Posts tagged 'Interest Rates'

No change at the ECB (inflation hawks win)

PRESS RELEASE 6 October 2011 - Monetary policy decisions.

At today’s meeting, which was held in Berlin, 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 1.50%, 2.25% and 0.75% respectively. Read more

Nomura: Trichet to deny Europe a fun going-away present

Or, why this letter is likely to make its way quickly into the recycling bin.

Just a couple of weeks ago, the conventional wisdom was still for a 50bps rate cut at Thursday’s ECB meeting — Jean-Claude Trichet’s last as ECB president — in light of rising expectations rise of an eurozone recession. Read more

US inflation expectations lowest for a year

Market expectations for US inflation have dropped to their lowest level in a year and are now below the Federal Reserve’s unofficial target, as investors respond to the central bank’s latest attempt to stimulate the economy, the FT reports. The expected rate of inflation over the next 30 years, as measured by the difference between Treasury Inflation Protected Securities, Tips, and cash government bonds, dropped as low as 1.85 per cent in recent days from 2.73 per cent since last month. The rate was just under 2 per cent on Tuesday. The drop in long-term inflation expectations came after the Fed announced Operation Twistlast week, a policy aimed at driving down long-term interest rates. So far it has not approached the lows of summer 2010, when investors feared the economy was in danger of tipping into deflation.

ECB tipped for November rate cut

Financial markets are forecasting interest rate cuts in the eurozone as early as November, says the FT, in a sharp reversal of monetary policy expectations due to a deterioration in confidence surveys and growing worries about Europe’s debt crisis. Although many economists do not think the European Central Bank will signal rate cuts at Thursday’s press conference following the monthly rate-setting meeting, the market is predicting a 92 per cent chance of a quarter point rate cut in November. Only a few weeks ago, the markets were predicting a slim chance of more rate hikes before the end of the year following two quarter point increases in April and July.

Brazil makes unexpected interest rate cut

Brazil’s central bank has taken the unexpected decision to cut interest rates, bringing its seven-month tightening cycle to an end as the country prepares for slower growth and a sharp deterioration in global markets, the FT says. Brazil’s central bank slashed its key interest rate to 12 percent from 12.5 percent on Wednesday in a shock decision, Reuters reports. All 20 analysts in a Reuters survey had expected the central bank to keep the Selic rate unchanged. “The government and the central bank are reacting in a coordinated manner to the global slowdown through a preemptive tight fiscal/loose monetary stance,” Barclays Capital analysts wrote in a note, adding that the decision is “unexpected and unprecedented.”.

Masochism

On the bright side, at least the ECB left more room to cut rates?

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Eurobonds and the shadow of the future

Sometimes, you have to turn to US history to realise how very confused the eurozone is at the moment…

Merkel and Sarkozy want balanced member-state budgets in 2012, but no eurobonds for the foreseeable future. Interestingly, in the 1840s, US states almost all added balanced budgets to their constitutions after a huge debt crisis. In fact after some states defaulted. But then again “eurobonds” already existed in this case. Read more

Around the world, in leverage

So much focus on government debt lately — won’t somebody please think of the household leverage?

Morgan Stanley’s Global Monetary Analyst team has: Read more

When doves don’t cry – BoE edition

The minutes of the last MPC meeting are out and here’s the price action in the Great British Krona.

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Upbeat BoJ leaves rates unchanged

The Bank of Japan raised its economic assessment for a second consecutive month after companies ramped up production, Bloomberg reports. Governor Masaaki Shirakawa and his policy board left the benchmark lending rate between zero and 0.1 percent at a meeting in Tokyo on Monday. They also kept unchanged a 10,000bn yen ($125bn) fund to buy assets such as corporate bonds and exchange-traded funds.

 

Tranching up Europe’s interest rate rises

Ever pondered the big questions? The meaning of life? Are we alone in the universe? What will happen to European RMBS once interest rates start rising? We have.

And we have an answer — to the last one anyway. Read more

Chinese interest rate direction unclear

Bank analysts have swung behind the view that China will limit or even suspend interest rate increases for the rest of the year, says Bloomberg. JPMorgan, HSBC, and Goldman analysts all said that Wednesday’s 25bps hike was likely to be 2011′s last, as Chinese inflation becomes “controllable”. But a Chinese central bank adviser also called for further tightening of deposit rates, saying they were still below inflation, according to the WSJ. Inflation is likely to have reached 6 per cent in June, but the central bank will be cautious of raising rates too far unless they damage borrowing costs for local government debt over the edge, the FT says.

Chinese advisers predict more rate hikes

Several Chinese government scholars told local media on Thursday that China may be preparing for more tightening after Wednesday’s interest rate increase. MarketWatch says Xia Bin, an academic adviser to the People’s Bank of China, was the most vocal in calling for more interest rate increases in comments to the state-run China Securities Journal, saying the increase “still not enough” as deposit rates remain well below the level of inflation. Both deposit and lending rates were raised 25 basis points on Wednesday.

About that Chinese inflation rate

With China hiking interest rates by 25 basis points on Wednesday, reportedly to counter faster inflation, now is probably a very good time to bring up the issue of the country’s GDP deflator calculation.

Simon Hunt of Simon Hunt Strategic Services, a veteran copper market analyst with great connections in China, believes the deflator may be a much bigger concern for Chinese authorities than the CPI inflation figure. Read more

China hikes interest rates by 25bps

So here it is — the fifth Chinese rate hike since October last year.

As Reuters reported on Wednesday: Read more

‘Collective amnesia’ on mortgage reform

German financial consultant Achim Dübel doesn’t mince his words.

Last week he spoke to a group of European politicians, including representatives from the UK, Spain and Germany, to talk mortgage reform. In particular, he was presenting a new paper, written together with Marc Rothemund, and published by the Centre for European Policy Studies (CEPS). It’s a big deal given the current consumer protection debate on European mortgages, and the European Commission’s recent interest in the cost and benefits of various mortgage credit policies. Read more

Nordea hunts down a Norwegian interest rate typo

Price action in the Norwegian krone on Tuesday:

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Danske Bank breaks up with Moody’s over mortgages

Last week, from Bloomberg:

Danske Bank A/S’s mortgage lending unit Realkredit Danmark told Moody’s Investors Service to discontinue its ratings of the company as it creates a separate capital unit for its adjustable-rate mortgages. The Copenhagen-based lender will issue covered mortgage bonds through a new capital center to finance new and existing adjustable-rate loans, it said in statement. Fixed- and variable-rate loans with a rate cap will continue to be funded via an existing capital center, the lender said. Read more

What’s wrong with markets in seven easy slides

Hot on the heels of the BIS’s annual report – criticising how prolonged low interest rates can create ‘distortions’ and threaten ‘price stability’ — comes this presentation from Citigroup’s credit team.

The bank’s credit strategists Hanz Lorenzen and Matt King have some simple advice for investors seeking to deal with modern (QEased) markets; “what feels wrong is probably right.” Read more

The BIS still doesn’t like low interest rates

Those low interest rate u-Zirpers at the BIS are back.

The Bank for International Settlements, often known as the central banker’s bank, seems to share little in common with its low interest rate-advocating cousins in places like the UK and the US. In fact, the latest annual report from the BIS is fairly scathing when it comes to prolonged easy monetary policy. Read more

Foreign banks are arbitraging the Fed, RBC says

Up until April this year, US banks had a nice little earner.

As Freakonomics explained, big banks were able to borrow cash from the Fed funds or repo market for say, 15 basis points, posting US Treasuries as collateral, and then deposit the cash received with the Federal Reserve overnight at 25bps, earning some 10bps. The FT has estimated that since late 2008, this risk-free arbitrage may have netted America’s banks as much as $200m in profits. Read more

Australia, flowing sideways

Notice anything in the below chart, of five-year CDS for Spain, Japan and Australia?

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Back to the future with UK RMBS

Your extend and pretend datapoint du jour, right here folks.

On Monday, Moody’s released a report advocating more disclosure of loan modifications within British Residential Mortgage-Backed Securities (RMBS).  The UK’s Financial Services Authority already said something similar last month, when it issued its first Prudential Risk OutlookRead more

A tale of two UK inflations

Here’s something to throw the Bank of England’s will to withstand high UK inflation (and low interest rates) in surprising, sharp relief.

It’s a new finding by the Institute for Fiscal Studies, connected to a study of inflationary effects on low-income households over the long term: Read more

Nomura says Spanish banks are funding 24 years worth of housing

During the Spanish boom of 2004-2008 the country started construction of about 3.26m new houses, according to Nomura’s figures, and sold about 2.86m in the Costa Brava beach house craze.

By the end of 2009, however, the financial crisis had erupted and left Spain with a stock of unsold houses of almost 700,000. By 2010, the number of new houses being sold had dropped to 200,000. Read more

Taking the eurozone’s housing temperature

Some graphics from Danske Bank to ponder ahead of the ECB’s Thursday meeting:

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This is really not normal ECB tightening

There’s the effect of rising European Central Bank rates on households in the periphery, and there’s the effect of two-tiered rate markets on periphery banks:

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Money market funds under rates pressure

US money market funds are struggling to make returns after short-term interest rates fell to record lows in the wake of regulatory changes and a big decline in Treasury bill issuance, the FT reports. The recent drop in rates has compounded the already low level of returns money market funds have made since the Federal Reserve set overnight rates in a band of zero to 0.25 per cent in December 2008. The low interest rate environment means a growing number of funds are losing business and coming under mounting pressure to consolidate. The Investment Companies Institute calculates that last year the industry waived $4.5bn of fees to maintain the fixed $1 per share net asset value of funds. See also FT Alphaville posts.

Bagehot, bailouts and banks – the entwining continues

It’s a moonless night in October, 2008.

A hooded figure turns the corner of Threadneedle Street. It’s Fred Goodwin, head man of the languishing British bank, RBS. He glances behind him. No one’s there. With a sigh of relief he pulls open the heavy door and disappears into the warm welcoming light of the Bank of England. Read more

Chinese inflation still high at 5.3%

China’s consumer price index rose 5.3 per cent in April, lower than March’s 5.4 per cent increase but still higher than expected, the FT reports. Food prices also rose faster than during the first quarter at 11.5 per cent, compounding political sensitivities. Industrial output nevertheless fell in tandem with producer prices, indicating that the four interest rate hikes since October are cooling growth. However, fixed-asset investment has ballooned 25.4 per cent so far this year, indicating that domestic demand cannot support growth, Bloomberg reports. If fixed-asset investment falls, the central bank may even begin cutting rates by the end of the year, Reuters says.