Bank of England

All you need to read.

The advance reading of Q4 UK GDP released today came in at -0.2%, slightly below expectations, however many market participants had feared a worse outcome for the indicator, allowing the GBP to pare the losses made in the lead-up to the GDP announcement. The Bank of England minutes released today have shown that the MPC unanimously agreed to keep the UK rate at 0.5%, and maintain the volume of the APF, however they also revealed that some MPC members saw the need for further QE in the future. Despite higher than expected German IFO Business Climate data this morning, European indices are trading in negative territory, with technology and financial stocks suffering the highest losses. This has seen asset reallocations into safe havens, which has seen Bunds outperform for the morning.

Reuters report that the EU has agreed to freeze the assets of the Iranian central bank and ban all trade in gold and other precious metals with the Iranian Central Bank and other public bodies in Iran. According to IMF data, at the last official count (in 1996), Iran had reserves of just over 168 tonnes of gold. The FT reported in March 2011 that Iran has bought large amounts of bullion on the international market to diversify away from the dollar, citing a senior Bank of England official. Currency wars continue and are deepening. Many Asian markets are closed for the Lunar New Year holiday which has led to lower volumes. Of note was there was an unusual burst of gold futures buying on the TOCOM in Japan, which has helped the cash market to breach resistance at $1,666 an ounce.  Investors are also waiting for euro zone finance ministers to decide the terms of a Greek debt restructuring later today.  This would be the second bailout package for Greece.

The real outlook of Monetary Easing vs Treasury Yields

Folks, just a few months ago, no less than the IMF, Bank of England, and others warned that we were facing a global meltdown and the worst financial crisis in history. Do you really think a few liquidity programs have solved all of this?

All you neewd to read.

• Here we go again: IMF Said to Seek $1 Trillion Resource-Boost Amid Euro Crisis (Bloomberg)
• China said to Tell banks to Restrict Lending as Local Officials Seek Funds (Bloomberg)
• EU to Take Legal Action Against Hungary (FT)
• Portugal Yields Fall in Auction of Short-Term Debt (Reuters)
• US Natural Gas Prices at 10-Year Low as Warm Weather Weakens Demand (Reuters)
• German Yield Falls in Auction of 2-Year Bonds (Reuters)
• World Bank Slashes Global GDP Forecasts, Outlook Grim (Reuters)
• Why the Super-Marios Need Help (Martin Wolf) (FT)
• Chinese Vice Premier Stresses Government Role in Improving People's Livelihoods (Xinhua)

All you need to read.

With Fed officials a laughing stock (both inside and outside the realm of FOMC minutes), Bank of Japan officials ever-watching eyes, and ECB officials in both self-congratulatory (Draghi) and worryingly concerned on downgrades (Nowotny), the world's central bankers appear, if nothing else, convinced that all can be solved with the printing of some paper (and perhaps a measure of harsh words for those naughty spendaholic politicians). The dramatic rise in central bank balance sheets and just-as-dramatic fall in asset quality constraints for collateral are just two of the items that UBS's economist Larry Hatheway considers as he asks (and answers) the critical question of just how safe are central banks. As he sees bloated balance sheets relative to capital and the impact when 'stuff happens', he discusses why the Eurozone is different (no central fiscal authority backstopping it) and notes it is less the fear of large losses interfering with liquidity provision directly but the more massive (and explicit) intrusion of politics into the 'independent' heart of central banking that creates the most angst. While he worries for the end of central bank independence (most specifically in Europe), we remind ourselves of the light veil that exists currently between the two and that the tooth fairy and santa don't have citizen-suppressing printing presses.

All you need to read.

All you need to know.

In his latest letter, Bill Gross, obviously for his own reasons, essentially channels Zero Hedge, and repeats everything we have been saying over the past 3 years. We'll take that as a compliment. Next thing you know he will convert the TRF into a gold-only physical fund in anticipation of the wrong-end of the "fat tail" hitting reality head on at full speed, and sending the entire house of centrally planned cards crashing down. "How many ways can you say “it’s different this time?” There’s “abnormal,” “subnormal,” “paranormal” and of course “new normal.” Mohamed El-Erian’s awakening phrase of several years past has virtually been adopted into the lexicon these days, but now it has an almost antiquated vapor to it that reflected calmer seas in 2011 as opposed to the possibility of a perfect storm in 2012. The New Normal as PIMCO and other economists would describe it was a world of muted western growth, high unemployment and relatively orderly delevering. Now we appear to be morphing into a world with much fatter tails, bordering on bimodal. It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century. Welcome to 2012...For 2012, in the face of a delevering zero-bound interest rate world, investors must lower return expectations. 2–5% for stocks, bonds and commodities are expected long term returns for global financial markets that have been pushed to the zero bound, a world where substantial real price appreciation is getting close to mathematically improbable. Adjust your expectations, prepare for bimodal outcomes. It is different this time and will continue to be for a number of years. The New Normal is “Sub,” “Ab,” “Para” and then some. The financial markets and global economies are at great risk."

As many expected, the Bank of England has followed in Bernanke's footsteps and proceeded with extra QE, 75 billion extra, or about 25 billion more than consensus - this is the first expansion in the British QE since November 5, 2009 when it did the latest  £25 billion expansion. Unfortunately, this is just the beginning: much more global QE is coming down the line as the "monetary authority" realizes it only has itself and its printers to rely on in a world rapidly reentering recession.

Zero Hedge has been warnings about the scourge of High Frequency Trading long before most in the general public had even heard about the concept. Over the past 2 years, and culminating with the Flash Crash it became all too clear that HFT is nothing but a parasitic phenomenon which churns volume in stocks providing the best liquidity rebates, while pretending to be adding liquidity. Recently the best we can do is to provide glaring examples of HFT algos gone wrong in hopes that some regulator somewhere will finally take the long overdue step to establish a minimum bid/ask time delay and thus put virtually the entire HFT frontrunning math Ph.D. crew out of business. The latest development in the ongoing saga against these parasites comes from none other than the Bank of England's Andrew Haldane who prepared a speech to the International Economic Association Sixteenth World Congress in Beijing China, titled "The race to zero" which essentially recaps the hundreds if not thousands of posts we have written on the matter of risks posed by High Frequency Trading, and blasts the concept, as well as the toothless captured regulators who continue to exist in their zombie, porn-addicted state, and refuse to move one finger to finally end this next Flash Crash-in-waiting.

Both completely in line with expectations. And since the BOE is anything but the PBOC which is actively tightening, the GBP barely budged on the priced in news. The minutes of the meeting will be published on July 20 and 9.30 am. And now everyone shifts their attention east to the ECB where in a 45 minutes Trichet is expected to hike rates by 25 bps or else China will have a full day on its hands buying the EUR dumpathon.