<![CDATA[Hedgehogs.net: Ken Yeadon's connections' blogs]]> http://www.hedgehogs.net/pg/blog/keny/friends/?view=rss http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436030/us-fed-holds-rate-will-be-patient-in-normalizing-policy Wed, 17 Dec 2014 21:53:06 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436030/us-fed-holds-rate-will-be-patient-in-normalizing-policy <![CDATA[U.S. Fed holds rate, will be patient in normalizing policy]]>     The U.S. Federal Reserve maintained its benchmark federal funds rate at zero to 0.25 percent, as widely expected, and said it "can be patient in beginning to normalize the stance of monetary policy," a new guidance that is consistent with its previous statement that its policy rate would be maintained for "a considerable time" following the conclusion of quantitative easing in October.
    The Federal Reserve, the central bank of the United States, has held its fed funds rate at the current level since December 2008 but is slowly taking steps toward its first rate rise - expected around the middle of 2015 - in light of the continuing strengthening of the U.S. economy.
     Along with cutting its rate to essentially zero, the Fed has undertaken three major installments of asset purchases to hold down long term interest rates. The third installment, which included purchases of U.S. Treasuries and housing-related debt and known as QE 3, started in September 2012 and concluded in October with the final asset purchases of $15 billion.
    The next step for the Fed in normalizing its policy is to prepare financial markets for its first rate hike by adjusting the language in its guidance. Since September the Fed has been considering replacing the phrase "considerable time" - which it began to use in September 2012 - with another description that conveys the message that the Fed will not jeopardize the economic recovery and yet respond appropriately to the improving economy.
    Financial markets have recently turned volatile in response to the near 50 percent fall in crude oil prices since June and economists have questioned whether the Fed would be worried over whether this would have a lasting impact on its inflation projections.

    But the Fed said it still expects inflation to rise gradually toward its 2 percent target "as the labor market improves further and the transitory effects of lower energy factors and other factors dissipate."
    In its latest economic forecast, the Fed cut its 2014 forecast for its preferred inflation gauge - personal consumption expenditures - to 1.2-1.3 percent from September's forecast of 1.5-1.7 percent.
    For 2015 the inflation forecast was cut to 1.0-1.6 percent from 1.6-1.9 percent while the 2016 forecast was maintained at 1.7-2.0 percent and the 2017 forecast was trimmed to 1.8-2.0 percent from 1.9-2.0 percent.
    Economic growth has been stronger than the Fed forecast in September, with the forecast for 2014 Gross Domestic Product revised up to 2.3-2.4 percent from 2.0-2.2 percent. The 2015 forecast was maintained at 2.6-3.0 percent and the 2016 forecast revised to 2.5-3.0 percent from 2.6-2.9 percent. For 2017 the forecast was maintained at 2.3-2.5 percent.
    As part of its economic forecast, the Fed also shows when the 12 members of its policy-setting body, the Federal Open Market Committee (FOMC), expect the first rate rise to take place.
    Fifteeen FOMC members expect the first rate rise to take place at some point next year while only two expect the first policy tightening to occur in 2016.
    In September one FOMC member had expected the first rate rise to take place this year, 14 that it would happen in 2015 and two in 2016.
    In contrast with the FOMC's meeting in September when only Narayana Kocherlakota voted against the committee's statement, two further members voted against today's statement. Richard Fisher and Charles Plosser joined Kocherlakota in opposing today's statement.

    The Federal Reserve issued the following statement:

"Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.
Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Narayana Kocherlakota, who believed that the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target; and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436022/central-bank-news-link-list-dec-17-2014-fed-likely-to-signal-rate-hike-on-track-despite-global-woes Wed, 17 Dec 2014 18:43:05 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436022/central-bank-news-link-list-dec-17-2014-fed-likely-to-signal-rate-hike-on-track-despite-global-woes <![CDATA[Central Bank News Link List - Dec 17, 2014 - Fed likely to signal rate hike on track despite global woes]]>
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.

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436017/thailand-holds-rate-but-2-members-vote-to-cut-by-25-bps Wed, 17 Dec 2014 17:53:03 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436017/thailand-holds-rate-but-2-members-vote-to-cut-by-25-bps <![CDATA[Thailand holds rate but 2 members vote to cut by 25 bps]]>     The Thai central bank maintained its policy rate of 2.0 percent, as expected, but said two of the members of its policy committee voted to cut the rate by 25 basis points to provide further support to the economy, which is expected to expand at slower pace in 2015 than projected.
    The Bank of Thailand (BOT), which cut its rate by 25 basis points in March, said headline inflation had trended downward due to energy prices and was projected to remain subdued for some period while core inflation decelerated due to lower demand.
    Thailand's Gross Domestic Product expanded by 1.1 percent in the third quarter from the second quarter for annual growth of 0.6 percent, slightly up from 0.4 percent in the second quarter.
    The BOT said domestic private spending was the main driver of growth while less-than-expected government spending was weighing on private investment as most businesses were waiting for public investment plans to proceed. In addition, exports are held back by the uncertain global outlook.
    "Going forward, members agreed that monetary policy should remain accommodative in order to reinforce the momentum of economic recovery," the BOT said.
    Thailand's headline inflation rate fell to 1.26 percent in November from 1.48 percent in October  while core inflation eased to 1.6 percent from 1.67 percent. The BOT targets core inflation of 0.5-3.0 percent.

    The Bank of Thailand issued the following statement:

"The committee voted 5 to 2 to maintain the policy rate at 2.00 percent per annum. Two members voted to reduce the policy rate by 0.25 percent per annum.
Key considerations for policy deliberation are as follows.
In the third quarter of 2014, the Thai economy expanded slowly as expected, with domestic private spending being the main growth driver. In 2015, the economy should continue to recover, albeit at a rate lower than formerly assessed. A less-than-expected government spending weighs on private investment as most businesses await the implementation of public investment plans. In addition, a recovery in exports of goods is subject to the more uncertain global economic outlook. Nevertheless, tourism is expected to turn more positive, but remains somewhat below the normal level.
Headline inflation trended downward due to energy prices, and is projected to remain subdued for some periods ahead, in line with global oil prices. Core inflation slightly decelerated in tandem with lower demand pressure as a result of slow economic recovery. Meanwhile, risks to financial stability from a period of low interest rates are contained.
In deliberating monetary policy, most members judged that the current policy stance remains sufficiently accommodative given a steady path of economic recovery in 2015, and is consistent with long-term financial stability objective. Nevertheless, two members assessed that against the backdrop of higher downside risks to global growth and low inflationary pressure, monetary policy should be eased in order to add more support to the weaker-than-expected recovery.
Going forward, members agreed that monetary policy should remain accommodative in order to reinforce the momentum of economic recovery. Another important factor would be for the government to ensure that the disbursement of public spending goes as planned."


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436010/georgia-maintains-rate-sees-inflation-at-target-h2-2015 Wed, 17 Dec 2014 16:23:00 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436010/georgia-maintains-rate-sees-inflation-at-target-h2-2015 <![CDATA[Georgia maintains rate, sees inflation at target H2 2015]]>     Georgia's central bank maintained its policy rate at 4.0 percent, saying it was still considering a gradual withdrawal of its expansionary monetary policy while assessing the negative impact on foreign demand from the "complicated situation in the region" and its impact on economic growth.
    The National Bank of Georgia (NBG), which started tightening policy is February but then stopped the process due to the increase in geopolitical risks, said it was still expecting a "significant strengthening of inflationary pressure" and to reach its target of 5 percent inflation in the second half of 2015.
    Georgia's headline inflation rate eased to 2.8 percent in November from 3.4 percent in October.


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436005/czech-may-move-fx-target-lower-on-deflation-risk Wed, 17 Dec 2014 15:54:39 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11436005/czech-may-move-fx-target-lower-on-deflation-risk <![CDATA[Czech may move FX target lower on deflation risk]]>     The central bank of the Czech Republic maintained its benchmark two-week repo rate at technically zero - 0.05 percent - along with its commitment to intervene in foreign exchange markets  to keep the koruna currency below 27 to the euro.
    But the Czech National Bank (CNB), which has been using the exchange rate as an additional tool to ease monetary conditions since November 2013, also said it would consider "moving the exchange rate commitment to a weaker level" if there were a renewed risk of deflation and a systematic decrease in inflation expectations that were capable of causing a slump in domestic demand due to deflationary pressures from abroad.
    The Czech headline inflation rate eased to 0.6 percent in November from 0.7 percent in October, 0.2 percentage points lower than the CNB's forecast, mainly because this year's rise in excise duties will feed into cigarette prices lower than expected while food and fuel prices were also lower.
    The CNB said the data confirms that its decision to use the exchange rate as a monetary policy tool helped to avert the threat of deflation and it currently forecasts that headline and monetary-policy relevant inflation will return to the 2.0 percent target in early 2016.
    The Czech economy expanded by 0.2 percentage points less than expected by the CNB in the third quarter of this year, with Gross Domestic Product up by an annual 2.4 percent, down from 2.5 percent in the second quarter. On quarterly terms GDP rose by 0.4 percent, up from 0.3 percent in the second quarter.

    The Czech National Bank issued the following statement:

 "At its meeting today, the Bank Board of the Czech National Bank decided unanimously to keep interest rates unchanged at technical zero. The Bank Board also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB’s commitment to intervene on the foreign exchange market if needed to weaken the koruna so that the exchange rate of the koruna is kept close to CZK 27 to the euro. The asymmetric nature of this exchange rate commitment, i.e. the willingness only to intervene against appreciation of the koruna below the announced level, is unchanged.
This decision is based on the message of the current forecast and on an assessment of newly available information obtained since the current forecast was prepared. The forecast assumes that market interest rates will be flat at their current very low level and the exchange rate will be used as a monetary policy instrument until 2016 Q1. According to the forecast, the return to conventional monetary policy will not imply appreciation of the exchange rate to the level recorded before the CNB started intervening, as the weaker exchange rate of the koruna is in the meantime passing through to prices and other nominal variables. In the light of the newly available information, the balance of risks to the current forecast is assessed as being anti-inflationary, mainly reflecting developments abroad. In this situation, the Bank Board repeated that the Czech National Bank would not discontinue the use of the exchange rate as a monetary policy instrument before 2016. At the same time, the Bank Board stated that the deflationary pressures from abroad were currently associated largely with a positive supply shock, in particular a fall in energy commodity prices. Only if there were to be a long-term increase in deflation pressures capable of causing a slump in domestic demand, renewed risks of deflation in the Czech economy and a systematic decrease in inflation expectations, would it be necessary to consider moving the exchange rate commitment to a weaker level.
After accelerating during the second and third quarters of this year, annual headline inflation edged down to 0.6% in November. This level was 0.2 percentage point lower than forecasted. This deviation was due chiefly to the fact that this year’s increase in excise duties will feed into cigarette prices later than expected. In addition, slightly lower annual food price inflation, fuel price inflation and core inflation were recorded in November. The published data continue to confirm the CNB‘s opinion that the decision made last year to start using the exchange rate as an additional monetary policy instrument contributed significantly to averting the threat of deflation linked with a drop in demand. According to the forecast, headline inflation will go up owing mainly to rising economic activity and accelerating wage growth. According to the forecast, both headline and monetary-policy relevant inflation will return to the CNB’s 2% target in early 2016, i.e. at the monetary policy horizon. They will then be slightly above the target.
Real GDP rose by 2.4% year on year in 2014 Q3. This figure was 0.2 percentage point lower than forecasted. In quarter-on-quarter terms, economic activity increased by 0.4% as expected. In line with the forecast, all components of domestic demand contributed to the year-on-year growth in GDP. By contrast, net exports made a slightly negative contribution as a result of rising imports, reflecting, as expected, the recovery in investment activity and household consumption. The CNB’s forecast that – after contracting in the previous two years – the domestic economy will grow noticeably for this year as a whole owing to higher external demand, a recovery in government investment and last but not least to easy domestic monetary conditions, is thus being fulfilled. Next year the economy is forecasted to record the same growth rate as this year. 
According to new information on developments abroad obtained from the December Consensus Forecasts survey and current market outlooks, the outlook for consumer price inflation and especially producer price inflation in the euro area has been lowered over the entire forecast horizon. The outlook for external demand and three-month market interest rates in the euro area have shifted in the same direction, albeit only marginally. 
Oil prices have fallen by almost one-quarter over the entire outlook compared to the assumptions of the current forecast. The price of Brent crude oil is currently well below USD 65 a barrel. As regards oil prices in euro terms and, in turn, koruna terms, the impact of the significantly lower dollar prices of oil is only partly offset by a stronger outlook for the exchange rate of the dollar against the euro. Although the decline in oil prices should be viewed as a positive supply shock, one which will contribute to faster growth in the economic performance of many countries, its short-term downward effects on prices do not come at an appropriate time from the perspective of inflation expectations. It cannot be ruled out, therefore, that growth in economic activity in the euro area will remain very subdued. In such an environment, a sharp drop in commodity prices may lead to a decrease in both producer and consumer prices. Overall, developments abroad represent a significant anti-inflationary risk for the Czech economy. 
By contrast, the ongoing domestic economic growth continues to have a favourable effect on the labour market situation to a degree which exceeds our expectations overall. This is evidenced by faster-than-expected growth in total employment, continuing growth in the number of employees converted into full-time equivalents and – last but not least – a still rising number of vacancies. At the same time, the seasonally adjusted general unemployment rate fell faster than expected and the number of registered unemployed persons also continued to decline. On the other hand, wage growth in the business sector slowed unexpectedly, falling slightly below 2%. Wage growth in the non-business sector was also lower than forecasted. 
A slightly rising trend in industrial production, accompanied by a sizeable year-on-year increase in export sales, remains in place. Continuing growth in external and domestic demand is also reflected in a persisting rise in new industrial orders, driven by domestic and foreign orders in equal measure in October. Retail sales are also rising noticeably in both the automotive segment and the sale of other non-food products. Construction output is increasing mainly on account of a recovery in government investment. Overall, these indicators suggest that the economy will continue to grow roughly at the current pace at the close of this year.
The gradual recovery in producer prices, driven largely by the weakening of the koruna since the start of this year, has come to a halt. Prices in manufacturing in fact saw a marginal year-on-year decrease in November, owing partly to a price drop in oil processing. By contrast, the forecast had expected slowing but still positive price growth in manufacturing. The annual decline in agricultural producer prices deepened and was slightly more pronounced than forecasted. Conversely, prices in construction and services continued to rise moderately.
To sum up the important facts about recent developments in the Czech economy, annual GDP growth was slightly below the forecast in 2014 Q3. Inflation has also been slightly lower so far in Q4. The average wage rose considerably more slowly than expected in Q3. The seasonally adjusted share of unemployed persons declined slightly faster than forecasted. 
The Bank Board assessed the balance of risks to the current forecast as being anti-inflationary. This assessment reflects less favourable economic and price developments abroad coupled with an observed sharp fall in oil prices and lower wage growth in the Czech economy. In this situation, the Bank Board repeated that the Czech National Bank would not discontinue the use of the exchange rate as a monetary policy instrument before 2016. At the same time, the Bank Board stated that the deflationary pressures from abroad were currently associated largely with a positive supply shock, in particular a fall in energy commodity prices. Only if there were to be a long-term increase in deflation pressures capable of causing a slump in domestic demand, renewed risks of deflation in the Czech economy and a systematic decrease in inflation expectations, would it be necessary to consider moving the exchange rate commitment to a weaker level."


http://www.hedgehogs.net/pg/blog/skinnercm/read/11435993/moores-law-for-banking-services-and-any-other Wed, 17 Dec 2014 08:56:01 +0000 http://www.hedgehogs.net/pg/blog/skinnercm/read/11435993/moores-law-for-banking-services-and-any-other <![CDATA[Moore's Law for Banking Services (and any other)]]>

There’s the famous old law of computing observed by Gordon Moore fifty years ago that compute power will double every two years whilst the cost will halve.   It’s stayed pretty much true, as evidenced by this chart:


]]> 11435993 http://www.hedgehogs.net/pg/blog/asiablues/read/11435964/the-russia-mexico-opec-failed-agreement-on-production-cuts-was-short-sighted Wed, 17 Dec 2014 02:43:26 +0000 http://www.hedgehogs.net/pg/blog/asiablues/read/11435964/the-russia-mexico-opec-failed-agreement-on-production-cuts-was-short-sighted <![CDATA[The Russia, Mexico & OPEC Failed Agreement on Production Cuts was Short Sighted]]> By EconMatters

Vienna Short-Term Greed

Remember several weeks ago when oil was still trading around $75 a barrel, and OPEC was deciding upon a Production cut and Russia and Mexico went to Vienna and a deal was being discussed regarding a combined production cut so that Saudi Arabia wouldn`t have to take the brunt of the cut by themselves? Looking back this has to be one of the most shortsighted business decisions of recent history, and ironically it will end up costing them more money and doing more harm to their countries balance sheets than losing a little market share to the US shale Industry for a couple years until it runs its course.

Let`s Have A Price War!

I get the simple reasoning, there is a lot of that going on these days. In fact most of Wall Street and Modern Financial theory lacks sophisticated logical reasoning found in other disciplines like Philosophy, Technology & Science. So the simple reasoning by the OPEC decision not to cut production is that “Why should we be the ones to cut production and possibly lose more market share to the US Shale Industry”? Why not talk down price, give the speculators more fuel to work and pressure prices further causing the US Shale players to cut back production, or go out of business entirely, and then they( mainly the Saudi`s who have the lowest production costs) can gain market share after the short term inevitable pain (however long that ends up being).

Sophisticated Cost Benefit Analysis

There are a couple of reasons why this strategy is not the best strategy they could have chosen, first of all the US is a diversified economy, sure the Shale Industry will be hurt with lower oil prices, some of it may even go out of business, or be bought up by larger companies in the US. However, the rest of the United States is going to benefit from lower fuel costs, and the US economy as a whole is going to better off from lower oil and fuel prices and flourish. Whereas the OPEC countries are not diversified, their main source of revenue is oil, so not only do they get lower revenue from lower oil prices; but this just doesn`t hurt their budgets, their balance of trade, or the oil sector of the economies, it hurts their stock market, it hurts their financial sectors, in short every part of their economy is affected from building and real estate stocks to restaurants and the entire supply chain that relies upon healthy oil prices to fuel its economy. Most of these countries subsidize fuel so the consumer in these countries doesn`t really even benefit that much with lower fuel costs as a result of the drop in oil prices like net consumer nations.

Throw Russia and Mexico in this category as well when one evaluates not just the lost revenue due to lower oil prices, but look at how Russia is spending a ton of resources trying to prop up its currency, and the entire system is under considerable distress. So weigh in the lower oil price on the currencies as well in a cost benefit analysis of not agreeing to production cuts and this being a good overall strategy to employ. Did Russia factor in the Inflation costs on its country when making the decision to walk away from production cut talks?

Evil Oil Speculators Can Switch Sides

But there is an even bigger point OPEC didn`t consider because it has been a long time since the oil market has been weak, and frankly modern energy speculation in electronic markets wasn`t around in the 1980`s like it is today. Remember how OPEC used to always blame really high oil prices on the speculators, well they didn`t think about the magnitude of waiving the white flag, and letting these same speculators go to town on their primary business product. I guarantee you they didn`t see oil prices dropping this fast, and hurting their revenue streams this much. But there is a bigger point, oil is an asset, and you don`t just give it away for free, this isn`t a fall inventory sale at Macy`s, it has long-term value, if you aren`t getting a viable cost, you hold onto the asset, as it is a finite asset, and has greater long-term value in the future. OPEC, Russia, and Mexico are essentially wasting their limited resources, giving these finite resources away to consumer countries at a sharp discount, this is just bad business strategy, it cheapens the asset`s value. De Beers in the Diamond Industry understands this concept, this is what cartels do, they control price, and they never sell or cheapen their assets in a public manner. No business should ever willingly allow shorts to attack their product and make it less valuable, this is just poor business strategy. OPEC had created quite the illusion that their asset was valuable, worth over a $100 a barrel, consumers were willing to pay this high price, the last thing you do as a cartel is alter this perception in the public. It is just a poor branding strategy, Apple would never do this!

Best Option for OPEC in Hindsight

This is what should have happened before the OPEC meeting, Russia, Mexico and OPEC members should have agreed to cut back global production by 2 million barrels per day, when you spread it out it isn`t that much, and they would have all netted more revenue from prices higher in a stabilized market around $100 a barrel (almost twice what it is today). And yes it would make a difference shoot there is probably $25 bucks worth of price regarding shorts in the oil market right now! Think if the shorts covered on a production cut of 2 Million Barrels Per Day at $75 a barrel in WTI, this probably gets WTI back to $100 in two weeks. There is a lot of value in maintaining a sleepy range bound market, the last thing OPEC should have wanted to do was Draw Attention to Sharks that Oil was Ripe for taking down, as they were going to attack their currencies, stock markets and anything else they could find to exploit as well in the feeding frenzy.

Remember oil is a commodity, it has no real value, as we have seen it can be $55 or $105 on no real significant difference in supply, it is all about perception and market sentiment, in other words marketing or branding of the commodity. But look at all the damage to the Cartel member`s stock markets, their currencies, the confidence of their people; and the short-sighted nature of their failure to cut production looks horrific in hindsight despite the public rhetoric of OPEC members. Plus you have more of your primary asset that you can sell in the future when prices are much higher. Let the US Shale producers waste all their asset right now, who cares if they gain 5% more market share on a temporary basis? These people let short-term greed, and a lack of understanding of basic finance and business strategy cost them a whole lot of money when all is calculated with this experiment. “Why should we be the one to cut” because it is in your best interests to cut – the failure here was thinking about their situation in relation to the US Shale Industry. This is completely irrelevant, what is in your best short-term and long-term best interests? It does OPEC no good to hurt the US Shale Industry; or Russia, Mexico and OPEC to avoid production cuts if it hurts them more than the alternative option of production cuts. This should be their sole focus, they got distracted in their cost benefit analysis by thinking about the US Shale Industry and the whole short-term market share issue! Moreover, this is what Cartels do, this is why OPEC formed in the first place to protect its primary asset, control production, and to promote and maintain the brand status of this commodity! Don`t let ego and pride get in the way of a sound business decision! What is the best business decision keeping more of your primary and limited asset, and overall still getting more revenue, helping your economies, stock markets, currencies, and maintaining the illusion that you own a valuable and limited commodity in oil?

Yes Branding Matters in the Oil Market – It`s time for OPEC, Russia & Mexico to start acting like a Cartel – Remember the Oil Market can be Commoditized or Branded – The Answer to “Why Should You Be The Ones To Cut” is because you don`t have Diversified Economies

De Beers even goes so far as buying up black market supply and taking it off the market to control the Diamond Market, the last thing De Beers or Apple is going to do is cut their highly branded product in half to win some market share, you get lower margins for your product. Remember Russia all you had to do was agree to take a small share of the pain of a production cut, sure looks like the best option right now, considering the fact that you had to go to the extreme of a 17% interest rate or bailout Rosneft, it would have been much cheaper just to take a 400,000 barrel per day Oil Production Cut, maybe even less of a Production Cut!

This Problem has some characteristics of a Prisoner`s Dilemma/Nash Equilibrium Scenario for OPEC regardless of what happens with the US Shale Industry OPEC, Russia & Mexico are always going to be Worse Off by Not Agreeing to Production Cuts

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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11435954/hungary-holds-rate-loose-policy-for-extended-period Tue, 16 Dec 2014 22:23:04 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11435954/hungary-holds-rate-loose-policy-for-extended-period <![CDATA[Hungary holds rate, loose policy for extended period]]>     Hungary's central bank maintained its base rate at 2.10 percent, as expected, and confirmed its guidance that it expects to maintain the current loose monetary conditions "for an extended period" in order to reach its inflation target in the medium term.
    The National Bank of Hungary (MNB), which ended a two-year easing cycle in July after cutting rates by 490 basis points, repeated inflationary pressures are likely to remain moderate in the medium term, helped by unused capacity in the economy, with inflation remaining significantly below the 3.0 percent target next year before rising to around 3 percent in the second half of the forecast period.
    The MNB added that downside risks to inflation had increased since its September projection but the negative output gap is expected to close gradually and the disinflationary impact of the real economy is likely to diminish.
    "With current monetary conditions maintained, inflation is likely to move into line with the target in the second half of the forecast period, despite disinflationary trends in external markets," MNB said.

   The National Bank of Hungary issued the following statement:
"At its meeting on 16 December 2014, the Monetary Council reviewed the latest economic and financial developments and voted to leave the central bank base rate unchanged at 2.10%.


In the Monetary Council’s judgement, persistently loose monetary conditions are consistent with the achievement of price stability.

In the Council’s judgement, with the easing cycle completed, maintaining loose monetary conditions for an extended period is warranted by the medium-term achievement of the Bank’s inflation target and a corresponding degree of support to the real economy. In addition to the primary goal of meeting the inflation target, the Council also takes into account the condition of the real economy and incorporates financial stability considerations into its decisions.

Global economic growth continues at a moderate pace. The low inflation environment is likely to persist for a sustained period.

Significant differences remain across the individual regions in terms of economic growth. The recovery in the euro-area economy has been slow and fragile, while strong growth in the US is likely to continue looking ahead. Growth has been slowing in the larger emerging market economies. Global inflation remains moderate, in line with the decline in commodity prices, particularly the sharp drop in crude oil prices and weak demand, and inflationary pressure in the global economy is likely to remain moderate for a sustained period looking ahead. There have been differences in the monetary policy stance of globally influential central banks in recent months; however, monetary conditions remain loose overall and, consequently, global interest rate and liquidity conditions continue to be supportive.

Inflation in Hungary is likely to be significantly below the inflation target next year, and rise to levels around 3 per cent only in the second half of the forecast period.

The Council expects inflation to be significantly below the inflation target next year, and rise to levels around 3 per cent in the second half of the forecast period. In recent months, inflation has been lower than the projection in the September issue of the Inflation Report, mainly on account of the sharp decline in commodity prices, the low food prices and weak demand. In the first half of the forecast period, domestic inflation is likely to be substantially below the target, mainly reflecting cost shocks having downside effects on inflation as well as the weak demand and inflation environment in Hungary’s major trading partner countries. In the second half of the forecast period, inflation is likely to move in line with the inflation target, reflecting the recovery in activity and the increase in wage dynamics, as the effects of cost shocks fade away. Inflation expectations anchored around the target are likely to ensure that price and wage-setting will be consistent with the inflation target.

In the Council’s judgement, domestic economic growth may continue in a balanced pattern.

The recovery in the real economy has continued over the past quarter, with output rising across most sectors on an annual basis. At the forecast horizon, domestic demand is expected to make the largest contribution to growth. Subdued global activity and the slowdown in the euro area economy are likely to act as a drag on export growth in 2015; however, the contribution of net exports to growth is likely to increase in the second half of the forecast period. The extended and prolonged Funding for Growth Scheme is likely to promote corporate investment next year, but weak global economic activity abroad and lower receipts of EU funding are likely to work in the opposite direction. Households’ investment activity is expected to rise gradually from its historically low level. As seen in previous quarters, the gradual improvement in employment and rising household real income due to low inflation are likely to play a key role in the recovery in household consumption. The uniformity decision of the Curia concerning household loans will effectively contribute to the reduction of existing debts thus household net financial wealth is expected to increase, accelerating the deleveraging process.  The conversion of foreign currency loans into forint is expected to reduce uncertainty surrounding households’ future income and wealth position, thereby strengthening consumer confidence and supporting the recovery in consumption and domestic demand.

Hungary’s financing capacity remains high and external debt is falling.

The external position of the economy amounted to nearly 8 per cent of GDP in the second quarter of 2014. Over the coming year, the trade surplus is expected to rise despite the increase of imports driven by the pick-up in consumption and investment, reflecting the improvement in the terms of trade and, from 2016, the recovery in external demand. The surplus on the transfer account is likely to fall from its historical high as the budget cycle of European Union funding ends. As a result of the two offsetting effects, Hungary’s current account surplus and external financing capacity are likely to stabilise at a high level in the coming years. Consistent with this, the country’s external debt ratios, key in terms of the country’s vulnerability, are likely to continue to decline. The Bank’s self-financing programme, the conversion of foreign currency loans into forint and the provision of foreign currency funding by the Bank related to conversions will contribute positively to the change in gross debt.

The Hungarian risk premium has fallen in the past quarter and sentiment has been generally favourable in global financial markets.

International investor sentiment has been generally favourable in the past quarter. Global risk appetite fell in the middle of October, but sentiment in financial markets began to improve from the end of the month. The positive turnaround in sentiment reflected the release of favourable macroeconomic data in the US, the launch of the ECB’s asset purchase programme, monetary easing by the Bank of Japan, the reduction in interest rates in China and the continued decline in crude oil prices. Of the domestic risk indicators, the CDS spread has been broadly unchanged over the past quarter and foreign currency bond spreads have fallen. Long-term yields on forint-denominated bonds have declined significantly in the period since publication of the September Inflation Report. The forint has appreciated against the euro in the past quarter, due mainly to country-specific factors. Hungary’s persistently high external financing capacity and the resulting decline in external debt have contributed to the reduction in its vulnerability. In the Council’s judgement, a cautious approach to monetary policy is warranted due to uncertainty in the global financial environment.

The macroeconomic outlook is surrounded by both upside and downside risks. Downside risks to inflation increased.

Overall, downside risks to inflation increased relative to the September Report projection. The Monetary Council considered three alternative scenarios around the baseline projection in the December Report, which, if materialise, might influence significantly the future conduct of monetary policy. In the alternative scenario assuming persistently lower oil prices, the decline in the price of oil is mainly driven by supply-side factors. The lower inflation environment points in the direction of looser monetary conditions than assumed in the baseline scenario and economic growth may be stronger. The alternative scenario assuming persistently weak external demand implies downside risks to growth and inflation, and therefore looser monetary conditions ensure the achievement of the inflation target. The intensification of geopolitical tensions, associated with a decline in external demand, could lead to a sudden, sharp rise in the risk premium. As a result, exchange rate depreciation might raise inflationary pressure, and therefore a tighter monetary policy stance might ensure that the inflation target is met at the forecast horizon.

In the Council’s judgement, there is a degree of unused capacity in the economy and inflationary pressures are likely to remain moderate in the medium term. The negative output gap is expected to close gradually at the monetary policy horizon. Looking ahead, therefore, the disinflationary impact of the real economy is likely to diminish. With current monetary conditions maintained, inflation is likely to move into line with the target in the second half of the forecast period, despite disinflationary trends in external markets. The Council judges that, based on available information, the current level of the central bank base rate is consistent with the medium-term achievement of price stability and a corresponding degree of support to the real economy. If the assumptions underlying the Bank’s projections hold, achieving the medium-term inflation target points in the direction of maintaining current loose monetary conditions for an extended period.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 23 December 2014."

http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11435946/morocco-cuts-rate-25-bps-on-relatively-low-inflation Tue, 16 Dec 2014 19:13:03 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11435946/morocco-cuts-rate-25-bps-on-relatively-low-inflation <![CDATA[Morocco cuts rate 25 bps on "relatively low" inflation]]>     Morocco's central bank cut its key policy rate by another 25 basis points to 2.50 percent as inflation is expected to "remain relatively low," averaging 0.4 percent for 2014, 1.2 percent in 2015 and 1.3 percent in the first quarter of 2016.
   The Bank of Morocco, which has now cut its rate by 50 basis points this year, said the rate cut also took into account increases in minimum wages this July and in July 2015 along with the review of water and electricity prices, and projected oil prices.
    "Considering this central inflation forecast, the objective to reduce the fiscal deficit to sustainable levels and the continued improvement in foreign exchange reserves, and in order to further support economic recovery, the Board decided to lower again the key rate by 25 basis points to 2.5 percent," the central bank said.
    Morocco's consumer price inflation rate rose to 0.6 percent in October from 0.1 percent in September for a 0.3 percent decline in the first 10 months of this year compared with a 2.1 percent increase in the same 2013 period. This was mainly due to a 6.6 percent drop in food prices - compared with a 4.8 percent rise.
    Morocco's Gross Domestic Product expanded by an annual 2.3 percent in the second quarter of this year, up from a rate of 1.7 percent in the first quarter but down from 5.1 percent in the second quarter of 2013. The central bank attributed the lower growth rate this year to a 2.6 percent fall in agricultural value added after a rise of 20.2 percent last year.
    For the full year, GDP is estimated to expand by 2.5 percent and then by 4.4 percent in 2015, driven by a recovery in non-agriculture.
    Meanwhile, the unemployment rate in the third quarter rose 0.5 percentage points to 9.6 percent despite a 0.3 percent fall in the labour participation rate. The non-agricultural output gap is negative, suggesting the absence of demand-led inflation pressure, the central bank said.


http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11435939/sweden-holds-rate-sees-rise-h2-2016-plans-measures Tue, 16 Dec 2014 15:13:05 +0000 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11435939/sweden-holds-rate-sees-rise-h2-2016-plans-measures <![CDATA[Sweden holds rate, sees rise H2 2016, plans measures]]>     Sweden's central bank maintained its benchmark repurchase rate at zero percent and pushed back any rate rise to the second half of 2016 in an attempt to expand its monetary policy stance and reduce the risk that long-run inflation expectations fall further in response to falling oil prices.
    The Riksbank, which in October slashed its rate to zero percent and said it would maintain this rate until mid-2016, added that it would continue to postpone any rate increase if its policy stance has to be eased further and was preparing "further measures" that could be presented in February.
    While inflation remains too low, primarily due to lower oil prices, the Riksbank said economic activity was improving with Gross Domestic Product growth and employment seen rising.
     The Riksbank again lowered its forecast for consumer price inflation to 0.3 percent in 2015, down from the October forecast of 0.4 percent, and the 2016 forecast to 2.0 percent from 2.1 percent. Inflation in 2017 was still forecast to rise by 3.2 percent.
     The central bank's forecast for its repo rate was maintained at zero percent in 2015 but cut to 0.2 percent in 2016, down from 0.3 percent. For 2017 the repo rate is seen averaging 1.1 percent compared with its previous forecast of 1.4 percent.
    The forecast for growth in 2014 was again cut to 1.8 percent from the October forecast of 1.9 percent while the forecast for 2016 GDP growth was maintained at 3.3 percent and the 2017 forecast kept unchanged at 2.3 percent.

    Sweden's headline inflation rate fell to minus 0.2 percent in November, the fourth consecutive month of deflation, and further from the Riksbank's 2.0 percent target. In the third quarter of this year, Sweden's GDP expanded by 0.3 percent from the second quarter for annual growth of 2.10 percent, down from 2.4 percent in the second quarter.

    The Riksbank issued the following statement:
"For inflation to rise towards the target sufficiently quickly and to reduce the risk of longer-run inflation expectations continuing to fall, monetary policy needs to become more expansionary. The Executive Board of the Riksbank therefore assesses that the repo rate needs to remain at zero per cent for a slightly longer period than was forecast earlier. It is not until the second half of 2016, when CPIF inflation is close to 2 percent, that it will be appropriate to begin raising the repo rate. If monetary policy needed to become even more expansionary, this would primarily entail continuing to postpone a first increase of the repo-rate. The Riksbank is also preparing further measures that can be used to make monetary policy more expansionary. Such measures, were they necessary, could be presented at the next monetary policy meeting.

Low oil price stimulates growth and subdues inflation

The recovery in economic activity abroad is continuing, but there are large differences in growth between countries. In the United States and the United Kingdom, growth is good while the economic outlook for the euro area remains subdued. The oil price has fallen heavily. The lower oil price is expected to give some positive stimulation to growth in many countries. At the same time, the price fall means that the forecast for inflation abroad is lower.

Economic activity strengthening but inflation is too low

Economic activity in Sweden is continuing to improve. Since October, economic developments have been in line with the Riksbank's forecasts. GDP and employment are expected to continue rising.

However, inflation is too low and is expected to be somewhat lower for a period of time, primarily due to the falling oil price. In addition, inflation expectations in the longer run have fallen slightly further and are below the inflation target of 2 per cent. For inflation to rise towards the target sufficiently quickly and to reduce the risk of longer-run inflation expectations continuing to fall, monetary policy needs to become more expansionary.

Zero repo rate until inflation is close to 2 per cent

The Executive Board of the Riksbank has therefore decided to hold the repo rate unchanged at zero per cent and assesses that the repo rate needs to remain at zero for a longer period of time, compared with the forecast in October. The expansionary monetary policy underlines the Riksbank's aim to safeguard the role of the inflation target as nominal anchor for price-setting and wage-formation.

The low repo rate, together with rising demand from abroad, is expected to lead to an increase in economic activity in Sweden in the years immediately ahead. Companies will then be able to raise their prices and in this way pass on their cost increases to consumers to a greater extent. This should mean that inflation rises. The new repo-rate path means that the repo rate will remain at zero per cent until CPIF inflation is close to 2 per cent. The assessment is that it will be appropriate to begin increasing the repo rate in the second half of 2016.

If monetary policy needed to become even more expansionary, this would primarily entail continuing to postpone a first increase of the repo-rate. The Riksbank is also preparing further measures that can be used to make monetary policy more expansionary. Such measures, were they necessary, could be presented at the next monetary policy meeting.

The decision on the repo rate will apply with effect from 17 December. The deposit rate will be held unchanged at -0.75 per cent and the lending rate at 0.75 per cent. The interest rate for fine-tuning operations will be held unchanged at 0 per cent.

A press conference with Governor Stefan Ingves and Ulf Söderström, Deputy Head of the Monetary Policy Department, will be held today at 11 a.m. in the Riksbank. Press cards must be shown. The press conference will be broadcast live on the Riksbank's website, www.riksbank.se, where it will also be available to view afterwards.

The minutes from the Executive Board's monetary policy discussion will be published on 8 January."