Elsewhere on Wednesday,
- Money may not be as neutral as we think.
- Why companies are raising their dividends.
- I love microfoundations. Just not yours.
(Spending some time as FTAV’s Bombay wallah. Noticeably sweatier but not much else has changed.)
David studied economics, politics and journalism before joining the FT in 2011 as a Marjorie Deane fellow. He covered emerging markets, equities and currencies before making the jump over to FT Alphaville in May 2012.
In between his degree and masters he wandered into the real world of business where he learnt how to manipulate a spreadsheet and organise meetings where nothing gets decided.
He has spent time in France, learning French, and India, learning how to cross roads, and enjoys nothing less than writing about himself in the third person.
His hobbies include reaching things on top shelves, running long distances at slow speeds, growing beards and trying to live up to a rash claim he made as a twelve-year old that “he had read all of the books”.
If you wish to know more about David please do pick up the phone and call him for a chat in the first person. Be warned though: he tends to talk at pace and in an Irish accent.
Optimism from the mouth of Haruhiko Kuroda, in the FT:
At this stage, we are not thinking about any other policy tools since we are on track and we are likely to achieve the 2 per cent inflation target within the two-years time band.
But there’s a slight problem. From the pens of Credit Suisse (via our inbox):
Neither financial market participants nor the general public appear to have any real confidence in the BOJ’s ability to achieve +2% inflation. The expected inflation rate priced into the JGB linker market points to a steady state closer to +1% after the April 2014 consumption tax hike (Exhibit 1), while households appear to be anticipating even weaker inflation over the coming year.
At least for the majors. Just some annotated charts courtesy of HSBC, click to enlarge:
And on silent feet they… moved towards price stability with CPI inflation as the new nominal anchor.
The RBI’s report on how to revise and strengthen its monetary policy framework to make it more “transparent and predictable” may play a very large role in the regime change underway at the Reserve Bank of India. Admittedly, the report isn’t out until later in the month but considering the useful Stanley Fischer news hook, it seems rude not to mention Rajan’s potential to also labour to reduce the powers of the ofﬁce he holds, for the institution’s sake. Particularly when the institution and the country it resides in still lack a whole lot of maturity. Read more
From Credit Suisse, do breathe in the romance:
The impact of the easing of the one child policy on birth rates may be overstated based on the experience of easing restrictions on parents who are both single children in their families (as shown in Exhibit 3). Guangzhou, a southern China city, had more than 14,000 couples, who were both single children in their families, hence eligible to have the second child, but only 360 couples had the second child in 2009.
Starting today we get what is basically the first formal step to a fully fledged market based deposit rate system from China (honourable mention of course to those more informal weapons of mass ponzi). It’s been coming and the move doesn’t effect corporates or individuals, but in the context of the Shibor spike, deposit pressure and the post-plenum reform blush it’s very worth noting.
From UBS’s Wang Tao:
[The PBOC] took the long-expected step toward liberalizing deposit rate on December 8, announcing that effective from December 9, depository financial institutions (banks) are allowed to issue large-denomination negotiable certificates of deposit, i.e., the so-called interbank CDs.
Markets: Markets across the Asia Pacific region are mixed as investors weigh a series of data releases against the implications of a stellar US jobs report. In Japan, Friday’s news that the US economy added 203,000 jobs in November outweighed disappointing gross domestic product revisions. Tokyo’s Nikkei 225 index is up 1.9 per cent, on pace for its best session in more than two weeks. (Financial Times) Read more
Consider this chart from Morgan Stanley:
And then this from Barc: Read more
Markets: Asian equities and currencies were mostly on hold as markets looked to Friday’s looming release of US jobs data. Economists expect the US unemployment rate to have fallen from 7.3 per cent in October to 7.2 per cent for November. Non-farm payrolls data are forecast to show the world’s biggest economy added 185,000 jobs in November. (Financial Times) Read more
Courtesy of the Bundesbank (h/t Dario Perkins):
In a nutshell, the paper concludes that current account adjustment is significantly hampered in countries that are members of a monetary union. This holds particularly in comparison with floating exchange rate regimes owing to the lower level of exchange rate flexibility. Furthermore, the persistence of current account balances in member countries of a monetary union is also more pronounced than in fixed-rate regimes due to less flexible interest rates as a result of the single monetary policy.
Markets: Equity markets are weaker across the Asia-Pacific region. Investors are cautious ahead of interest rate decisions in the eurozone and the UK on Thursday plus a highly-anticipated monthly US jobs report on Friday. The broad losses follow a 0.1 per cent pullback in the S&P 500, after a strong private payrolls survey increased speculation that the Federal Reserve could soon trim back, or “taper”, its stimulus measures known as quantitative easing. (Financial Times) Read more
From “noted” to gone in less than 2 months…
From Nomura’s Martin Whetton:
With just over a week before Australia was expected to hit its borrowing limit, the government reached a deal with the Green party in the Senate to abolish the Commonwealth debt ceiling, which is expected to pass Parliament sometime this week.
Markets: Asian markets were mixed, with Japanese stocks dropping from a six-year high, while China stocks outperformed. Overall, most bourses weakened as investors stayed on the sidelines ahead of important data due out later this week, including Friday’s US jobs report from November. (Financial Times) Read more
For those lucky enough not to recognise the FX shorthand… that’s a weak pun involving the overvalued and pegged Ukrainian hryvnia.
It’s alluding to the idea that Ukrainian households might, as protests over the rejection of an EU free trade deal last month continue, decide to start converting their deposits into FX. They have form.
That would put a whole load of pressure on already skimpy FX reserves — which at about $20bn are down to covering about two and a half months of imports, below the fairly arbitrary three months that makes the IMF all sweaty. Read more
@Rubicon13: The point was to write up what I considered an interesting note. Cheers for the rest of your comment.Comment on: Your RBI regime change
Philip - your comment was bilge and frankly not funny. Moderated and you're on zapwatch
Black Duck - glass houses (but cheers)Comment on: FT Alphaville is hiring -- in NYC
@advo: sorry, it autotranslated for me.Comment on: Further reading
(Cricket fan too)Comment on: Markets Live: Tuesday, 3rd December, 2013
Raghuram Rajan and his one man quest to save the rupeeComment on: Markets Live: Tuesday, 3rd December, 2013
Gloeschi, basically I have no idea but have stuck some musings from analysts who claim to in the usual place http://discussions.ft.com/longroom/tables/equity-strategy/some-ukraine-strategy-stuff?posted=trueComment on: UAH you wanna convert?
On sterilisation from Credit Suisse:
Cost considerations could prompt the ECB to end sterilization of SMP purchases and the decision could be imminent. We would not be surprised if the ECB announces ending sterilization already at the December meeting. Ending sterilization should not be viewed as a monetary policy signal, in our view.
Sterilisation of SMP purchases, the ECB’s 7-day fine tuning operations introduced to re- absorb the liquidity injected at the time of the SMP – has been attractive to banks with surplus liquidity especially at times of the excess liquidity in the Eurosystem not being too large. This because the rate the ECB has to pay to absorb liquidity is negatively correlated to the amount of excess liquidity in the Eurosystem. Lower excess liquidity enables banks to park their surplus at the ECB at more attractive rates than the deposit rate (Exhibit 9).
The sharp drop in excess liquidity has seen fine tuning operations becoming more expensive for the ECB as rates have edged up. The most recent ECB operation saw the ECB paying up. In spite of 108 banks participating to absorb the EUR 184 bn still outstanding the average rate was 16 bp. This compares to an average rate of a mere 5 bp in the first half of the year and an average rate of 10 bp in Q3.
From the start and in a world where the ECB provides unlimited funding sterilization was a fig-leaf. Getting rid of it does not affect the ECB’s balance sheet. On the asset side the size of SMP bonds still outstanding will not be impacted.
The end of sterilization will not necessarily prompt banks to provide more credit either. Risk averse banks that have been taking advantage of the pick-up offered by liquidity absorbing operations and remain risk averse are likely to simply park their surplus in their current accounts or deposit it at the ECB even if this offers no remuneration.Comment on: Please sir, I want some more: Italy edition
@UrbanPat: Added what I assume is the correct link.Comment on: The Closer
Probably. Also, a ctrlv error when reading this http://www.nytimes.com/2013/11/20/opinion/chinas-one-child-rule-should-be-scrapped.html?partner=rssnyt&emc=rss (Updated)Comment on: The 6am London Cut
@abm: Copper borked. Will fix. ApolsComment on: The 6am London Cut