Back in July, 2012 the Danish central bank, Nationalbanken, lowered the deposit rate to -0.2 per cent. Back then we wrote that it was going to be costly for the banks, and that money market rates were going deeper into negative territory. With Draghi’s comments last week, how did that whole negative deposit rate action turn out for Denmark?
Nordea had a note out last week on that very subject. Now, before we move, let’s remember that Danish monetary policy is tailored around the FX peg. The deposit rate was there to assure outflow because of mounting pressure on the EUR/DKK pair. Read more
Liquidity and credit are not always best friends — Funding for Lending in the UK and the LTROs spring to mind. However, blaming liquidity alone for the lack of credit out there is obviously [expletives removed].
For one, banks can’t lend if they can’t find borrowers — although it might be unfair to blame borrowers who are seeing unappealing terms — and for two, central banks have poured a fair amount of liquidity out there with more available on tap.
There’s been some thought-provoking revisionism floating around about Cyprus lately.
The gist seems to be this: Why not push bank bail-in policy in the eurozone much harder, right into uninsured depositors if need be, if Cyprus has not (yet?) budged most gauges of bank funding from their current calm. And more importantly, when there is a vicious circle to resolve. Read more
Here follows a thoughtful commentary on the changes going on in gold market from BNY Mellon’s Neil Mellor, including the point that central bank purchases are in many ways helping to stabilise what might otherwise be a much more substantial slump.
Our emphasis throughout… Read more
Anyone who bought gold in 2008 is probably more than tempted to cash in their profits right about now.
Reflecting the scale of the change in sentiment — and confirming that there was indeed something of a choke level for gold at around the $1,908 mark — is the following chart from Macro Risk Advisors which neatly sums up the degree to which investors have been liquidating gold ETF positions. Read more
Okay. Negative interest rates have now gone fully mainstream in the UK thanks to this week’s testimony by Bank of England deputy governor Paul Tucker.
Even the Daily Mail is writing about it.
But a number of major misunderstandings are popping up as a result. So let us try to clear some of them up. Read more
This alarming gilt fact is brought to you by Bank of America Merril Lynch and it underlines one of the main fears many people raised about the QE surplus “raid” staged by the Her Majesty’s Treasury on the Bank of England last year.
From BofAML’s John Wraith (our emphasis):
As a result of the dramatic spike higher in yields that occurred over the first week or so of the New Year, the mark-to-market value of the BoE’s portfolio of Gilts acquired through QE over the past four years dropped by more than £7bn. This exceeds the largest decline in the portfolio’s value in any full month since QE began by more than £1.5bn, emphasizing both the extent of the rise in yields, and also the very large size the BoE’s holdings have reached (£326.7bn in nominal terms, with a basis point value of about £360m).
Remember the whipsawing days of 2008? The days when commodity prices couldn’t get crazier?
Nowadays, the idea of not having an independent central bank is seen as being a bit backward. One could even say that central bank independence is widely accepted as the optimum set-up for any country’s monetary system, a reflection of its developmental status.
“Independent central bank? Check.”
“This country must be civilised. ”
Yet, can we really be so absolute about the matter? Read more
Central bank puts have done a great job of removing tail risks.
Such is the conclusion of the team at Bank of America Merrill Lynch upon analysing the remarkable drop in trade conviction of late.
In FX, the move in volatility has been notable… Read more
A lot of ink has been spilled by various FX strategists over what the Reserve Bank of Australia is or isn’t doing with its FX transactions and whether this is or is not tantamount to printing money. The RBA isn’t ‘printing money’ but it is doing something… or rather, not doing something, as a way of signalling that it doesn’t like the Australian dollar being so strong. They’ve been given the opportunity to do this by a foreign central bank, but that’s neither here nor there. Read on for all the messy details… Read more
There’s something we’ve never quite got about this debate on “cancelling” all the government bonds acquired by central banks under quantitative easing, either for helicopter money or for debt relief.
Now the Governor of the Bank of England has weighed in: Read more
This trip down the central bank money supply lane will seem almost nostalgic to some people, so we thought it’d be worth a revisit.
It is excess rather than gross money supply that generates upward pressure on asset prices or prices of goods and services in the economy. Read more
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 0.75%, 1.50% and 0.00% respectively…
This won’t be the main event of Draghi day. We’re 45 minutes away from details of the ECB’s bond-buying plan at pixel time. Read more
By now, everyone is familiar with the mantra that QE is [arghh!] money-printing and that a major unintended consequence could be a chronic and uncontrollable inflation. (One could call this the goldbug, Austrian, Republican case).
Less well known, perhaps, is the theory that QE could be just as unexpectedly deflationary — because long-term micro yields come to threaten a number of financial sectors outright, as well as general expectations of risk-free returns which lead to capital destructive feedback loops. Read more
The reversal of currency flows in and out of China is continuing. The PBoC published data on Tuesday showing that the country’s banks were net sellers of yuan in July, selling Rmb3.8bn or $587m. As the WSJ’s Tom Orlik explains, this means that the banks’ foreign exchange purchases are lower than the monthly inflows from trade and investment, and it suggests some “hot money” is leaving — possibly in part because exporters and importers no longer want to settle in yuan.
Of course this is only a change in the direction of flows — and a small one when viewed in context. The chart below from Chinascope Financial demonstrates how, while the trend has been negative since September 2010 and particularly since September 2011, the banks’ overall forex position hasn’t changed that much in the past year: Read more
A grainy picture of some central bankers. A warning in German that “it is immensely amateurish to renounce this mechanism.”
The biggest change is in the very first paragraph. In June the Fed had written that the economy “has been expanding moderately”. Now economic activity has “decelerated somewhat over the first half of this year.” Read more
This’ll surely liven up next Thursday’s ECB meeting…
Via Bloomberg late on Friday (which was citing two central bank officials): Read more
Who went back and read Mario Draghi’s full, market-moving remarks in London on Thursday — beyond the “whatever it takes” and “yields” bits?
Here they are. Read more
In our previous post, we made the point that if the old goldbug accusation that central banks and bullion banks were suppressing the gold price by selling or lending gold into the market is true, then in the current cash-for-gold universe — which features negative gold lease rates — the opposite must apply.
That is, the very same entities may now, if anything, be supporting prices in the market. Read more
Maybe not truly natural, as this is a matter of currency intervention, but close.
After the ECB lowered its interest and deposit rates on Thursday, the Danish central bank, Nationalbanken, followed a few hours later. Read more
(That’s Lisa, at Thursday’s European Central Bank press conference) Read more
It’s all very well bashing Bob and calling for bankers’ heads.
But we shouldn’t overlook another exceedingly important point about the Libor affair, as picked up by Claire Jones over on the FT’s Money Supply blog. Read more
The world’s 81st-biggest island fell off the European Central Bank’s collateral lists on Tuesday. At least its sovereign debt did.
Israel’s central bank had just cut interest rates at pixel time on Monday, easing by 25bps to a 2.25 per cent policy rate.
Why’s this one so important, we hear you ask. Read more
The BIS Annual report released this Sunday is jam-packed with data, charts, observations and analysis. Joseph has already stuck up some of the most compelling…
But one of the other key points to emerge is in its chapter on the “limits of monetary policy”. There is, it appears, a marked admission that central banks may be losing control. Read more
It made headlines when the majority of 80 or so central bankers attending a conference organised by UBS last week reported that they thought at least one eurozone country would leave the currency union within five years:
Markets were taking that line as not the existing swap lines a bullishly ambiguous signal as we headed into the close at pixel time:
Ultimately, central bank independence depends upon having built a coalition of support in society for that independence – legislative rules and protections regarding the central bank’s ability to set monetary policy will change to reflect sustained variations in that degree of support, albeit with some lag. The only way for a central bank to defend its instrument independence is by making a persuasive case to the public, or at least to a majority of their elected officials, that it is doing a good job. That kind of transparent accountability has been the source of inflation targeting’s success in anchoring inflation expectations, which shows how this can work.
Thus, religious declarations of what assets a central bank should or should not handle in its pursuit of monetary policy goals, or of what constitute fiscal versus monetary policy, are shibboleths. They are mouthed with fervor but should not be taken seriously. What matters instead is that the goals of monetary policy being pursued are consistent with the central bank’s legislated mandate, that the means used in that pursuit are transparent to monitor, and that the central bank can and does explain why the means fit the goals. In short, monetary policy is like any other delegated public responsibility. Read more