Monetary Policy

Equity Futures Spooked By Second Day Of Bund Dumping, EUR Surges; Nikkei Slides

The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.

The Third And Final Transformation Of Monetary Policy

The law of unintended consequences is becoming ever more prominent in the economic sphere, as the world becomes exponentially more complex with every passing year. Just as a network grows in complexity and value as the number of connections in that network grows, the global economy becomes more complex, interesting, and hard to manage as the number of individuals, businesses, governmental bodies, and other institutions swells, all of them interconnected by contracts and security instruments, as well as by financial and information flows. It is hubris to presume, as current economic thinking does, that the entire economic world can be managed by manipulating one (albeit major) subset of that network without incurring unintended consequences for the other parts of the network.

"Dear Fed, It’s Time To Lean, Or Leave"

A big part of the U.S. equation is U.S. executives are looking at yields and realizing that to not borrow at these unsustainable levels could be a missed opportunity they will sorely regret. If you run a viable business and “investors” are throwing free money at you for future growth, why not leverage up and buy back some stock. This is ultimately something the Fed needs to focus on and lean against.

Why Markets Are Manic - The Fed Is Addicted To The "Easy Button"

Honest price discovery is essential to capitalist prosperity since it is the miraculous mechanism by which capital is raised from savers and investors and efficiently allocated among producers, entrepreneurs and genuine market-rate borrowers. What the central banks have generated, instead, is a casino that is blindly impelled to churn the secondary capital markets and inflate the price of existing assets to higher and higher levels - until they ultimately roll-over under their own weight. The Easy Button addiction of our central bankers is thus not just another large public policy problem. It is the very economic and social scourge of our times.

Japan Proves Monetary Policy Is Nothing But Destructive

Thus, the mistaken conceit of monetarism is on full display, especially in Japan, as they boil down their efforts to substitute financial wealth for true wealth as if they could simply conjure industrious creation from nothing. And Japan is proving useful as the full and complete refutation of every facet of such a notion, even if the mainstream resists so far confessing it.

Debt Pile-Up To Fuel Further Oil Price Pressure

"An 'oil-debt nexus' could create a vicious circle whereby overindebted companies pump more oil to ensure they can pay interest on their loans, adding to the current global oil glut, and further depressing energy prices," WSJ notes, citing a BIS report. The interplay between the industry's growing debt pile and falling prices is a microcosm of the deflationary dynamic that’s taking hold in the macroeconomy and that serves, in Citi's words, to destroy creative destruction, creating "zombies" along the way.

Is Nigel Farage The UK Election's "Kingmaker"?

Will a desire to protest the current establishment see Nigel Farage's UKIP broaden its mandate in the upcoming election? This UK election will mirror many elections around Europe (since the crisis started) in focusing on inequality and the need for political protest. This could make for big moves in the mandates... We foresee Scottish National Party and UKIP protest votes proving far more numerous than the latest polls suggest.

UK Economy Grows At Slowest Pace Since 2012 Two Weeks Ahead Of National Election

With US Q1 GDP set to be a huge disappointment to initial estimates of 3% growth set at the beginning of the year, and since plunging to 1% or lower when it is reported later this week because, well, it inexplicably snowed in the winter for the second year in a row, earlier today we learned that US harsh weather cross the Atlantic and landed in the UK where ONS reported that the economy grew at a tepid pace of just 0.3% in the first quarter, well below consensus estimates of 0.5%, and at the lowest pace since Q4 2012 when GDP posted a 0.3% drop.

S&P Futures Hug 2100 After China Denies QE, European Stocks Slide

Following yesterday's early MNI rumor that a Chinese QE is being "considered" and which sent the Shanghai Composite surging 3% and led to an initial boost in US stock futures, overnight the PBOC scrambled to once again deny such speculation. Of course, going full "cold Turkey" on Chinese stimulus would be too much for the market to handle, so in a piece by the WSJ also released overnight, the author said the PBOC would pivot from outright QE to mere LTRO, which is also not new and was reported over a week ago here in "China Floats QE Trial Balloon, PBoC May Launch LTROs." In any event, for now at least, Asian stocks are not happy despite Apple's latest blockbuster results, and neither is Europe, with the Stoxx 600 down 1%, and even the E-mini is hugging 2100 unable to levitate on any imminent central bank intervention.

How This Debt-Addicted World Could Go The Way Of The Mayans

We are paying a high price for too many elites and their ‘frivolous cravings’. Nowadays many countries’ social and political structure relies on debt-driven consumption and increasing levels of entitlements. Blame the policy-makers as the “permanent lie [has become] the only safe form of existence.”

Despite US Services PMI Miss, Markit Says "FOMC Should Normalize Policy Sooner"

After 3 months of somewhat surprising strength (given the background of disastrous hard data), US Services PMI dropped in April by the most since December, missing expectations by the most on record. Against serial extrapolators' expectations of a rise to 58.9, PMI fell to 57.8 with cost inflation jumping to a six-month high and the biggest rise in the jobs index suggests to Markit that "the FOMC to consider starting the process of normalising monetary policy sooner rather than later at its meeting later this week.."

GoldCore's picture

While sentiment towards gold in the West is abysmal - even as gold languishes at record lows when adjusted for inflation - Asian demand remains insatiable. It would be wise for investors to inform themselves as to why this should be so. Demand for gold in Asia is often written off by Westerners as an irrational impulse of uneducated Asian peasant farmers and workers. 

Boston Fed Admits There Is No Exit, Suggests QE Become "Normal Monetary Policy"

"Largely missing from these discussions about the Fed's "exit strategy" is a consideration that perhaps it should retain, not discard, the balance sheet tools," the Boston Fed says, in a new paper advocating the retention of QE as a permanent part of the Fed's tool box. QEfinity may yet become a reality and for the most ironic of reasons: because the Fed is now in charge of promoting "financial stability" something which, as last October's Treasury flash crash proves, is exacerbated by asset purchases not ameliorated.