for the international financial market, the uncertainties pertain to the pace of the Fed’s monetary policy normalisation and the continuation of the ECB’s quantitative easing programme, as well as their impact on global flows of capital. However, the Executive Board underlined that successful implementation of fiscal consolidation and structural reforms, as well as the narrowing of external imbalances, are helping to improve the Serbian economy’s macroeconomic prospects and boost its resilience to negative shocks from abroad. 
The next rate-setting meeting will be held on 12 January 2017."

    www.CentralBankNews.info

ECB holds rates, extends but tapers asset purchases

December 8, 2016 by CentralBankNews   Comments (0)

    The European Central Bank (ECB) left its key interest rates steady but tapered and extended its asset purchases by another nine months "or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim."
    The ECB's current asset purchase program of 80 billion euros was set to expire at the end of March  2017 and the ECB will now lower the monthly purchases of bonds to 60 billion euros but continue with these purchases until the end of December 2017.
    But the ECB, which in March cut its benchmark refinancing rate to zero, added that if the economic outlook becomes unfavorable, "the Governing Council intends to increase the programme in terms of size and/or duration."
    To tackle the issue of a paucity of bonds available for purchase, the ECB broadened the maturity range of public sector bonds that it will buy by lowering the remaining maturity to one year from two years, and will buy bonds that have a yield below the ECB's deposit rate of minus 0.40 percent.
    ECB President Mario Draghi also confirmed the guidance that the central bank for 19 countries expects to keep its interest rates "at present or lower levels for an extended period of time, and well past the horizon of our net purchases."
    In addition to a refi rate of 0.0 percent and the deposit rate of minus 0.40 percent, the ECB's rate on its marginal lending facility was maintained at 0.25 percent.
    Draghi said the extension of the asset purchases was aimed at preserving the "very substantial degree of monetary accommodation" to ensure that inflation in the euro area reaches the ECB's target of below, but close to 2.0 percent.
    "This calibration reflects the moderate but firming recovery of the euro area economy and still subdued underlying inflationary pressures," Draghi said, confirming that the ECB "will act by using all the instruments available within its mandate" to achieve its inflation objective.
    Inflation in  the euro area rose to 0.6 percent in November from 0.5 percent in October but Draghi said this was largely due to higher energy prices and there "are no signs yet of a convincing upward trend in underlying inflation."
    Inflation is expected to pick up "significantly" at the turn of the year due to the comparison  with last year and then rise further in the next two years, Draghi said.
    In an update to its staff forecast, the ECB forecast annual inflation rate of 0.2 percent this year, rising to 1.3 percent in 2017, 1.5 percent in 2018 and 1.7 percent in 2019.
    This compares with its previous forecast from September of 0.2 recent this year, 1.2 percent in 2017 and 1.6 percent in 2018.
    Draghi said he expected the economic recovery in the euro area to "proceed at a moderate but firming pace," helped by improved corporate profitability, a recovery in investment, sustained gains in employment that is supporting private consumption, and a "somewhat stronger global recovery."
    "However, economic growth in the euro area is expected to be dampened by a sluggish pace of implantation of structural reforms and remaining balance sheet adjustments in a number of sectors," he added.
    Gross Domestic Product in the euro area grew by an annual rate of 1.7 percent in the third quarter of this year, the same rate as in the two previous quarters, and ECB largely maintained its outlook.
    For this year GDP is seen rising by 1.7 percent, unchanged from September, while the forecast for 2017 was raised to 1.7 percent from 1.6 percent. For 2018 the ECB expects unchanged growth of 1.6 percent and the same rate for 2019.
    "The risks surrounding the euro area growth outlook remain tilted to the downside," Draghi said.
    The euro, which fell sharply from May 2014 to March 2015, has been relatively stable since then though it has dropped in the  last month and fell further in response to the ECB's decision.
    The euro was trading at 1.065 to the U.S. dollar today, down from 1.08 yesterday, little changed since the start of this year.

    The European Central Bank issued the following statement:

"At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council decided to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.

To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to change some of the parameters of the APP, which will be communicated at today’s press conference and in a separate press release."
In addition, ECB President Mario Draghi issued the following statement to a press conference:

"Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, we today conducted a comprehensive assessment of the economic and inflation outlook and our monetary policy stance. As a result, the Governing Council took the following decisions in the pursuit of its price stability objective:
As regards non-standard monetary policy measures, we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. From April 2017, our net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP. 
To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to adjust the parameters of the APP as of January 2017 as follows. First, the maturity range of the public sector purchase programme will be broadened by decreasing the minimum remaining maturity for eligible securities from two years to one year. Second, purchases of securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility will be permitted to the extent necessary.
The key ECB interest rates were kept unchanged and we continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. 
Today’s extension of the asset purchase programme has been calibrated to preserve the very substantial degree of monetary accommodation necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. Together with the sizeable volume of past purchases and forthcoming reinvestments, it ensures that financial conditions in the euro area will remain very favourable, which continues to be crucial to achieve our objective. In particular, the extension of our purchases over a longer horizon allows for a more sustained market presence and, therefore, a more lasting transmission of our stimulus measures. This calibration reflects the moderate but firming recovery of the euro area economy and still subdued underlying inflationary pressures. The Governing Council will closely monitor the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate.
Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area increased by 0.3%, quarter on quarter, in the third quarter of 2016, following similar growth in the second quarter. Incoming data, notably survey results, point to a continuation of the growth trend in the fourth quarter of 2016. Looking further ahead, we expect the economic expansion to proceed at a moderate but firming pace. The pass-through of our monetary policy measures to the real economy is supporting domestic demand and has facilitated deleveraging. Improvements in corporate profitability and very favourable financing conditions continue to promote a recovery in investment. Moreover, sustained employment gains, which are also benefiting from past structural reforms, provide support for households’ real disposable income and private consumption. At the same time, there are indications of a somewhat stronger global recovery. However, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors.
This assessment is broadly reflected in the December 2016 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.7% in 2016 and 2017, and by 1.6% in 2018 and 2019. Compared with the September 2016 ECB staff macroeconomic projections, the outlook for real GDP growth is broadly unchanged. The risks surrounding the euro area growth outlook remain tilted to the downside.
According to Eurostat’s flash estimate, euro area annual HICP inflation in November 2016 was 0.6%, up further from 0.5% in October and 0.4% in September. This reflected to a large extent an increase in annual energy inflation, while there are no signs yet of a convincing upward trend in underlying inflation. Looking ahead, on the basis of current oil futures prices, headline inflation rates are likely to pick up significantly further at the turn of the year, mainly owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures, the expected economic recovery and the corresponding gradual absorption of slack, inflation rates should increase further in 2018 and 2019.
This pattern is also reflected in the December 2016 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.2% in 2016, 1.3% in 2017, 1.5% in 2018 and 1.7% in 2019. By comparison with the September 2016 ECB staff macroeconomic projections, the outlook for headline HICP inflation is broadly unchanged. 
Turning to the monetary analysis, broad money (M3) growth moderated in October 2016, with its annual rate of growth decreasing to 4.4%, after 5.1% in September. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 7.9% in October, after 8.4% in September.
Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations increased to 2.1% in October 2016, from 2.0% in the previous month. The annual growth rate of loans to households remained at 1.8%. Although developments in bank credit continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets, the monetary policy measures put in place since June 2014 are significantly supporting borrowing conditions for firms and households and thereby credit flows across the euro area. 
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to take today’s monetary policy decisions so as to preserve the very substantial amount of monetary support that is necessary in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.
Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms in particular needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. Structural reforms are necessary in all euro area countries. The focus should be on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation. The enhancement of current investment initiatives, progress on the capital markets union and reforms that will improve the resolution of non-performing loans will also contribute positively to this objective. In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries remains crucial to ensure confidence in the fiscal framework. At the same time, it is essential that all countries intensify efforts towards achieving a more growth-friendly composition of fiscal policies.
We are now at your disposal for questions."

Technical Risk Management Rules (Video)

December 7, 2016 by EconMatters   Comments (0)

By EconMatters


We discuss technical risk management theory in this video based upon a viewer`s question regarding risk strategies. Thinking big accounts means one can ignore technical warning signs to bail on a trade have cost many a trader massive capital losses and sleepless nights.

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Canada maintains rate as growth in line with forecast

December 7, 2016 by CentralBankNews   Comments (0)

    Canada's central bank left its benchmark Bank Rate at 0.50 percent, as widely expected, and said economic activity was largely as it had forecast with more moderate growth seen in the current quarter following a strong rebound in the third quarter from a very weak first half of the year.
    The Bank of Canada (BOC), which has maintained its rate since its last easing in July 2015, said consumption was robust and supported by new child benefits while the impact of federal infrastructure spending had yet to show up in economic data.
    Business investment and non-energy exports continue to disappoint and while there have been gains in employment there is still a significant amount of economic slack, in contrast the United States, the BOC said, almost foreshadowing next week's U.S. Federal Reserve decision.
    In October the BOC lowered its forecast for Canada's Gross Domestic Product to grow by 1.1 percent this year, down from 1.3 percent forecast in July, and to 2.0 percent in 2017, down from 2.2 percent. In 2018 the country's economy is still seen expanding by 2.1 percent.
    Canada's GDP grew by an annual rate of 1.3 percent in the third quarter, up from 1.1 percent in the second quarter when oil output was affected by wildfires in Alberta.
    Canada's inflation rate has risen in recent months but is still "slightly below expectations, largely due to lower food prices," the central bank said.
    Headline inflation in October rose to 1.5 percent in from 1.3 percent in September while core inflation eased to 1.7 percent from 1.8 percent in the previous two months.
    The BOC said the higher core inflation rate shows that economic slack is being offset by past exchange rate depreciation though this effect is dissipating.
    Canada's dollar has been trending downward against the U.S. dollar since 2013 but reversed course in mid-January this year when it rose sharply. But since early May it has been easing but was trading at 1.33 to the USD this morning, still up 4.1 percent since the start of the year. 


    The Bank of Canada issued the following statement:

"The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Economic data suggest that global economic conditions have strengthened, as the Bank anticipated in its October Monetary Policy Report (MPR). However, uncertainty, which has been undermining business confidence and dampening investment in Canada’s major trading partners, remains undiminished. Following the election in the United States, there has been a rapid back-up in global bond yields, partly reflecting market anticipation of fiscal expansion in a US economy that is near full capacity. Canadian yields have risen significantly in this context.
In Canada, the dynamics of growth are largely as the Bank anticipated. Following a very weak first half of 2016, growth in the third quarter rebounded strongly, but more moderate growth is anticipated in the fourth quarter. Consumption growth was robust in the third quarter, supported by the new Canada Child Benefit, while the effects of federal infrastructure spending are not yet evident in the GDP data. Meanwhile, business investment and non-energy goods exports continue to disappoint. There have been ongoing gains in employment, but a significant amount of economic slack remains in Canada, in contrast to the United States. While household imbalances continue to rise, these will be mitigated over time by announced changes to housing finance rules.
Total CPI inflation has picked up in recent months but is slightly below expectations, largely because of lower food prices. Core inflation is close to 2 per cent because the effect of persistent economic slack is still being offset by that of past exchange rate depreciation, although the latter effect is dissipating.
Overall, the Bank’s Governing Council judges that the current stance of monetary policy remains appropriate. Therefore, the target for the overnight rate remains at 1/2 per cent."

    

Namibia keeps rate, growth seen higher, inflation lower

December 7, 2016 by CentralBankNews   Comments (0)

     Namibia's central bank left its benchmark repurchase rate steady at 7.0 percent, saying economic growth is expected to improve in 2017 after a slowdown this year while inflation is expected to decline next year.
    The Bank of Namibia, which raised its rate twice this year by a total of 50 basis points, said inflation rose to an average of 6.6 percent in the first 10 months of this year, up from 3.4 percent in 2015, driven by higher prices of housing, water, electricity, fuel, transport and food.
    On a monthly basis, the annual inflation rate rose to 7.3 percent in October from 6.9 percent in September and is expected to average 6.7 percent this year before easing to 5.9 percent in 2017.
    The expansion in private sector credit, which worried the central bank earlier in the year, slowed to an annual rate of 11.8 percent in the first 10 months of the year compared with growth of 15.5 percent in the year-ago period. The slowdown was seen in both corporate and individual credit.
    Namibia's economy has been hit by lower output of diamonds, zinc, cement, blister copper along with a decline in construction, agriculture and transport. Wholesale and retail trade, however, has been positive.
   For 2016 the central bank forecast growth of 2.5 percent, down from 5.3 percent in 2015, but growth should improve next year.
    In September the International Monetary Fund (IMF) also estimated growth of 2.5 percent this year, with growth seen accelerating to above 5 percent in 2017 and 2018 as production from new mines ramps up.
   In the second quarter of this year, Namibia's Gross Domestic Product shrank by an annual rate of 1.2 percent from 3.4 percent growth in the first quarter.
    As of Nov. 30, the central bank said the stock of international reserves had  risen to N$25.0 billion from 22.6 billion in October , for import cover of about 3.3 months, up from 2.9 months previously reported.

    www.CentralBankNews.info

   
   

India holds rate to gauge impact of bank note withdrawal

December 7, 2016 by CentralBankNews   Comments (0)

    India's central bank left its benchmark repo rate unchanged at 6.25 percent, surprising most analysts who had expected a rate cut, saying "it is prudent to wait and watch" how the withdrawal of large bank notes affect inflation and economic growth which is expected to take a hit from disruption to demand.
    In an unanimous 6-0 decision by the Reserve Bank of India's (RBI) recently-installed Monetary Policy Committee, said it was retaining its accommodative policy stance, but was also taking note of "heightened uncertainty" in global financial markets, with the imminent tightening of U.S. monetary policy already triggering bouts of volatility that could have macroeconomic implications for emerging market economies and the exchange rate of their currencies.
    Despite the decline in headline inflation to 4.2 percent in October from 4.39 percent in September, the RBI pointed to a "downward inflexibility in inflation excluding food and fuel which could set a resistance level for future downward movements in the headline."
    A surge in financial market turbulence and changes to crude oil prices could "put the inflation target for Q4 of 2016-17 at some risk," the RBI said, adding there had been a rise in the prices of several items - wheat, gram and sugar - that was masked by the decline in October inflation.
    While the withdrawal of bank notes could lead to a temporary reduction in inflation of 10-15 basis points in the current quarter from lower demand for perishable items, the RBI projected inflation of 5 percent in the fourth quarter of 2016-17, with risks tiled to the upside due to base effects in December and February and a possible rise in oil prices following OPEC's output cut.
    The RBI has a medium-term inflation target of 4 percent, plus/minus 2 percentage points.
     Earlier this month India's Prime Minister Narendra Modi banned 500 and 1,000 rupee bank notes - some 86 percent of currency in circulation - to root out corruption and tax evasion. The process has hit consumer demand and economists have lowered their economic short-term growth forecasts.
    The RBI said "supply disruptions in the backwash currency replacement may drag down growth this year," but this should be temporary and growth then rebound strongly.
    India's economy slowed in the second quarter to an expansion of 1.4 percent from the first quarter - on a year-to-year basis it grew by 7.3 percent, up from 7.1 percent - but the RBI said its outlook for the current 2016-17 financial year "has turned uncertain" after the slowdown and the impact of the bank note withdrawal that is still playing out.
    The RBI revised downward its growth forecast for 2016-17, which began on April 1, to 7.1 percent from 7.6 percent, adding that downside risks could arise from disruptions in cash-intensive sectors, such as retail trade, hotels, restaurants and transportation, and through a compression of aggregate demand in connection with the wealth effect.
    In a separate statement, the RBI said it was withdrawing the Nov. 26 temporary hike in the incremental cash reserve ratio (CRR) to 100 percent for deposits from Sept. 16 to Nov. 11 as of Dec. 10 with liquidity that will be released to be absorbed by a mix of securities that will be issued under the raised ceiling for issues unde the Market Stabilization Scheme (MSS) and the liquidity adjustment facility operations.

    The Reserve Bank of India issued the following statement (excluding the charts):

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
  • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25 per cent.
Consequently, the reverse repo rate under the LAF remains unchanged at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.
Assessment
2. Global growth picked up modestly in the second half of 2016, after weakening in the first half. Activity in advanced economies (AEs) improved hesitantly, led by a rebound in the US. In the emerging market economies (EMEs), growth has moderated, but policy stimulus in China and some easing of stress in the larger commodity exporters shored up momentum. World trade is beginning to emerge out of a trough that bottomed out in July-August and shows signs of stabilising. Inflation has ticked up in some AEs, though well below target, and is easing in several EMEs. Expectations of reflationary fiscal policies in the US, Japan and China, and the waning of downward pressures on EMEs in recession are tempered by still-prevalent political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility.
3. International financial markets were strongly impacted by the result of the US presidential election and incoming data that raised the probability of the Federal Reserve tightening monetary policy. As bouts of volatility fuelled a risk-off surge into US equities and out of fixed income markets, a risk-on stampede pulled out capital flows from EMEs, plunging their currencies and equity markets to recent lows even as bond yields hardened in tandem with US yields. The surge of the US dollar from late October intensified after the election results and triggered sizable depreciations in currencies around the world. Commodity prices firmed up across the board from mid-November on an improvement in the outlook for demand following the US election results, barring gold which lost its safe haven glitter to the ascendant US dollar. Crude prices have firmed after the OPEC’s decision to cut output.
4. On the domestic front, the growth of real gross value added (GVA) in Q2 of 2016-17 turned out to be lower than projected on account of a deeper than expected slowdown in industrial activity. Manufacturing slowed down both sequentially and on an annual basis, with weak demand conditions and the firming up of input costs dragging down the profitability of corporations. Gross fixed capital formation contracted for the third consecutive quarter. Although government final consumption expenditure slowed sequentially, it supported private final consumption expenditure, the mainstay of aggregate demand. The contribution of net exports to aggregate demand remained positive, but on account of a sharper contraction in imports relative to exports.
5. Turning to Q3, the Committee felt that the assessment is clouded by the still unfolding effects of the withdrawal of specified bank notes (SBNs). The steady expansion in acreage under rabi sowing across major crops compared to a year ago should build on the robust performance of agriculture in Q2. By contrast, industrial activity remains weak. Among the core industries in the index of industrial production (IIP), the output of coal contracted in October due to subdued demand, while the production of crude oil and natural gas shrank under the binding constraint of structural impediments. The production of cement, fertilisers and electricity continued to decelerate, reflecting the sluggishness in underlying economic activity. On the other hand, steel output has recorded sustained expansion following the application of countervailing duties. Refinery output accelerated on the back of a pick-up in exports and capacity additions. The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited. In the services sector, the outlook is mixed with construction, trade, transport, hotels and communication impacted by temporary SBN effects, while public administration, defence and other services would continue to be buoyed by the 7th Central Pay Commission (CPC) award and one rank one pension (OROP). GVA by financial services is expected to receive a short-term boost from the large inflow of low-cost deposits.
6. Retail inflation measured by the headline consumer price index (CPI) eased more than expected for the third consecutive month in October, driven down by a sharper than anticipated deflation in the prices of vegetables. Underlying this softer reading, however, was an upturn in momentum as prices rose month-on-month across the board. Still elevated prices of sugar and protein-rich items, coupled with a turning up of prices of cereals, pulses and processed foods pushed up the momentum of food prices, which partly offset the moderation in food inflation brought about by a strong favourable base effect. In the fuel category, inflation eased with the decline in LPG prices on an annual basis and a fall in electricity prices from a month ago. Inflation excluding food and fuel continues to show strong persistence. Although housing and personal care inflation softened marginally, the steady rise in inflation in respect of education, medical and health services, and transport and communication has imparted stickiness to inflation in this category.
7. Liquidity conditions have undergone large shifts in Q3 so far. Surplus conditions in October and early November were overwhelmed by the impact of the withdrawal of SBNs from November 9. Currency in circulation plunged by ₹7.4 trillion up to December 2; consequently, net of replacements, deposits surged into the banking system, leading to a massive increase in its excess reserves. The Reserve Bank scaled up its liquidity operations through variable rate reverse repo auctions of a wide range of tenors from overnight to 91 days, absorbing liquidity (net) of ₹5.2 trillion. The Reserve Bank allowed oil bonds issued by the Government as eligible securities under the LAF. From the fortnight beginning November 26, an incremental CRR of 100 per cent was applied on the increase in net demand and time liabilities (NDTL) between September 16, 2016 and November 11, 2016 as a temporary measure to drain excess liquidity from the system. From November 28, liquidity absorption fell back and the Reserve Bank undertook variable rate repo auctions of ₹3.3 trillion on November 28. As expected, money market conditions tightened thereafter and the weighted average call rate (WACR) traded near the upper bound of the LAF corridor on that day before dropping back to the policy repo rate on November 30. All other rates in the system firmed up in sympathy, with term premia getting restored gradually. Through this episode, active liquidity management prevented the WACR from falling even to the fixed rate reverse repo rate, the lower bound of the LAF corridor. Liquidity management was bolstered by an increase in the limit on securities under the market stabilisation scheme (MSS) from ₹0.3 trillion to ₹6 trillion on November 29. There have been three issuances of cash management bills under MSS for ₹1.4 trillion by December 6, 2016.
8. In the external sector, India’s merchandise exports rebounded in September and October. The return to positive territory was supported by a pick-up in both POL and non-POL exports. After a prolonged fall for 22 months, imports rose in October on the back of a sharp rise in the volume of gold imports and higher payments for POL imports. Non-oil non-gold import growth also turned positive after a gap of seven months. For the period April-October, the merchandise trade deficit was lower by US $ 25 billion from its level a year ago. Accordingly, the current account deficit is likely to remain muted, notwithstanding some loss of remittances and software exports under invisibles. Net foreign direct investment has remained reasonably robust, with more than half going to manufacturing, communication and financial services. By contrast, portfolio investment outflows of the order of US $ 7.3 billion occurred in October-November from both debt and equity markets – as in peer EMEs across the board – reflecting a strong home bias triggered by the outcome of the US presidential election and the near-certainty of monetary policy tightening in the US. The level of foreign exchange reserves was US$ 364 billion on December 2, 2016.
Outlook
9. The Committee took note of the upturn in the prices of several items that is masked by the easing of inflation on base effects during October. Despite some supply disruptions, the abrupt compression of demand in November due to the withdrawal of SBNs could push down the prices of perishables in the reading that becomes available in December. On the other hand, prices of wheat, gram and sugar have been firming up. While discretionary spending on goods and services in the CPI excluding food and fuel – constituting 16 per cent of the CPI basket – could have been affected by restricted access to cash, the prices of these items may weather these transitory effects as they are normally revised according to pre-set cycles. Prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education – together accounting for 38 per cent of the CPI basket – may remain largely unaffected. Going forward, base effects are expected to reverse and turn unfavourable in December and February. If the usual winter moderation in food prices does not materialise due to the disruptions, food inflation pressures could re-emerge. Furthermore, CPI inflation excluding food and fuel has been resistant to downward impulses and could set a floor to headline inflation. With the OPEC’s agreement to cut production, crude prices may firm up in the coming months. Global developments, especially as financial markets factor in the future stance of US monetary and fiscal policy, could impart volatility to the exchange rate thereby feeding into inflation. The withdrawal of SBNs could result in a possible temporary reduction in inflation of the order of 10-15 basis points in Q3. Taking these factors into account, headline inflation is projected at 5 per cent in Q4 of 2016-17 with risks tilted to the upside but lower than in the October policy review. The fuller effects of the house rent allowances under the 7th CPC award are yet to be assessed, pending implementation, and have not been reckoned in this baseline inflation path.
10. The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of SBNs which are still playing out. Downside risks in the near term could travel through two major channels: (a) short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector; (b) aggregate demand compression associated with adverse wealth effects. The impact of the first channel should, however, ebb with the progressive increase in the circulation of new currency notes and greater usage of non-cash based payment instruments in the economy, while the impact of the second channel is likely to be limited. In October 2016, GVA growth in H2 was projected at 7.7 per cent and for the full year at 7.6 per cent. Incorporating the expected loss of growth momentum in Q3 and waning effects in Q4 alongside the boost to consumption demand from higher agricultural output and the implementation of the 7th CPC award, GVA growth for 2016-17 is revised down from 7.6 per cent to 7.1 per cent, with evenly balanced risks.
11. The liquidity management framework was refined in April with the objective of meeting short-term liquidity needs through regular facilities, frictional and seasonal mismatches through fine-tuning operations and more durable liquidity needs for facilitating growth by modulating net foreign assets and net domestic assets. The Reserve Bank has conducted liquidity management consistent with this framework, progressively moving the system level ex ante liquidity conditions to close to neutrality. In Q3 up to early November, liquidity conditions remained in mild surplus mode. The Reserve Bank injected liquidity of ₹1.1 trillion through OMO purchases during the fiscal year so far, including an OMO purchase auction of ₹100 billion in October. Although the replacement of SBNs has engendered large surplus liquidity warranting exceptional operations, this needs to be seen as transitory. The Reserve Bank is committed to conducting liquidity operations in pursuit of the objectives of the revised framework put in place in April to restore system level liquidity to a position of neutrality as the surplus liquidity pressures abate.
12. In the view of the Committee, this bi-monthly review is set against the backdrop of heightened uncertainty. Globally, the imminent tightening of monetary policy in the US is triggering bouts of high volatility in financial markets, with the possibility of large spillovers that could have macroeconomic implications for EMEs. In India, while supply disruptions in the backwash of currency replacement may drag down growth this year, it is important to analyse more information and experience before judging their full effects and their persistence – short-term developments that influence the outlook disproportionately warrant caution with respect to setting the monetary policy stance. If the impact is transient as widely expected, growth should rebound strongly. Turning to inflation, food prices other than vegetables are exhibiting sustained firmness and a pick-up in momentum. Another disconcerting feature of recent developments is the downward inflexibility in inflation excluding food and fuel which could set a resistance level for future downward movements in the headline. Moreover, volatility in crude prices and the surge in financial market turbulence could put the inflation target for Q4 of 2016-17 at some risk. Given these indicators of underlying inflation, it is appropriate to look through the transitory but unclear effects of the withdrawal of SBNs while setting the monetary policy stance. On balance, therefore, it is prudent to wait and watch how these factors play out and impinge upon the outlook. Accordingly, the policy repo rate has been kept on hold in this review, while retaining an accommodative policy stance.
13. Six members voted in favour of the monetary policy decision. The minutes of the MPC’s meeting will be published on December 21, 2016. The next meeting of the MPC is scheduled on February 7 & 8, 2017 and its resolution will be placed on the Reserve Bank’s website on February 8, 2017."

The VIX FOMC Setup (Video)

December 6, 2016 by EconMatters   Comments (0)

By EconMatters


We discuss a VIX Trading Setup into the FOMC Meeting next week, with the option to rollover into the January contract as we expect a significant spike in the VIX over the next 6-8 weeks. Buy the VIX into the FOMC Rate Hike Meeting next week at these low levels!

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