Bank of Japan
"Never before have so many central banks explored sub-zero territory at the same time."
That giant sucking sound you hear is the P&L of macro/FX hedge funds as they look in dismay at their USDJPY exposure.
- World shares heat up as Bank of Japan goes sub-zero (Reuters)
- Stocks Rally With Bonds as BOJ Ends Grim January on High Note (BBG)
- Japan Follows Europe Into Negative Interest Rate Territory (WSJ)
- Decision On Oil Cut Only Possible If All Exporters Agree, Russian Energy Minister Says (BBG)
- Trump overshadows Republican debate even as he sits it out (Reuters)
- Trump skips debate, wins on social media (Reuters)
It is safe to say that nobody expected the BOJ stunner announced last night, when Kuroda announced that Japan would become the latest country to unleash negative interest rates, for one simple reason: Kuroda himself said Japan would not adopt negative rates just one week ago! However, a few BIS conference calls since then clearly changed the Japanese central banker's mind and as we wrote, and as those who are just waking up are shocked to learn, negative rates are now a reality in Japan. The immediate reaction was to send the USDJPY surging by nearly 200 pips, back to levels seen... well, about a month ago.
"The BoJ actions should lead to further intensification of global currency wars with central banks around the world trying to engineer sustained competitive devaluation against the background of slowing global trade and growth as well as persistent commodity price disinflation. With its latest measures the BoJ will allow Japan to borrow more growth from its trading partners and limit the severity of the imported disinflation."
Well that did not last long. After initial exuberance over The BoJ's wishy-washy decision to adopt a 3-tiered rate policy including NIRP, markets have realized that without further asset purchases (which were maintained at the current pace), there is no ammo to lift stocks. An almost 200 point surge in Dow futures has been erased and Nikkei 225 has dropped 1000 points from its post BOJ highs... as 10Y JGB yields hit record lows at 11bps and 20Y JGB yields drop to 82bps - the lowest since 2003
Detailed analysis of economic data is a dying art. The past seven year bull-market has largely justified the logic of such an approach, but the frenzied panic of the last month raises the question of whether investors will know how to adapt if the framework changes again. Recent market ructions offer the first evidence that central banks may be near the limit of their ability, or their willingness, to keep pumping up asset prices.
"The Fed’s monetary policy of extraordinarily low interest rates helped create the asset bubbles in stock and commodity prices that are now bursting. In retrospect, the Fed’s rate hike last month will likely be viewed as monetary malpractice. None of this is likely to forestall turmoil in credit markets. Investors are wise to be worried..."
In what is the first official warning to a central bank to no longer do what has been done so far for seven years, earlier today Deutsche Bank came out with a startling presentation addressed to Mario Draghi, warning him explicitly that any more QE will not only not help stocks (and certainly not DB stock which continues to plumb post-crisis lows on fears it is overexposed to the commodity crunch and potentially such names as Glencore and various other commodity traders), but will actually push equities lower.
The world has yet to fully digest what is currently happening in Japan.
Critics of today’s fiat currency/fractional reserve banking world have (for what seems like forever) made the common sense point that when debt rises faster than cash flow, bad things are bound to happen. In every cycle since 1980 this has been dismissed by the vast majority who benefit from inflating bubbles - until the bubble bursts. And here we go again.
After the biggest two-day surge in oil in seven years, early in the overnight session both Brent and WTI continued their run for a third day, entering a bull market, 20% up from recent lows hit just last week (still 15% down on the year) when Saudi Arabia spoiled the momentum party after the world’s biggest crude exporter said it’s keeping up investments in energy projects while diesel consumption in China dropped for a fourth consecutive month, signaling an industrial slowdown. And thanks to the near record correlation between equities and oil, global stocks and US equity index futures initially rose only to slide following the Saudi comments.
What began with Greenspan’s early-nineties covert bank recapitalization evolved into Bernanke’s foolish policy to openly inflate risk markets with new central bank Credit. Amazingly, U.S. inflationism took the world by storm. The issue today goes much beyond a stock market correction, a bear market or even global financial crisis. Contemporary central banking has failed. Theories have failed. Doctrine has failed. The inability to spur self-sustaining economic recovery has been a major issue.
"There is hope of more stimulus in March and potential for even more stimulus in Japan and China, so if we get concrete positive economic news the rebound could last into next week,” said John Plassard, senior equity- sales trader at Mirabaud Securities. “I told my clients to fasten their seatbelts and wait for better news, and this is finally happening."... "The turnaround in sentiment came amid signs central banks may be prepared to act after $7.8 trillion was erased from the value of global equities this year on China’s slowdown and oil’s crash."