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244 matches for " banks":
All seven of Britain's major banks passed the Bank of England's stress test this year, in the first clean sweep since the annual test began in 2014.
This weeks' IMF's staff report on the Italian economy has increased the urgency for a compromise between the EU and Italy over the country's suffering banks. The report highlighted that financial sector reform is "critical" to the economy, and that the treatment of the significant portion of retail investors in banks' debt structure should be dealt with "appropriately."
Inflation in most economies in LatAm is well under control, allowing central banks to keep a dovish bias, and giving them room for further rate cuts.
The resilience of the U.K. financial system will be in focus this week. On Tuesday, the Bank of England's Prudential Regulation Authority, the PRA, will publish the results of stress tests of the U.K.'s seven largest banks. Concurrently, the Bank's Financial Policy Committee, the FPC, will publish its semi-annual Financial Stability Report and announce whether it will deploy any of its macroprudential tools.
Economists refer to two different types of forward rate guidance by central banks: Delphic and Odyssean. The former describes a "normal" situation, in which the central bank follows a transparent rate-setting rule allowing markets to forecast what it will do, based on the flow of economic data.
The strengthening recovery in the euro area is proving to be a poisoned chalice for some of the region's most vulnerable banks. Earlier this month-- see our Monitor of June 8--Spain's Banco Populare was acquired by Banco Santander, and the bank's equity and junior credit holders were bailed-in as part of the deal.
We repeatedly have highlighted Japanese banks' foreign activities as source of rising risk for Japan and the global financial system.
The Fed rate hike on Wednesday is fully priced in to LatAm markets, so we expect no significant immediate reaction when the trigger is pulled. But as markets gradually come around to our view that future U.S. rate risk is to the upside, markets will come under renewed pressure.
PPI inflation in Asia looks set to go from bad to worse, following June's poor numbers, which showed that the weakness in commodity prices is feeding through quicker than expected.
Turkey has all the problems you don't want to see in an emerging market when the U.S. is raising interest rates.
Inflation in Mexico edged higher in the second half, but we expect both the headline and core rates to continue falling, allowing Banxico to keep interest rates on hold.
The resilience of the banking system will be in focus today when the results of this year's Bank of England stress test are published alongside its Financial Stability Report.
It's probably happening a decade too late, but the EU is now moving in leaps and bounds to restructure the continent's weakest banks. Yesterday, the Monte dei Paschi saga reached an interim conclusion when the Commission agreed to allow the Italian government to take a 70% stake in the ailing lender.
Bloomberg reported on Monday that the PBoC is drafting a package of reforms to give foreign investors greater access to the China's financial services sector. This could involve allowing foreign institutions to control their local joint ventures and raising the 25% ceiling on foreign ownership of Chinese banks.
LatAm markets and central banks have been paying close attention to developments in the U.S. The FOMC left rates on hold on Wednesday, as expected, but underscored its core view that inflation will rise in the medium-term, requiring gradual increases in the fed funds rate.
The main measure of public borrowing--PSNB excluding public sector banks--came in at £2.6B in December, well below the £5.1B in December 2016 and lower than in any other December since 2000.
Mortgage approvals by the main high street banks rose to a four-month high of 39.7K in October, from 38.7K in September, according to trade body U.K. Finance.
Major central banks in Asia, particularly those operating in export-oriented economies, have recently been pinning their future policy moves on the prospects of a specific industry, namely semiconductors.
March's public sector borrowing figures brought more signs that the economy has lost considerable momentum this year. Borrowing, on the PSNB excluding public sector banks measure, came in at £5.1B in March, up slightly from £4.3B in March 2016.
In the financial crisis, a squeeze in short-term dollar markets forced banks to sell assets, which were then exposed as soured.
The two major central banks in Asia currently have hugely different aims, causing a policy divergence that won't survive the 2018 rise in external yields.
Inflation pressures remain under control in most LatAm economies, allowing central banks to keep interest rates on hold, despite the challenging external environment.
Over the weekend, the PBoC cut the RRR for the vast majority of banks. FX reserves data released shortly after suggested that the Bank already is propping up the currency.
LatAm markets reacted relatively well to the Fed's rate hike on Wednesday, which was largely priced-in. The markets' cool-headed reaction bodes well for Latam central banks. But it doesn't mean that the region is risk-free, especially as Mr. Trump's inauguration day draws near.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
The Fed's insistence this week that U.S. rates will rise only twice more this year helped to ease pressures on LatAm markets this week, particularly FX. The way is now clear for some LatAm central banks to cut interest rates rapidly over the coming months, even before U.S. fiscal and trade policy becomes clear. We expect the next Fed rate hike to come in June, as the labor market continues to tighten. If we're right, the free-risk window for LatAm rate cuts is relatively short.
Yesterday's ECB press conference confirmed our view that Mr. Draghi is the periphery's friend, not enemy. Crucially, the central bank agreed to increase emergency liquidity assistance--ELA--to Greek banks by €900M. This is consistent tent with the agreement by the Eurogroup to give Greece €7B bridge financing, and shows the ECB is ready to act on the back of only a temporary truce between Greece and the EU. The increase in ELA is modest, and we doubt a painful restructuring of the banking system can be avoided. But with Greek bond yields falling, the available pool of collateral will go up, allowing the central bank to provide further relief in coming weeks.
Most central banks in LatAm have ended the year in a relatively comfortable position; their economies are improving and inflation is under control or even falling.
Rising inflation is pressuring some LatAm central banks to take a cautious stance at a time when growth is subpar, particularly in the two biggest economies of the region.
Central banks in Chile, Peru, and Mexico hogged the market spotlight last week. Chile left its main interest rate at 3.0% on Thursday, for the fourth consecutive meeting.
The MPC's asserted its independence in the minutes of December's meeting, firmly stating that there is "no mechanical link between UK policy and those of other central banks". Markets have interpreted this as supporting their view that the MPC won't be rushed into raising interest rates by the Fed's actions. Investors now expect a nine-month gap between the Fed hike we anticipate next week, and the first move in the U.K.
The Bank of England's stress tests highlighted that banks have made further progress in strengthening their balance sheets over the last year. But while banks have retreated from taking risk onto their balance sheets, others have stepped in to fill the void.
Chief U.K. Economist Samuel Tombs on U.K. Mortgage approvals
Investors think it more likely that the MPC will cut Bank Rate in the first half of next year, following Friday's release of the flash Markit/CIPS PMIs for November.
As we write, the Commons appears to be on the verge of voting for the Withdrawal Agreement Bill--WAB--at its second reading but then voting against the government's "Programme Motion", which sets out a very tight timetable for its passage through parliament, in a bid to meet the October 31 deadline and to minimise parliamentary scrutiny.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
German 10-year yields have been trading according to a simple rule of thumb since 2017, namely, anything around 0.6% has been a buy, and 0.2%, or below, has been a sell.
Yesterday's public finance figures brought more good news for the Chancellor.
Data on Friday showed that German producer price inflation is now in free-fall.
Advance PMI data indicate a slow start to the first quarter for the Eurozone economy. The composite index fell to 53.5 in January from 54.3 in December, due to weakness in both services and manufacturing. The correlation between month-to-month changes in the PMI and MSCI EU ex-UK is a decent 0.4, and we can't rule out the ide a that the horrible equity market performance has dented sentiment. The sudden swoon in markets, however, has also led to fears of an imminent recession. But it would be a major overreaction to extrapolate three weeks' worth of price action in equities to the real economy.
Public borrowing has continued to fall more rapidly than anticipated in the latest official plans.
The headline in yesterday's ECB Q2 bank lending survey seemed almost tailor-made for the central bank to deliver a dovish message to markets this week.
Today's ECB meeting will mainly be a victory lap for Mr. Draghi--it is the president's last meeting before Ms. Lagarde takes over--rather than the scene of any major new policy decisions.
July's mortgage approvals data from the BBA brought clear evidence that households have held off making major financial commitments as a result of the Brexit vote. Following a 5% month-to-month fall in June, approvals fell a further 5.3% in July, leaving them at their lowest level since January 2015 and down 19% year-over-year.
Our base case remains that the slowdown in quarter-on-quarter GDP growth to about zero in Q2 is just a blip, and that the economy will regain momentum in Q3 and sustain it well into 2020.
December's public finance figures suggest that borrowing is on track to come in a bit below the forecasts set out in the Autumn Statement in November. But we caution against expecting the Chancellor to unveil a material reduction in the scale of the fiscal consolidation set to hit the economy in his Budget on 8th March.
The ECB will deliver a carbon copy of its December meeting today, at least in terms of the main headlines.
The PM now is at a fork in the road and will have to decide in the coming days whether to risk all and seek a general election, or restart the process of trying to get the Withdrawal Agreement Bill--WAB--through parliament.
Bond markets didn't panic when the ECB announced its intention further to reduce the pace of QE this year, to €30B per month from €60B in 2017.
As widely expected, the ECB held fire yesterday. The central bank left its main refi rate unchanged at zero, and also kept the pace of QE unchanged at €80B a month. The deposit and marginal lending facility rates were also left unchanged at -0.4% and 0.25% respectively. The formal end-date of QE is still Q1 2017, but the press release repeated the message that QE can continue "beyond [Q1 2017], if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim."
The PBoC late on Wednesday announced measures to provide medium-term funding for smaller businesses.
The BoJ held firm, for the most part, during this year's bout of central bank dovishness.
The BoJ yesterday published its semi-annual Financial System Report, which often gives insights into the longer-term thinking driving BoJ policy.
We would be astonished if the FOMC meeting starting today does not end with a 25bp rate hike.
The Eurozone's external surplus rebounded slightly at the start of Q3.
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.50%.
The big question left by the BoJ at yesterday's meeting is how, if at all, they will follow up in October.
GDP growth currently is subdued by historical standards, but at least it is not debt-fuelled.
Opinion polls suggest that the Italian population will reject Prime Minister Matteo Renzi's constitutional reform on Sunday. Undecided voters could still swing it in favour of Mr. Renzi, but the "No" votes have led the "Yes" votes by a steady margin of about 52% to 48% since October.
From a macroeconomic perspective, the main shift in the ECB's policy stance last week was the change in forward guidance.
Economic data released on Wednesday underscored that Brazil was struggling at the end of the first quarter, strengthening our case that Q1 GDP fell 0.2% quarter-on-quarter, the first contraction since Q4 2016.
The Andean economies have been punished with high inflation triggered by currency depreciation and El Niño. Under these circumstances, Peru's central bank, the BCRP, admitted defeat yet again in the face of these temporary inflationary effects, increasing interest rates by 25bp to 4.0% last Thursday, the third hike in five months. Inflation in Peru remains stubbornly high, climbing to 4.4% year-over-year in December from 4.2% in November, and the upside risks remain elevated.
At the end of last year, after October's Party Congress, the Chinese authorities came out with significant new directives and regulations on an almost weekly basis.
The PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
The half-way point of the quarter is not, alas, the half-way point of the data flow for the quarter.
August inflation surprised to the downside across most of LatAm, as food price surges proved transitory, and the lagged effect of the FX depreciations last year faded. Brazil appeared to be the exception last month, but the underlying trend in inflation is downwards.
The Andean economies haven't been immune to the turmoil roiling the global economy in the past few weeks.
Growth in South America disappointed last year, but prospects are gradually improving on the back of rising commodity prices and the global manufacturing rebound. These factors will help to ease the region's external and fiscal vulnerabilities, particularly over the second half of the year. On the domestic front, though, the first quarter has proved challenging for some countries, hit by temporary supply factors such as a mine strikes, floods, and wildfires.
When you read between the lines of its public statements on Brexit, the Government appears to be prioritising controlling immigration over maintaining unfettered access to the single market, much to the chagrin of the financial sector.
So much has changed in China over the last six months that we are taking the opportunity in this Monitor to step back and gain an overview of where the economy is going in the long term.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
The EU Commission and Italy's government remain at loggerheads over the country's fiscal plans next year.
The euro area's record-high external surplus has prompted commentators to suggest that the zone has room to loosen fiscal policy to support growth, or at least relax the deficit reduction rules.
LatAm's economies are gradually rebounding, boosted by easier monetary policy in most countries, falling inflation, and a relatively calm external backdrop.
In recent client meetings the first and last topic of conversation has been the market implications of the possible departure of President Trump from office.
China's Loan Prime Rate was unchanged this month, at 4.15%, with consensus once again expecting a reduction to 4.10%.
With a no-deal Brexit still a potential outcome and just over five weeks to go until the U.K. is scheduled to leave, it's about time we put some numbers on how high inflation could get in this worst-case scenario.
The Brazilian Central Bank's policy board, COPOM, left the Selic rate at 6.50% on Wednesday, as widely expected.
The year so far in EZ equities has been just as odd as in the global market as a whole.
The government now has a 50:50 chance of getting the Withdrawal Agreement Bill--WAB--through parliament in the coming weeks, despite Letwin's successful amendment and the extension request.
Japanese trade remained in the doldrums in October, keeping policymakers on their toes as they repeat the refrain of "resilient" domestic demand.
Sterling briefly touched $1.30 yesterday, in response to signs that a very small majority in the Commons stands ready to vote for an unamended version of the Withdrawal Agreement Bill--WAB-- on Tuesday.
Political uncertainty is starting to dampen housing market activity again.
January's money supply figures continued the nerve-jangling flow of data on the economy's momentum.
Growth in the broad money supply slowed further in September, providing more evidence that the economy is losing momentum.
We remain optimistic on the scope for sterling to appreciate this year, reflecting our views that a deal for a soft Brexit will be reached soon and that the MPC will resume its tightening cycle later this year.
The economic recovery disappointed in Chile during most of the first half of the year, despite relatively healthy fundamentals, including low interest rates, low inflation and stable financial metrics.
In principle, predicting the interest rate policies of an inflation-targeting central bank should be simple. Our first chart shows a standard Taylor Rule rate for the Eurozone based on the ECB's inflation target of 2%, the long-run average unemployment rate and a long run "equilibrium interest rate" of 1.5%. This framework historically has been a decent guide to ECB policy.
Our Chief Eurozone Economist, Claus Vistesen, is covering the Italian situation in detail in his daily Monitor but it's worth summarizing the key points for U.S. investors here.
December's money and credit figures suggest that households are in no fit state to step up and drive the economy forwards this year.
Modern Money Theory has come up at two consecutive BoJ press conferences.
News that the U.K.'s departure from the E.U. has been delayed by six months, unless MPs ratify the existing deal sooner, appears to have done little to revive confidence among businesses.
Investors have concluded that Italy's political crisis will compel the U.K. MPC to increase interest rates even more gradually than they thought previously.
Chinese industrial profits continue to surge, rising 27.7% year-over-year in September, up from 24.0% in August.
We are not concerned by the very modest tightening in business lending standards reported in the Fed's quarterly survey of senior loan officers, published on Monday.
November's monetary indicators provide an upbeat rebuttal to the swathe of downbeat business surveys. Year-over-year growth in the MPC's preferred measure of broad money--M4 excluding intermediate other financial corporations--rose to a 19-month high of 4.0% in November, from 3.5% in October.
Mr. Draghi and his colleagues erred on the side of maximum dovishness yesterday.
House prices continue to struggle for momentum, instilling caution among households. Admittedly, Halifax reported yesterday that its index jumped by 1.5% month-to-month in May.
Evidence that households are not benefiting much from the Monetary Policy Committee's easing measures mounted yesterday, after the release of August data on advertised borrowing rates. Our first chart shows the drop in swap rates and average quoted mortgage rates since the end of last year.
Andean inflation remains under control, due to subpar growth, modest pressures on prices for nontradeables, and broadly stable currencies.
The headline changes in yesterday's ECB policy announcement were largely as expected. The central bank left its main refinancing and deposit rates unchanged at 0.00% and -0.4% respectively, and maintained the pace of QE at €60B per month. The central bank also delivered the two expected changes to its introductory statement. The reference to "lower levels" was removed from the forward guidance on rates, signalling that the ECB does not expect that rates will be lowered anytime soon.
In the midst of heightened and potentially longerlasting Brexit uncertainty, the MPC revised down its forecast for GDP growth sharply yesterday and came close to endorsing investors' view that the chances of a 25bp rate hike before the end of this year have slipped to 50:50.
One bad month proves nothing, but our first chart shows that October's auto sales numbers were awful, dropping unexpectedly to a six-month low.
Recent data have confirmed that growth in the Andean economies--Colombia, Chile and Peru--faced downward pressure in Q1, but some leading indicators and recent hard data suggest that we should expect better news ahead.
The PBoC finally moved yesterday, cutting its one-year MLF rate by 5bp to 3.25%, whilst replacing around RMB 400B of maturing loans.
A growing number of economists have marked down their forecasts for Chinese growth next year to below the critical 6% year-over-year rate, required to ensure that the authorities meet their implicit medium- term growth targets.
In some sense, today's ECB meeting will be a sobering one for policymakers.
Last week's balance of payments showed that the U.K. has made significant progress in reducing its reliance on overseas finance.
Last week's national accounts confirmed that the economy lost momentum abruptly in Q1, with net trade and investment failing to offset weaker growth in households' spending.
Friday's advance Eurozone PMI reports capped a fine quarter for the survey. The composite PMI jumped to a 80-month high of 56.7 in March, from 56.1 in February, rising to a cyclical high over Q1 as a whole.
The U.K.'s political situation is extremely fluid, so it would be risky automatically to assume that the U.K. is heading for Brexit. Although the Prime Minister has resigned, his attempt to hold out until October to begin the formal process of exiting the E.U. signals that he may be seeking to engineer a revised deal, or at least to force his successor to make the momentous decision of whether to trigger Article 50, to begin the leaving process.
Yesterday's figures from trade body U.K. Finance showed that January's pick-up in mortgage approvals was just a blip.
The Eurozone's sovereign bond markets are dying, and this is a good thing, by and large.
Since the Party Congress last month, China has made a number of bold moves in multiple policy fields, with a regularity that almost implies the authorities are working through a list.
Data from trade body U.K. Finance show that mortgage lending has remained unyielding in the face of heightened economic and political uncertainty.
Speculation has grown that the Bank of England will announce measures today to calm the recent strong growth in consumer credit, when it publishes its bi-annual Financial Stability Report.
The Conservatives have continued to gain ground over the last week, with support averaging 43% across the 13 opinion polls conducted last week, up from 41% in the previous week.
After the disruption in repo markets last week, theories are flying as to what's going on.
Eurozone bond traders of a bearish persuasion are finding it difficult to make their mark ahead of Italy's parliamentary elections next weekend.
The strengthening EZ economy increasingly looks like the tide that lifts all boats. The Greek economy is still a laggard, but recent news hints at a brightening outlook. Last week, S&P affirmed the country's debt rating, but revised the outlook to "positive" from "stable."
Figures yesterday from U.K. Finance--the new trade body that has subsumed the British Bankers' Association--showed that the mortgage market recovered over the summer.
The deadline for registering to vote in the general election passed on Tuesday, with a record 660K people registering on the final day.
The Brazilian Central Bank's policy board--the Copom--met expectations on Wednesday, voting unanimously to keep the Selic rate on hold at 6.50%.
Korean trade ended the year strongly, salvaging what was shaping up as a dull fourth quarter for the economy.
The data in LatAm were all over the map while we were out.
The U.K.'s balance of payments leaves little room for doubt that sterling would sink like a stone in the event of a no-deal Brexit.
Money supply growth in the Eurozone quickened last month, by 0.3 percentage points to 3.9% year- over-year, but the details were less upbeat.
Brazil's current account deficit rose to USD6.9B in April, from USD5.8B in March. The deficit totaled USD100.2B, or 4.5% of GDP on a 12-month rolling basis, marginally better than 4.6% in March; the underlying trend is flat. The services and income accounts improved slightly compared to April last year.
MPs will be asked today to approve the PM's motion, proposed in accordance with the Fixed-term Parliaments Act--FTPA--to hold a general election on December 12.
Money supply growth in the Eurozone firmed last month. Broad money--M3--rose 5.0% year-overyear in August, after a tepid 4.5% rise in July.
A long period of extremely accommodative U.S. monetary policy generated sizable capital inflows and asset price appreciation in EM countries.
Industrial profits in China dropped 3.7% year-over- year in April, after surging 13.9% in March, according to the officially reported data.
In yesterday's Monitor, we suggested that China's monetary policy stance is now easing.
Markets are becoming more sensitive to rumours about changes in ECB policy. The euro and yields jumped on Friday after a Bloomberg report that the central bank has discussed raising rates before QE ends.
Two years ago markets believed that the institutional setup of the Eurozone would be a straitjacket on the ECB, preventing QE. Aggressive policy actions since then have proven this hypothesis wrong. But inflation remains low and sentiment data weakened ominously in the first quarter.
Japan's official seasonally adjusted current account surplus rose to ¥2.27T in August from ¥2.03T in July. But we don't trust the seasonals, and our adjustment model shows the surplus fell slightly, to ¥1.91T in August. A further small decline likely is coming in Q4.
The MPC went against the grain last month by forecasting that CPI inflation would overshoot the 2% target if it raised Bank Rate as slowly as markets anticipated.
The recent FX depreciation and falling oil prices are driving the dynamics of inflation across the Andean economies.
Investors in euro-denominated corporate debt will be listening closely to Mr. Draghi this week for hints on how the ECB intends to balance QE between public and private debt next year.
Central bankers globally are full of market- appeasing but conditional statements.
China's money and credit numbers were once again unspectacular in August. M2 growth edged up to 8.2% year-over-year, from 8.1% in July.
Last week, the Chinese authorities were out in force, talking up the economy and markets, and bearing measures to support private firms.
Emmanuel Macron's victory in France has lifted investors' hopes that the good times in the Eurozone economy and equity markets are here to stay. On the face of it, we share markets' optimism. Mr. Macron and his opposite number in Germany--our base case is that Ms. Merkel will remain Chancellor--will form a strong pro-EU axis in the core of the Eurozone.
The ECB made no changes to its policy stance yesterday.
We think Japanese monetary policy easing essentially is tapped out, both theoretically and by political constraints.
Final Italian Q4 GDP data on Friday confirmed that the economy stumbled at the year-end. Real GDP rose 0.1% quarter-on-quarter in Q4, slowing from 0.2% in Q3, in line with the initial es timate. But the details were better than the headline. Inventories shaved off a hefty 0.4 percentage points, reversing boosts in Q3 and Q2, so final demand rose a robust 0.5%. Consumption added 0.2pp, while public spending contributed 0.1pp.
Economic theory tells us that government spending should be counter-cyclical, but recent experience in the Eurozone tells a slightly different story. The contribution to GDP growth from government spending rose during the boom from 2004 to 2007, and remained expansionary as the economy fell off the cliff in 2008. As the economy slowed again following the initial recovery, the sovereign debt crisis hit, driving a severe pro-cyclical fiscal hit to the economy.
To avoid rocking the 2020 boat, the Phase One trade deal needed to be sufficiently vague, so that neither side, and particularly Mr. Trump, would have much cause to kick up a fuss around missed targets.
The Eurozone's TARGET2 system is a clearing mechanism for the real-time settling of large payments between European financial intermediaries. It's an important piece of financial architecture, ensuring the smooth flow of transactions. But we struggle to see these flows containing much information for the economy.
Economic survey data have been upbeat recently, but key Eurozone data releases yesterday suggest the ECB will be under pressure to increase monetary policy stimulus further this month. The advance inflation estimate showed that the euro area slipped back into deflation in September, as inflation fell to -0.1% year-over- year, from +0.1% in August. The fall was mainly due to a 8.9% collapse in energy prices, though, and we are very confident the relapse is temporary.
Brazilian inflation hit its lowest rate in almost seven years in March, while Mexico's rate is the highest since July 2009. Yet we expect Mexico to tighten policy only modestly in the near term, while Brazil will ease rapidly.
The U.K.'s still-large current account deficit makes us nervous that sterling will need to depreciate further over the medium-term and would collapse if Brexit talks fail, causing international investors to take flight.
The first round of Brazil's presidential elections will take place this Sunday, followed by a probable runoff on October 28.
Today's ECB meeting is supposed to be a slam-dunk.
On the face of it, small business have taken quite a hit over the past few months. The headline index from the NFIB survey of small businesses has dropped to a nine-month low of 95.2 in March from 100.4 in December. As a result, the gap between the NFIB and the ISM manufacturing indexes, which had been narrowing, has widened again.
Yesterday's second batch of Q3 GDP data in the euro area provided further evidence of a strong and stable cyclical upturn in the economy.
The EZ government bond market has been in a holding pattern for most of 2017. The euro area 10- year yield--German and French benchmark--is little changed from a year ago, though it is at the lower end of its range.
The PBoC has left rates unchanged, so far, in the wake of the Fed hike.
Eurozone investors should by now be accustomed to direct intervention in private financial markets by policymakers.
A bad year is threatening to become a catastrophic one for Eurozone equity investors.
Equities in the Eurozone are off to a strong start in Q2, building on their punchy 12% gain in the first quarter.
Chinese monetary policymakers can rely on several different instruments to affect market and broad liquidity, ranging from various forms of open market operations to interest rates to FX intervention. The tool kit is constantly changing as the PBoC refines its operations.
The Chinese authorities have been out in force in the last few days, aiming to reassure markets and the populace that they are ready and able to support the economy, after abysmal trade data on Monday.
Japanese M2 growth slowed sharply in December, to 3.6% year-over-year, from 4.0% in November, with M3 growth weakening similarly. It is tempting to ask if the BoJ's stealth taper finally is damaging broad money growth.
Negotiations between the Italian government and the EU on how to fix the problem of non-performing loans in the banking sector have been predictably slow. Earlier this year the government announced that it will provide a first-loss guarantee on securitised loans sold to private investors.
Markets initially objected to last week's ECB package, but the tune has since changed. The decision to focus on direct credit easing to the domestic economy, via more attractive TLTROs and corporate bond purchases--rather than by lowering rates further--is now seen by many analysts as a stroke of genius.
Many analysts argue that the MPC inevitably will raise interest rates at its May 10 meeting because markets have fully priced-in a 25bp uplift.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
Japan's tertiary index fell further in December,by 0.3% month-on-month, after the downwardly- revised 0.4% drop in November.
One of the main conclusions we drew from last week's ECB meeting was that the QE program is here to stay for a while. If the economy improves, the central bank could reduce the pace of purchases further. But we struggle to come up with a forecast for growth and inflation next year that would allow the ECB to signal that QE is coming to an end.
Yesterday's economic data in Brazil suggest that retailers suffered in the second quarter, hit by the effect of the truckers' strike, but private consumption remains somewhat resilient.
The benchmark MSCI EU ex-UK equity index was down a startling 17% year-over-year at the end of February. A disappointing policy package from the ECB in December initially put Eurozone equities on the back foot, and the awful start to the year for global risk assets has since piled on the misery.
Korea watchers appear to be hanging on Governor Lee Ju-yeol's every word, searching for any sign that he'll drop his hawkish pursuit of more sustainable household debt levels and prioritise short-term growth concerns.
LatAm economies are being battered by high inflation triggered by currency sell-offs and El Niño supply shocks, so rates have had to rise despite the challenging global environment. Peru's central bank, the BCRP, was forced to increase interest rates by 25bp to 4.25% last Thursday, the fourth hike in six months, as inflation is far above the central bank's 1-to-3% target range.
We look for the Fed to increase rates today by 25bp to a range of 0.25%-to-0.50%. The FOMC will likely say that policy remains very accommodative and that rate hikes will be slow. Unfortunately, this will provide only temporary relief to LatAm. According to our Chief Economist, Ian Shepherdson, faster wage gains next year in the U.S. will disrupt the Fed's intention to move gradually. If wages accelerate as quickly as we expect, the Fed will need to raise rates more rapidly than it currently expects, which is also faster than markets anticipate. That, in turn, will put EM markets and currencies under further pressure.
The Andean economies were in the middle of a perfect storm in the first half of the year, suffering slow recoveries, accelerating inflation and plunging commodity prices and currencies. Under these circumstances it was no surprise that Chile and Peru last week left their main interest rates on hold, close to their lowest levels in four years. The pressure coming from their plummeting currencies, however, means their next moves likely will be rate hikes, but not this year.
This week's Monetary Policy Committee meetings in Chile, Mexico and Colombia look set to dominate market events in LatAm. On Friday, we expect Mexico's Banxico to keep rates on hold at 3.75%, after its unexpected 50bp increase in mid-February. At that time, the board cited growing concerns about financial markets, Mexico's weakened currency, and the country's fiscal situation, as reasons for its move.
Chile's Central Bank left its main interest rate unchanged last week at 3.0%, for the seventh month in a row. The press release maintained its neutral tone, as in previous recent meetings, as the BCCh acknowledged that the economy is growing at a moderate pace, with some indicators suggesting less dynamic growth "at the margin".
The BoJ kept monetary policy unchanged yesterday, as expected, with the signal coming through loud and clear: Japan's central bank will continue its aggressive easing policy until the inflation cows come home...
Interest rate expectations continued to fall sharply last week.
LatAm's growth outlook is deteriorating, despite decent domestic fundamentals and political transitions toward more market-oriented governments in some of the region's main economies.
Inflation appears no longer to be an issue for Mexican policymakers. The annual headline rate slowed to 3.0% year-over-year in February from 3.1% in January, in the middle of the central bank's target range, for the first time since May 2006.
Chile and Peru faced similar growth trends in 2018, namely, a solid first half, followed by a poor second half, particularly Q3.
Recent inflation numbers across LatAm have surprised, in both directions. On the upside, Brazil's IPCA index rose 0.2% month-to-month in September, above the market consensus forecast of 0.1%.
Colombia's August inflation rate exceeded BanRep's 2-to-4% target range yet again, rising to a six-year high of 4.7%, from 4.5% in July. The signs of stabilization over the previous couple of months proved to be temporary. Core inflation has jumped above the upper bound of the inflation target too, climbing to 4.2%--the highest rate since 2009--in August from 4.0% in July, suggesting that the pass-through from the depreciating currency into consumer prices is starting to hurt. Inflation in tradables jumped in August to 5.2% from 4.7%, underscoring the hit from the COP's drop.
The Colombian economy--the star of the previous economic cycle in LatAm--is now slowing significantly, due mostly to strong external headwinds. Exports plunged by 40% year-over-year in January, down from -29% in December, with all of the main categories contracting in the worst performance since 1980.
Last week's data supported our view that monetary policy across LatAm will continue to diverge in the short term. Brazil will have to prolong its monetary tightening cycle, while economies such as Colombia and Chile will remain on hold despite the recent slowdowns in their economic cycle.
Three of the big LatAm economies-- Brazil, Colombia and Chile--released October inflation last week; the data are still showing the pass-through effects of currency depreciation during the first half of the year into prices, though, at different degrees. LatAm currencies have been hit by the weakness in commodity prices and negative sentiment towards EM generally.
China was in lockdown ahead of the 70th Anniversary last week, as is typical around important political events.
EM risk sentiment remains grim as the Trump administration dispenses protectionist trade measures. LatAm's biggest economies, Brazil and Mexico, have been hit the hardest, with their currencies falling 3.3% and 2.2% respectively in the last week, the most in the EM world.
Colombia's peso has been one of the most battered currencies in LatAm this year, due mainly to the sharp fall in oil prices, the country's primary export. The COP has dropped about 23% this year against the USD. At the same time, other temporary factors, most notably the impact of El Niño on food prices, have done a great deal of inflation damage too. October's food prices increased 1.4% month-to-month, pushing the year-over-year rate up to 8.8% from an average of 6.6% in the first half of the year. Overall inflation has jumped to 5.9% in October from 3.8% in January, forcing BanRep's board to act aggressively.
Banxico is one of the few central banks in LatAm to have hiked rates in 2016, and we expect it to remain relatively hawkish in the face of external risks.
We doubt that this week will see the MPC joining the list of other major central banks that have abandoned plans to raise interest rates this year.
Everyone heard San Francisco Fed president Williams's suggestion Monday that central banks could raise their inflation targets in response to the sustained slow growth and lower-than-expected inflation of recent years. It's not clear, though, that markets grasped the scale of the increase he thinks might be appropriate.
Central banks in Chile and Peru kept their reference rates unchanged last week, as expected, as inflation pressures in both countries are starting to ease. But different economic outlooks are emerging. Chile's economy continues to disappoint, while Peru's is picking up. Indeed, Peru is the only country in the region with clear positive momentum.
The MPC is holding its nerve and not about to join other central banks in providing fresh stimulus.
The public finances are in better shape than October's figures suggest in isolation. Public sector net borrowing excluding public sector banks--PSNB ex.--leapt to £11.2B, from £8.9B a year earlier.
Public borrowing continues to falling at a very slow pace, despite the major fiscal consolidation implemented this year. Public sector net borrowing excluding public sector banks--PSNB ex.--was £10.5B in August, only 8.1% less than the £11.5B borrowed a year ago.
The ECB's negative interest rate policy--NIRP--has come under the spotlight following the violent selloff in Eurozone bank equities. Mr. Draghi reassured markets and the EU parliament earlier this week that new regulation, stronger capital buffers, and common recognition of non-performing loans have made Eurozone banks stronger.
Unlike other central banks, the MPC has stuck to its message that "an ongoing tightening of monetary policy over the forecast period" likely will be required to keep inflation close to the 2% target, provided a no-deal Brexit is avoided.
Central banks in Mexico, Colombia and Chile raised interest rates last week in tandem with the Fed, underscoring the almost mystical importance of the FOMC's actions in Latin America. In Colombia and Chile, their decisions were also helped by rising inflation pressures, due mainly to pass-through effects from currency depreciation.
Central banks in Mexico and Colombia kept their main interest rates on hold last week, due to recent volatility in the currency markets. Policymakers acknowledged the downside risks to growth, particularly from low commodity prices, but inflation fears, triggered by currency weakness, mean they will not be able to ease if growth slows.
The big story in financial markets at the moment is the idea that major global central banks are about to embark on a policy easing cycle.
House purchase mortgage approvals by the main street banks jumped to 40.1K in January, from 36.1K in December, fully reversing the 4K fall of the previous two months, according to trade body U.K. Finance.
November's money and credit figures brought welcome news that the recovery in bank lending is strengthening. This revival should continue, now that banks have completed most of the work required to improve their capital positions. But we doubt lending will recover quickly enough to prevent the economic recovery slowing in 2016, as the downward pressure on growth from the fiscal squeeze and the strong pound builds.
British households are back to their old ways and are piling on debt again. With borrowing costs still falling, consumer confidence high and banks willing to lend, indebtedness will only increase unless the Bank of England acts.
Pantheon Macroeconomics Founder and Chief Economist Ian Shepherdson discusses his outlook for the economy, equities and European banks. He speaks on "Bloomberg Surveillance."
The two major central banks of Asia have chosen hugely divergent policies. The BoJ has chosen to fix interest rates, while the PBoC appears set on preventing a meaningful depreciation of the currency.
We don't know how Europe will look on Monday. If European officials are to be believed, Greece will either have agreed to bail-out terms to keep it inside the Eurozone, or it will be on its way out. "Deadlines" have come and gone for Greece, but this time really is different, because the banks are bust without further support from the ECB, and that will not be forthcoming without a bail-out deal.
Investors in Eurozone banks continue to face uncertain times, despite the ECB's best efforts to prop up the economy and financial markets via QE. The latest hit to confidence comes from the bail-in of selected senior debt in Portugal's Banco Espirito Santo. When the troubled lender was restructured in mid-2014, the equity and junior debt were left in a "bad" bank--and were virtually wiped out--while the deposits and senior debt went into the "good" bank Novo Banco. Senior debt holders expecting to recoup their money, however, were startled earlier this month by the decision to "re-assign" five selected bonds with total face value of €2B from Novo Banco to the bad bank, in effect wiping out the investors.
Friday's weekly report on the assets and liabilities of U.S. commercial banks will complete the picture or March and, hence, the first quarter. It won't be pretty. With most of the March data already released, a month-to-month decline in lending to commercial and industrial companies of about 0.7% is a done deal. That would be the biggest drop since May 2010, and it would complete a 1% annualized fall for the first quarter, the worst performance since Q3 2010. The year-over-year rate of growth slowed to just 5.0% in Q1, from 8.0% in the fourth quarter and 10.3% in the first quarter of last year.
Inflation in the Andes remains in check and the near term will be benign, suggesting that central banks will remain on hold over the coming months.
With Russia and some other emerging economies now in full panic mode, the financial market story is sharply divided between two narratives. Either the plunge in global energy prices acts as positive catalyst by boosting real incomes and allowing most central banks to run easier monetary policy or it is a sign that risk assets are about to hit a deflationary wall.
Yesterday's public finance figures showed that the public sector, excluding public sector banks, ran a surplus of £0.2B in July, a modest improvement on borrowing of £0.4B a year ago.
On the face of it, the trend in public borrowing deteriorated sharply late last year. In the three months to December, borrowing on the main "PSNB ex ." measure, which excludes banks owned by the public sector, was a trivial £0.3B, or 1.6%, lower than in the same months of 2017.
Multiple factors have shaken LatAm financial markets this week. China's market turmoil, commodity price oscillations, currency volatility, and political mayhem in every corner of the region, have all conspired against markets. But market chaos has also driven some central banks to rethink their monetary policy plans. For EM, in particular for LatAm, the stance of the Federal Reserve is key, given the region's close ties to the U.S., and the dollar.
The mortgage market still is defying gravity. U.K. Finance initially reported yesterday that house purchase mortgage approvals by the main high street banks collapsed to 35.3K in February, from 39.6K in January.
The ECB's statement following the panic on Friday was brief and offered few details. The central bank said that it is closely monitoring markets, and that it is ready to provide additional liquidity in both euros and foreign currency, if needed. It also said that it is in close coordination with other central banks.
LatAm currencies have risen against the USD so far this year, easing the upward pressure on imported good prices and allowing most central banks to cut interest rates. The first direct effects of stronger currencies should be felt by firms which import high-turnover intermediate or final goods.
China is set to ease reserve requirements for banks lending to small businesses. In a statement after the State Council meeting yesterday, Premier Li Keqiang said that commercial banks would receive a cut in their RRR , from 17% currently, based on how much they lend to businesses run by individuals.
The MPC's interest rate cut in August, and the continued willingness of banks to lend, bolstered the housing market immediately after the referendum. But the latest indicators suggest that the market is slowing again, as the financial pressures on households' incomes intensify.
Divergence between central banks and the reach for yield will remain dominant themes for Eurozone fixed income markets next year, but a lot has already been priced in.
July's money and credit figures provided more evidence that firms have become reluctant to invest following the Brexit vote. Lending by U.K. banks to private non-financial companies--PNFCs--rose by just 0.2% month-to-month in July, below the average 0.5% increase of the previous six months.
House purchase mortgage approvals by the main street banks jumped to 40.1K in January, from 36.1K in December, fully reversing the 4K fall of the previous two months, according to trade body U.K. Finance.
The Eurozone is on the brink of its first exit this week after the ECB refused to offer incremental emergency liquidity to Greek banks, forcing the start of bank holiday through July 7--two days after next weekend's referendum--and beginning today. We have no doubt that if the banks were to open, they would soon be bust; bank runs have a habit of accelerating beyond the point of no return very quickly.
Markets are trading like Emmanuel Macron has already moved into the Élysée Palace. Eurozone equities soared at the open yesterday, lead by the French banks, 10-year yields in France plunged, and the euro jumped. This makes sense given the signal from the polls. They were correct in their prediction of Mr. Macron's victory on Sunday, and they have been consistently forecasting that he will comfortably beat Mrs. Le Pen in the runoff.
Progress in reducing the budget deficit has ground to a virtual halt, despite the ongoing fiscal consolidation. Public sector net borrowing excluding public sector banks--PSNB ex.--was £10.6B in September, exceeding the £9.3B borrowed in the same month last year.
The PBoC cut the reserve requirement ratio by 0.5pp for almost all banks on Sunday, effective from July 5th.
Inflation in the biggest economies in the region remains close to cyclical lows, allowing central banks to ease even further over the next few months.
Robust demand in the ECB's final TLTRO auction was the main story in EZ financial markets yesterday. Euro area banks--474 in total-- took up €233.5B in the March TLTRO, well above the consensus forecast €110B. To us, this strong demand is a sign that EZ banks are taking advantage of the TLTROs' incredibly generous conditions.
Mortgage approvals by the main high street banks dropped to a five-month low of 38.5K in September, from 39.2K in August, according to trade body U.K.Finance.
Mortgage approvals by the main high street banks collapsed to 36.1K in December--the lowest level since April 2013--from 39.0K in November, according to trade body U.K. Finance.
House purchase mortgage approvals by the main high street banks continued to recover in June, rising to a nine-month high of 40.5K, from 39.5K in May. June approvals, however, merely matched their postreferendum average, and the chances of a more substantial recovery are slim.
Inflation in Brazil and Mexico is ending Q3 under control, allowing the central banks to keep easing monetary policy.
The Chancellor is likely to announce plans for additional public sector asset sales in today's Autumn Statement, to help arrest the unanticipated rise in the debt-to-GDP ratio this year. But privatisations rarely improve the underlying health of the public finances, partly because assets seldom are sold for their full value. And the Chancellor is running out of viable assets to privatise; the low-hanging, juiciest fruits have already been plucked.
The Federal Reserve kept its options open on Wednesday, signaling that it would not raise short-term interest rates any earlier than June, while leaving unresolved how much longer it might be willing to wait before lifting its benchmark rate from near zero, where the central bank has held it for more than six years
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Pantheon Macroeconomics' Chief Economist Dr. Ian Shepherdson provides unbiased, independent economic intelligence to financial market professionals.
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