The earlier ECB rate announcement came and went just as expected, and without granularity. Much more interesting will be the latest press conference. And if the last one was any indication, sparks will fly: recall that it was in March that "The ECB's Press Corps Realize They Have No Idea What OMT Is: "The Rules Are What They Are" Explains Draghi" - we look forward to FT's Michael Steen posting the same question to the former Goldmanite as it has been a month and... no term sheet, no details, nothing. Other expected questions: the "non-recurring yet blueprint template" nature of Cyprus, what the slowdown in LTRO repayments means, how the ECB will deal with the decelerating economy, and perhaps most importantly: what happens to deposits in other European banks? While we don't expect an actual answer to any of these, if indeed it is the globalist prerogative to accelerate the velocity of money by "spooking" it out of deposits and into circulation by spending or buying stocks, Draghi may have a stunner or two up his sleeve.
With the departure of Goldman's Mark Carney from the Bank of Canada, some were concerned, actually concerned may not be the right word here: delighted may be better, that the northern country is finally free of the tentacles emanating from 200 West. Not so fast. As it turns out Goldman's ambitions vis-a-vis the resource-rich northern country are strong to quite strong, and as the Globe and Mail reports, Bruce Heyman, a Chicago-based Goldman Sachs executive and one of Barack Obama’s top fundraisers, is in final talks to become the next U.S. ambassador to Canada, according to sources. "Mr. Heyman would be the second ambassador to Canada to hail from Chicago, replacing David Jacobson. A person familiar with the selection process confirmed Mr. Heyman was “in the mix,” adding that he has long been an ardent supporter of the U.S. President. However, the source added that the process is not over and no final decision has been made." Uhm, yes it has.
As expected, no changes in any of the three key rates from the ECB.
4 April 2013 - Monetary policy decisions
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.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
More important will be the press conference starting at 8:30 am Eastern, where Draghi will field questions on the ECB's non-intervention in light of the conditions it imposed most recently in Cyprus, the legal term-sheet status of the OMT, the latest relapse into recession by Europe, and more. Note: we said questions, not answers.
- Helicopter QE will never be reversed (Evans-Pritchard)
- Bank of Japan Launches Easing Campaign under new leadership (WSJ)
- Draghi Considers Plan B as Sentiment Dims After Cyprus Fumble (BBG)
- Spain threatened by resurgent credit crunch (FT)
- U.S. Dials Back on Korean Show of Force (WSJ)
- Gillard Urges Aussie Firms to Emulate German Deutschmark Success (BBG)
- Bank watchdog warns on retail branches (FT)
- Xi's Russia visit confirms continuity of ties (China Daily)
- Portuguese Government Survives No-Confidence Vote (WSJ)
- Mortgage rates set for fall, Bank of England survey shows (Telegraph)
- Russia’s bank chief warns on economy (FT)
- Fed member hints at summer slowing of QE3 (FT)
With all three major non-Fed central banks on the tape today, all economic data will be merely "noise" as the market digests what the central-planners' intentions are. The BOJ came and went, and following its substantial balance sheet expansion announcement, which many called "shocking and awing" the USDJPY has pushed higher by 2.5 big figures, although not reaching the 96 levels seen prior to Kuroda's actual announcement. In fact, from this point on there is likely downside as Japan's biggest export competitor, South Korea, has no choice but to join the race to debase which in turn will be JPY-positive. The Bank of England is next, which as expected did nothing moments ago, and will keep doing nothing until Carney joins officially this summer. In some 45 minutes, the ECB headlines will hit the tape where Draghi may bur more likely may not lower deposit rates, and instead will focus on recent deterioration in the economy. None of this will be surprising, and the EUR continues to trade sufficiently weak in line with sub-200DMA levels seen in the past few weeks. What we look forward to the most will be Draghi once again discussing the legal term-sheet details of the ECB's OMT program. His answer will be amusing as there still is no answer, and the OMT is for all intents and purposes the biggest straw man ever conceived by a central bank.
Earlier this morning the BoJ introduced a comprehensive change to its monetary policy framework. The asset purchasing program will be merged with the outright JGB purchase program (rinban), and JGB purchases will be expanded to include all maturities, including 40-year bonds. The pace of JGB purchases by the BoJ will be accelerated to ¥7trn per month from just under ¥4trn currently (on a gross basis), and purchases of ETFs and J-REITs will also be increased. The main operating target for money market operations was changed to a monetary base control (a quantitative index) from the uncollateralized overnight call rate.
As Citi's Todd Elmer notes, today's BoJ outcome looks far closer to 'shock and awe' than disappointment. It appears the BoJ's actions may speak as loud as their words for now - JPY is weakening and the Nikkei is rallying after Kuroda's last shot at a first impression appeared to beat expectations (covering for disappointing macro data - despite six months of jawboning and a 20% devaluation). Expectations, though tough to extract given the range of possible actions, appeared centered on extending maturities of bond purchases, increasing the size (median expectations of around JPY5.2tn per month or 50% higher than in Q1), bringing forward the open-ended nature of the program, and increasing scope to foreign bonds and REITs. In his effort to do "whatever it takes", the BoJ is upping asset purchases, extending the maturity of purchases and merging its asset purchase program; increasing the size to JPY7tn and buy securities out to 40 years. Though no mention of foreign bond-buying was made, and increase in ETFs and REITs is included. They have given themselves a two-year window to achieve the 2% inflation goal - paging Kyle Bass - and ironically, as the news broke Tokyo was hit by a significant earthquake.
Why has the Euro-zone fallen back into recession, and why can't it shake of its seemingly never-ending crisis? Is there light at the end of the tunnel - or is that an approaching train? A walk through the Euro-zone with charts of macro-economic data reveals the crisis is far from over. Instead, most trends are pointing towards further deterioration - facts as opposed to the hope and anecdote that we are bombarded with on a daily basis. While perusing these charts, consider EU President Barroso's comments just today that, "the worst of the crisis is over." You decide.
As we wait with bated breath for the BoJ news this evening, and while the world stares in jealous amazement at the Japanese stock market's gains and infers that things must be economically awesome in the island nation, the sad depressing truth is - things are worse, much worse, as this series of images from Sanya (or Tokyo's skid row) indicates. The Sanya district in the north-east of Tokyo was taken off the map 40 years ago, but if you can find it you'll discover many of the city's 15,000 homeless people.
A lot of things have gone wrong over the past few years, but the seeds were planted many years ago. In the form of pressure for more people having the “right” to own their properties, even if they did not fulfill the traditional mortgage criteria – hence subprime. In the form of enormous “entitlements” to not just poor, but also middle-class people in the welfare states – hence ballooning deficits and debt. In the form of a Euro, a grand, political project with no practical foundation – hence crisis after crisis, with the dominoes stretching far into the distance. For sure, a lot of financial institutions took advantage of the hands they were dealt. They are not without guilt and responsibility for the current mess. But the real problems lie not in people trying to take advantage of whatever conditions they operate under. The real problem lies in the framework that is created by politicians, preventing free markets to deal with excesses in the way capitalism always does. Cyprus is a very good example of this. The problem is not Cyprus. The problem is the Euro.
After months of posturing, promising, prevaricating, and proclaiming; the time is rapidly upon us where the central planner of the world will have to actually make actions rather than words. As SocGen notes, Central Bank decisions at the BoJ, ECB and BoE will take centre stage tonight/tomorrow but it is the BoJ announcement that is most highly anticipated after the epic jawboning. SocGen’s Sebastien Galy: "Only the truly brave can feel confident trading into the BoJ event"; adds, "It is not completely clear what economic consensus is expecting in terms of BoJ decision apart from broad outlines." Given positioning, the risk of disappointment and short JPY covering cannot be underestimated should Kuroda underdeliver.
The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs. But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later - a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.
As previously reported, former Goldman prop trader and MIT-grad Matt Taylor, 34, handed himself over to authorities earlier today and subsequently pled guilty in Federal Court to one charge of wire fraud "saying he exceeded internal risk limits and lied to supervisors to cover up his activities." He subsequently posted bail in the amount of a $750,000 bond with two co-signers. His sentencing hearing is set for July 26, when he faces a prison sentence between 33 months and 41 months and a fine of $7,500 to $75,000. He will likely get the lower end of both wristslaps, and come out from minimum security prison, that is assuming he even spends one day inside, to some cash stashed away in an offshore bank account (not Cyptus) courtesy of his many years manipulating massing the market first at Goldman and then at Morgan Stanley. And manipulating massing he did, because courtesy of Reuters we now know the full details of his transgressions.