Federal Reserve succession
Mark Dow on where we are in the market right now; vinicultural market analysis; Cohn for the Fed; cryptocurrency collapses; Brexit, Dimon, Macron and Piketty; bored traders on Tinder apparently a symptom of Wall St revenue dip; a course catalog for David Brook’s elite sandwich college; other stuff.
For a bit of Friday fun, we thought we’d trawl through the Factiva archive (which goes back to 1969) and the New York Times archive (which goes back to 1851) to search out some economic terms to see how they’ve been popularised over the last few decades. This is to ascertain how their popularity may have contributed to the collective knowledge base. Starting with… “Quantitative Easing”
Carney drops employment link with interest rates || Chinese exports and imports rose sharply in January || Scotland will not be allowed to share the pound || The Republican-controlled House of Representatives has voted to increase US borrowings || Janet Yellen has turned a cold shoulder to the pleas of emerging markets || Bank of England calls forex-rigging review || Investors including Pimco and BlackRock consider action against Ocwen Financial || Danone will more than double its stake in China’s leading dairy company || Toyota, “the world’s largest automaker, will recall about 1.9 million Prius vehicles || China land sales pull in record $672bn || Reckitt Benckiser upbeat despite EM turmoil || Markets
Or something like it. We’re not, after all, physicists. Though, feel free to read about the Hubble Bubble theory here. What we probably should be referring to is Hubble’s flow, the rate at which expansion of the universe occurs. All of which is a whimsical way of suggesting that perhaps Larry Summers has a point. Perhaps bubbles are part of our collective universal nature? A phenomenon that should be embraced as an unstoppable physical force, one that will find a way no matter what. The proof is out there if we look hard enough. Latest manifestation: Bitcoin. If we go with that notion, then perhaps inflating asset bubbles one after the other isn’t such a bad idea. Perhaps it’s even necessary?
This guest post is from Larry Brainard, Chief Economist and Co-Founder of Trusted Sources, an independent advisory firm specialising in emerging market macroeconomic and policy research. ………. The continuing debate about the timing of Fed tapering has overshadowed two developing issues that have important implications for EMs in 2014. The first is the reappearance of deflation in the Eurozone and the other is the suggestion by former Treasury Secretary Larry Summers that the US economy is slipping into secular stagnation.
Federal Reserve considering a one year delay to Volcker rule || NYSE and Nasdaq plan to back up one another’s data streams || Treasury arm gets earful from asset managers || Barclays warns of more UK branch closures || Edmond de Rothschild is set to launch a London-based merchant banking business || Directors’ pay at the UK’s biggest quoted companies has risen 14 per cent over the past year || Thousands of UK construction workers offered compensation || Aberdeen Asset Management is set to buy Scottish Widows Investment Partnership || Markets
Markets: Asian bourses continued their ascent on the prospect of extended monetary stimulus in the US. Investors have been closely watching testimony from Janet Yellen, the nominee for chairman of the Federal Reserve, who has so far stuck to the view the central bank would tie policy changes to underlying improvement in the US economy. (Financial Times) Seven highlights from the Yellen hearing (Financial Times)
Markets: The continued government shutdown in Washington remained the overarching story, with Asia Pacific markets generally lower despite some small momentum from Wall Street, where equities broke a two-day losing streak. (Financial Times)
Markets: The dollar weakened against all its major peers while Asian stocks climbed with U.S. index and Treasury futures as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons. (Bloomberg) (Financial Times) Today: EU: CPI, US: Industrial Production; NY Fed Empire Manufacturing Survey for September
Despite the best efforts of White House insiders, the backlash against the candidacy of Larry Summers to be the next Fed chair proved too much to overcome. From the scoop by David Wessell of the Wall Street Journal:
Optimism grows for developed economies || Summers would face key ‘no’ votes for Fed || IMF warns Norway over housing bubble || UK interest rate expectations rise || ICAP in talks to settle US, UK rate probe || Apple probes work conditions at China factory || Blockbuster Verizon bond sale to test debt appetite || Watchdog launches Batista investigation || Yuan volatility decreases || Trading in yen soars || Markets
Markets: Asian stocks fell, snapping a six-day rally, and the yen strengthened before US jobs data that may signal whether the Federal Reserve will pare stimulus. Ten-year Australian bond yields climbed, while copper advanced. (Bloomberg) (Financial Times) Today: Europe: German IP, UK IP. US: Non-farm payrolls.
White House wants pushover bubble-watching Fed chair who would be fun to have a beer with during a crisis
That’s our exaggerated (but not too much) reaction to reading Neil Irwin’s column on the reasons that White House insiders are uneasy with Janet Yellen as Fed chair. Roughly, the reasons are that she has demonstrated an independent streak in her role as Fed vice chair, is big on preparation and prefers deliberate thinking to a “manic” problem-solving approach, and is more worried about unemployment right now than about fighting asset bubbles.
FT markets round-up: “Financial markets adopted a broadly cautious tone as a big week in terms of central bank meetings and economic data releases got under way. The Federal Reserve, the European Central Bank and the Bank of England are all scheduled to unveil policy decisions this week while a heavy schedule of global macro data will culminate on Friday with July’s all-important US non-farm payrolls report.” (Financial Times) Publicis and Omnicom face hard sell: “Investors have given a lukewarm reaction to the proposed $35bn merger of Publicis and Omnicom, as the creation of a new Franco-US leader of the global advertising and marketing industry faced scrutiny from clients, regulators, rivals and analysts. The unexpected combination of the industry’s second and third largest companies by revenue, with a promised $500m of annual synergy benefits after five years but no premium for either company’s shareholders, left shares in Publicis up only 0.25 per cent at €59.50 as trading closed in Paris. Omnicom shares closed 0.55 per cent lower at $64.75 in New York.” (Financial Times)
The FT’s Robin Harding with the scoop: Lawrence Summers made dismissive remarks about the effectiveness of quantitative easing at a conference in April, raising the possibility of a big shift in US monetary policy if he becomes chairman of the Federal Reserve.
Larry Summers has his haters, and Tuesday’s report from Ezra Klein that Summers is now the frontrunner to replace Ben Bernanke as the next Fed chair has doubtless set them off. On this particular issue, I’m not really one of them. Some of the mistakes of his past, such as his role in deregulating derivatives (the Brooksley Born episode) or the Harvard interest rate blowup, don’t really tell us much about his capacity to guide macroeconomic stabilisation policy.
Last September, after announcing open-ended asset purchases and making his first strong commitment to allowing above-target inflation (and keeping monetary policy accomodative) even after the economy strengthens, Ben Bernanke made an interesting point about the Fed’s credibility to make such a future promise. It was about the fact that the voting membership of the FOMC changes over time:
Bernanke sees 2014 end for QE3 || Chinese manufacturing activity slumped further in June || Chinese interbank rates spiked again, to their highest level since 2006 || Eurozone PMI improvemet || Rupee hits all-time low after Bernanke comments || UK bank capital hole || The UK government will launch an “urgent investigation” into creating a bad bank from RBS’s toxic assets || The Treasury is also “actively considering options” for how to begin selling its Lloyds shares || Sony will study Third Point’s proposal || Microsoft recently came close to buying Nokia’s handset business || The UK’s Financial Conduct Authority has begun to vet senior appointments to hedge funds || Markets wrap || FTAV’s latest
FURTHER FURTHER READING - The question before the court. - Ben Bernanke came out guns blazing today. - The death of print has been greatly exaggerated. - Wall Street’s lawfare strategy against regulation.
China & Eurozone PMIs disappoint || Europe hits political limits for austerity, says EC president || EU warns on US bank ‘protectionism’ || Twitter signs biggest ever ads deal || Share of US oil imports from top suppliers rises || Tie-up in tertiary education in Brazil || Netflix beats forecasts || News Corp to reap payout on settlement || Walmart’s audit committee pay boost || Italian president warns of political deadlock || Market update
Asian stocks fall || China flash PMIs for April disappoint || EU austerity at limits, says Barroso || EU warns US on bank capital rules || S&P says Japan downgrade risk rises || News Corp to win up to $139m over settlement || How much will a weak yen help Japan?
During the presser following last June’s FOMC meeting, Ben Bernanke cautioned that another round of QE shouldn’t be undertaken lightly because it may have “various costs and risks associated with it with respect to market functioning, with respect to financial stability, with respect to the exit process”. The next round was launched in September, of course — after (though certainly not just because of) Fed staff economists presented an analysis to the FOMC concluding that there was “substantial capacity for additional purchases without disrupting market functioning”.
Neil Irwin of Wonkblog has an excellent preview of what to expect when the Fed releases the transcripts from the 2007 FOMC meetings. (The Fed doesn’t say in advance when they’ll be posted, but we’re expecting them anytime now, possibly even today.)
Obama warns Republicans on debt limit || Amplats outlines radical SA overhaul || Slowing German economic growth || JPMorgan under fire for ‘whale’ errors || HMV calls in the administrators || Westminster hits at Goldman Sachs bonus plan || Junk bond prices point to return of bulls || Demand fears bruise Apple’s share price || Markets: mixed but erring on the soft side
ROUND-UP FT markets round-up:“Wall Street settled flat and global stocks surged towards 16-month highs, with the dollar under pressure and US bond yields at their highs for the session. The FTSE All-World equity index was up 0.3 per cent to 222.58 as Wall Street closed, only fractionally short of its best closing level since July 2011. The US S&P 500 ended fractionally higher. Traders reversed an early rise of 0.75 per cent as Ben Bernanke, the Fed chairman, held a press conference to discuss the central bank’s latest decision, but while stocks had threatened to end in the red, a late bounce left the index at 1428.48, up 0.64.” (Financial Times)
NY lawsuit filed against JP Morgan over Bear Stearns MBS: New York Attorney General Eric Schneiderman filed a civil fraud lawsuit against JPMorgan on Monday over mortgage-backed securities packaged and sold by Bear Stearns, which JP Morgan bought in March 2008. The suit seeks unspecified damages and cites $22.5bn of losses were suffered by investors. It is the first action to come out of a working group created by President Barack Obama earlier this year to go after wrongdoing that led to the financial crisis. JP Morgan in a statement it would contest the allegations. Schneiderman’s office said: “We intend to follow up with similar actions against other sponsors and underwriters.” (Financial Times)(Reuters)(Wall Street Journal) EU report will call for bank bonuses to be paid in debt: The Liikanen commission, an independent review set up almost a year ago by EU commissioner Michel Barnier, will on Tuesday recommend reforms for long-term pay incentives as well as advocating ringfencing trading activities to make big banks safer. Some of the panel’s most radical measures have been toned down and Barnier will decide whether any of the proposals will be included in his reforms. (Financial Times)