Today, the Bank of England left rates and QE on hold as Governor King decides to wait before more additional easing measures are taken and says that the events in Europe are beyond his control. In October, the BOE surprised the markets with an aggressive increase in QE by 75bln GBP to 275bln GBP. These purchases will be completed in February and the current market expectations are for more QE then. This is despite the downgrade to the 2012 GDP forecasts by not only the central bank, but also by the OBR (Office of Budget Responsibility). While King is correct … …READ MORE
Tag Archives: ECB
Finally, Global Action!
Today, 6 central banks acted to reduce funding tensions in the global financial markets. The EUR rallied 200 points, S&P is up 35 and US 10yr yields are up 10bps at 2.07%. Here’s the Federal Reserve statement:
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on … …READ MORE
Posted in Front Page Also tagged Bank of Canada, Bank of Japan, EUR, Federal Reserve Leave a comment
What the ECB can do
The European debt crisis continues to drive down risk appetite in the financial markets as uncertainty over area countries ability to fund themselves remains high. This is reflected in the poor 10 year Spanish auction yesterday and the 10yr yields on Italian and Spanish debt near 7%. The European Central Bank is currently the main Euro government agency that has the structure to address the crisis. However, there are strict limits on the ECB finance Euro zone governments by directly buying debt from the sovereigns. They get around this by purchasing debt in the secondary markets under the auspice that … …READ MORE
Party Thursday, Hangover Monday
After a wild week and an over-exuberant reaction to Europe’s plan to contain the debt crisis, the markets have now had 5 days to digest and reflect on the structures. The articles out over the weekend were mixed at best and strongly negative at worst with most stating more details were needed. From Monday of last week, my own grading of the EFSF expansion had an incomplete on it for the same reasons.
How are the markets reacting? Clearly, the simplest success measure of the “plan to end all plans” or PTEAP from last week is the 10yr yield on … …READ MORE
Greek default date
Late Friday, the markets pursued Risk-Off trading strategies as equities dropped, bonds rallied and the US dollar rallied. To me, I expect this type of activity to occur every Friday until we get some type of certainty/resolution to Greece. Why? On the last day of the week, we should get fears over a Greek default announcement taking place over the weekend. While this didn’t occur this past weekend, we did get a negative Greek development/announcement.
The Greek government announced that they will miss the Troika budget targets for 2011 and 2012. The IMF/ECB/EU had set a budget deficit target of … …READ MORE
Optimism Week!
After several brutal weeks of Risk-Off trading, the markets appear to be set for a week of unstable, but positive (UBP) Risk-On trading. The predominate story emanating from the IMF/WB meetings is the passing of the July 21st EFSF & Greek bailout agreement as well as the potential development of a new structure to increase the leverage of this structure. There has also been newsflow about the potential for the ECB to cut interest rates at their October 6th by 50 basis points.
Also, the calendar sets up well for this UBP Risk-on environment:
Monday: US cloture vote in Senate … …READ MORE
Euro turmoil to get white-hot
Today, the markets are selling risk as we enter into the NYC trading day. This started on Friday with the lack of action from the European EcoFin meetings that US Treasury Secretary Geithner attended, speechified and was summarily criticized for both. The ministerial meetings failed to generate positive newsflow for quick action to resolve the critical issues before Europe: Greece default, EFSF expansion and fiscal integration.
Clearly, European (Troika as well) strategy for Greece is to apply as much pressure on the country to enact the strongest possible austerity measures and public/private restructuring as possible before they receive the E8 … …READ MORE
Why the ECB is crushing Europe
In an excellent new paper for the IMF, Laurence Ball, Daniel Leigh and Prakash Loungani researched 173 episodes of fiscal austerity over the past 30 years that included the average deficit cut amounting to 1 percent of GDP. While their conclusions that growth suffered won’t be shocking, the specific numbers are telling.
“… the evidence from the past is clear: fiscal consolidations typically have the short-run effect of reducing incomes and raising unemployment. A fiscal consolidation of 1 percent of GDP reduces inflation-adjusted incomes by about 0.6 percent and raises the unemployment rate by almost 0.5 percentage point within two … …READ MORE
Why Greece will restructure and what form it will take
The European debt crisis continues to remain headline material and continues to negatively impact the financial markets. This is happening despite the efforts of the ECB, the IMF and the European Union to reform the periphery and to provide liquidity to those sovereign nations. Greece is the linchpin for a solution and resolution of the crisis. The essential element missing is this: how to do a Greek debt restructuring. Let’s review what’s happened and what could happen given the rich history of global debt restructuring.
There are two paths that Europe can go down to deal with Greece, Ireland and … …READ MORE
Posted in Front Page Also tagged debt, European Commission, European Uninon, Greece, IMF, restructure Leave a comment
Global Macro Monday: Equities, Greece and Central Bank Bonanza
Equities
We start this week with global equities playing catch up to the drop on Friday in the US. We have now seen $2 trillion in value wiped out due to the drop in stock prices since the peak on May 5th. The S&P is down 5 weeks in a row. The reasons stem from a global drop in economic activity stemming from Japanese supply chain disruptions and US gasoline prices crimping consumer spending.
The data over the last month has remained weak and this culminated on Wednesday with the massive drop in ADP that foreshadowed the disappointing NFP and … …READ MORE
Posted in Front Page Also tagged central banks, Federal Reserve, Greece, US Equities Leave a comment
