Ben Bernanke suggested the Federal Reserve could begin ending QE “in the next few meetings” if the jobs market continues to improve. “If we do that, it would not mean that we are automatically aiming towards a complete wind-down,” he cautioned, in testimony to Congress (Financial Times). Minutes of April’s FOMC meeting showed some officials were ready to “adjust the flow of purchases downward as early as the June meeting” (Wall Street Journal). Read more
FURTHER FURTHER READING
- On Bangladesh, labour standards, and
- The portfolio manager’s strategy cycle.
- Four reasons the housing recovery isn’t yet boosting the economy. Read more
Now here’s a sign of the times…
The Network aims to promote collaboration in international financial matters to help facilitate cost-effective resolution of disputes and avoidance of duplicative and inconsistent adjudication of the same matters in different jurisdictions, thus increasing the likelihood of resolving financial disputes in a way that all market participants will find to be substantively and procedurally fair… Read more
Highlights follow, beginning with inflation:
Both headline and core PCE inflation in the first quarter came in below the Committee’s longer-run goal of 2 percent, but these recent lower readings appeared to be due, in part, to temporary factors; other measures of inflation as well as inflation expectations had remained more stable. Accordingly, participants generally continued to expect that inflation would move closer to the 2 percent objective over the medium run. Nonetheless, a number of participants expressed concern that inflation was below the Committee’s target and stressed that future price developments bore careful watching. Read more
This is a guest post by Manmohan Singh, a senior economist at the IMF. Views expressed are his own and not those of the IMF. This is the second part of a series looking at the role of pledged collateral in an IS/LM framework.
Price of money and Price of collateral
In some countries like the US and the UK, the price of money and money market rates are not market-determined due to IOER (interest on excess reserves), and this affects other short end rates. In the US, for example, Fannie Mae and Freddie Mac and other non-depository institutions are not eligible for IOER. This leads to market segmentation and forms a wedge in the money market rates. Read more
This is a guest post by Manmohan Singh, a senior economist at the IMF. Views expressed are his own and not those of the IMF.
The concept of financial collateral (or pledged collateral that can be re-used in the markets) was not fully developed in academia in the late 1990s. Activities such as securities lending, repo, OTC derivatives and rehypothecation were still in their infancy—both in volume and sophistication. Read more
The chart above is from Credit Suisse economists, who add: Read more
It’s starting now, and you can watch it live at C-SPAN.
We have a feeling that the nuances of this passage will be lost on some members of the Committee: Read more
Yes, the rally in Japanese equities has caught many an eye. There’s been hardly a step backwards in six months.
Yet prices seem to be accelerating from here. With the Nikkei 225 already up 1.6 per cent on Wednesday, closing at 15,627. Here is the after-hours action, courtesy of the CME: Read more
Everyone has an open mind about negative rates these days… Swiss National Bank chief Thomas Jordan has said he certainly does following this piece of repeat advice from the International Monetary Fund’s annual report on Switzerland (our emphasis):
The conjuncture of Switzerland may render some of the potential drawbacks [of negative interest rate] less relevant than in other countries. Activity in the interbank market is already very low, as all banks have excess liquidity. Switzerland is experiencing strong credit growth, particularly in the mortgage market. The impact of negative interest rates on mortgage rates depends on the pass-through.
Live markets commentary from FT.com
Bank of Japan maintains asset-buying programme || Sony board discusses Daniel Loeb proposal || Taxing Apple || RICO and SAC || Gupta challenges U.S. wiretaps in appeal || Japanese trade data disappoints || Dimon prevails on dual role || Immigration legislation sent to Senate || Temasek raises stake in ICBC as Goldman exits || Fiat Industrial aims to move its tax residency to the UK from Italy || Italy considers plan for older workers to ‘handoff’ to younger generations || Markets || FTAV’s latest Read more
We’ve all heard, many times, the story that China’s capital stock is nowhere near that of more advanced economies, therefore it will inevitably increase. And we can count on continued efforts to build roads, buildings, airports, and other infrastructure — just look at how the less-developed eastern provinces have been pouring money into new projects, the argument has gone, more recently. Or went.
We really hope it’s not necessary, here, to go into the weaknesses of that argument. Here are a few places to start, but it’s partly a causal problem — does growth cause increased capital stock or vice versa? What kind of growth are we talking about, anyway? Read more
Elsewhere on Wednesday,
- The Fed’s Dudley on lessons from the zero bound.
- And then… there’s Bernanke.
- Muppet fund of muppets. Guess whose? Read more
Asian stocks held gains, the Nikkei rose 1.1% and the MSCI rose 0.3%, headed for its highest close since June 2008. (Bloomberg)
Bank of Japan maintains asset-buying programme: The May monetary policy statement made no mention of recent rises in JGB yields, and said its decision came amid signs of “positive movement” in the economy. (Financial Times)(Statement) Read more
The Bank of Japan’s May statement on monetary policy is out, and it’s basically a big MAINTAIN on its ‘quantitative and qualitative easing’ (QQE) programme.
If anyone was anticipating the BoJ might take this opportunity to point out it is mindful of recent rises in government bond yields — and apparently some were expecting this sort of reassurance, possibly even tweaking maturities purchased — they would be disappointed. Equities traders just seemed relieved that their rally will continue.
However one member, Takahide Kiuchi, proposed the 2 per cent inflation target shift to a “medium to long term” and the new QQE plan itself be designated as “an intensive measure with a time frame of about two years”. Kiuchi’s proposal at this meeting was voted down by the other eight board members. The central bank has, however, already revealed that some members are concerned about the risks of its QQE plans hurting retail investors in Japanese government debt. Read more
FURTHER FURTHER READING
- Why Jamie Dimon remains both chairman and chief executive of JPMorgan: because he makes money, and because he makes money. (But is that a chairman’s job?)
- No more economist superstars?
- Watch what they do, not what they say, Dodd-Frank lobbying edition. Read more
This is what JPMorgan investors were treated to on the webcast, after hearing shareholders at the bank’s annual meeting vote against splitting the chairman and chief executive roles…
Apple CEO Tim Cook is up soon in front of a US Senate committee. First though, Professor Stephen E. Shay of Harvard, who knows both his tax and his bow-ties:
Click through the pic for the C-Span stream.
Alternatively, join our colleagues over at the FT’s Tech blog, where the action is being discussed in detail. Read more
From historical chart specialists Global Financial Data — the yield on perpetual Consols versus the stock of UK sovereign debt…all the way back to 1742. Click to view… Read more
From SocGen’s Andrew Lapthorne and quant team: in the first quarter of 2013, buybacks done to offset the dilution from executive stock options maturing reached near a post crisis high and ticked past the amount of buybacks done to reduce the overall share count — you know, those done to benefit the shareholders:
Is it only going to get worse before it gets better?
Societe Generale think so: as the chart says, they’re expecting it to reach 30 per cent in 2015 (from an already-awful and record-breaking 27.2 per cent, at last count). Read more
Live markets commentary from FT.com
Oklahoma tornado kills dozens and flattens town || Congress accuses Apple of avoiding billions in tax || U.S. and Europe prepare to settle Chinese solar panel cases || US corn rush threatens prices || Vodafone to reinvest £2.1bn Verizon dividend || Qatar buying fresh stakes in key banks || Goldman Sachs is selling its remaining shares in Industrial & Commercial Bank of China || Riverstone leads talks of $1bn commodities venture || Japan panel warns of dangers if debt not addressed || U.K. inflation slowed more than economists forecast in April || Markets roundup || FTAV’s latest Read more
Nomura carries out an annual survey on individual investors’ voting intentions and this year’s results suggest 43.8 per cent of respondents plan to exercise their rights — a a 5.1 percentage point jump from 2012. That compares with a record activism reading of 45.1 per cent in 2010, but it’s also worth noting that those investors saying they would not use their voting rights dropped from 30.6 per cent to 25.8 per cent. So engagement is clearly on the rise.
What are they likely to vote on? Directors pay, of course (34.5 per cent) – and retirement bungs (37 per cent). Read more
Yes, it’s hardly a neutral document on the matter.
Still, there are lots of interesting charts in the UK government’s latest report on the finance and economics of Scotland becoming a sovereign state, this time covering the dangers from banks…
…Although we think they missed one.*
Elsewhere on Tuesday,
- All about tornadoes in America.
- SAC Capital is bracing for outflows.
- If not taxing, then what? Read more
Asian shares retreat, yen weakens, silver falls || BoJ meeting starts today || Apple paid almost no tax on $74bn || Oklahoma declared ‘major disaster’ || Goldman sells last of ICBC shares || Qatar buying into Deutsche Bank, VTB || Europe’s transaction tax plans to be diluted Read more
Here it is Goldman’s big call: the S&P 500 will reach 1,750 by the end of this year; 1,900 in 2014; and 2,100 in 2015.
H/T Josh Brown, who points out this isn’t about earnings but a re-rating of equities (and dividends). Read more