Bank Of England Restructures After FX Probe But Not Responsible "For Hunting For Rigging Of Markets"Submitted by Tyler Durden on 03/11/2014 12:39 -0400
"We can't come out of this with a shadow of doubt about the integrity of the Bank of England," Governor Mark Carney told MPs this morning on the heels of the report, as we noted here, that found no collusion by the bank to manipulate FX rates. A senior BoE employee was told of "attempts to move the market" but "did not convey to [Monetary Policy Committee member Paul Fisher] that markets were being rigged," and therefore was suspended. While many have called this "as bad as Libor" the BoE remains adamant of its lack of involvement but is still restructuring itself - adding that "it isn't our job to go out hunting for rigging of markets." Nope, just to ignore it, we presume. MPs were not impressed.
Stocks in Europe failed to hold onto early gains and gradually moved into negative territory, albeit minor, as concerns over money markets in China gathered attention yet again after benchmark rates fell to lowest since May 2012. Nevertheless, basic materials outperformed on the sector breakdown, as energy and metal prices rebounded following yesterday’s weaker than expected Chinese data inspired sell off. At the same time, Bunds remained supported by the cautious sentiment, while EUR/USD came under pressure following comments by ECB's Constancio who said that financial markets misinterpreted us a little, can still cut rates and implement QE or buy assets. Going forward, market participants will get to digest the release of the weekly API report after the closing bell on Wall Street and the US Treasury will kick off this week’s issuance with a sale of USD 30bln in 3y notes.
This week brings a slew of central bank meetings: At the forefront will be the BOJ meeting on Tuesday where no changes to monetary policy are expected. However, we will be watching the commentary closely for hints to further monetary easing in the coming months. Goldman, and others, still expect the BOJ to provide additional stimulus in the second quarter of this year as the impact of the consumption tax hike on the economy becomes visible - it is that expectation that sent the USDJPY above 100 in late 2013 and any disappointment by the BOJ will certainly have an adverse impact on the all important Yen carry pair. In terms of the key data to watch this week, the themes of recent weeks remain the same: US activity data, with retail sales and the U. Michigan Consumer sentiment survey the main releases, European inflation trends (French and German HCPI data on Thursday and Friday, respectively), and finally external balances in EM. Within that group, the latest data points for trade and current account balances in India, Turkey and South Africa will receive the most attention.
Just when it seemed that the ever deteriorating situation in the Crimean, the unexpected plunge in Chinese exports which has sent the Yuan reeling again, the Copper slam which is down some 10% in two days, and the outright collapse in Japan's capital flows, not to mention the worst GDP print under Abe, may not be quite "priced in" by a market that is now expecting well beyond perfection in perpetuity, further shown by Goldman over the weekend which reprorted that revenue multiples have never been greater, and futures may finally dip, here came - right on schedule - the USDJPY levitation liftathon, which boosted futures from down 10 to barely unchanged, and which should be green by the second USDJPY ramp some time just after 8 am.
In recent months the Fed (and ECB for that matter) has taken up the mythical charm offensive of "forward guidance" as a way to assure markets that punchbowls will remain free and available for as long as it takes. At the same time, the Bank of England has been shown up (and lost credibility) over its threshold-ignorance, the Fed has also now started to hit the wall on any 'quantitative'-based forward-guidance communications policy, proposed Fed vice-Chair Stan Fischer is skeptical: "you can't expect the Fed to spell out what it's going to do... because it doesn't know;" and finally Bob Rubin slammed the Fed, saying "their forecast models don't work.. and forward guidance [has no validity] as it is impossible to know what is going to happen in 6 months." So today's BIS report on the the fallacy of forward guidance and risks to central bank reputation (and the following 4 charts) suggest faith in central banker omnipotence may be fading.
What is it with this perennial fear the chief money printers have of falling prices? Not that we are likely to see it happen, but if it does, what of it? The problem is of course that when prices decline, the 'wrong' sectors of society actually benefit, while those whose bread is buttered by the inflation tax would no longer benefit at the expense of everybody else. But they never say that, do they? Has any central banker ever explained why he believes deflation to be a danger? No, we are just supposed to know/accept that it is. As Austrian economists have long explained, it is simply untrue that prices must rise for the economy to grow.
Will London's current property bubble play out to be one of the most costly ever and end up costing UK and foreign investors billions?
Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
Premier Li Keqiang delivered his first government work report at the opening of the National People’s Congress (NPC) meeting last night. The new government promises to speed up reform, manage debt risks, fight pollution, and yet maintain 7.5% economic growth all at the same time but as SocGen'sWei Yao warns, this is going to be nothing if not challenging. Maybe mindful of a potential miss, Yao points out that policymakers seem to give themselves a small degree of flexibility by using new phrases like “a reasonable range for the growth rate” and “the growth target is
flexible”. Mission intractible or mission impossible?
The word “tantrums” referenced in the title was the paper’s attempt to explain adverse market reactions, e.g., last year’s reaction from ‘taper-talk’. The authors stated that risk premiums can jump quickly, simply because non-bank market participants (read: mutual funds) are motivated by their peer performance rank. The authors had 3 subsequent conclusions: 1) the relative peerperformance race causes momentum in return; 2) return chasing can reverse sharply; and 3) changes in the stance of monetary policy can trigger heavy fund inflows and outflows. These conclusions partially explain (empirically) the herd mentality and momentum in recent years behind tight credit spreads and elevated equity prices. Investors are so fearful of missing the upside and underperforming peers that they frantically scramble to remain ahead of them (i.e., seek risk). However, the conference and paper suggests that there is a threshold point during the Fed’s attempt to normalize policy where the tide reverses and investors join in a selloff in a race to avoid being left behind. This is why I’ve been calling it the greater fool theory. The most surprising part of the conference was Rubin’s keynote speech. Rather than speak about Washington’s messy politics or such, he basically gave a speech that criticized and questioned Fed policy.
Now that Ben Bernanke is no longer the head of the Fed, he can finally tell the truth about what caused the financial crash. At least that's what a packed auditorium of over 1000 people as part of the financial conference staged by National Bank of Abu Dhabi, the UAE's largest bank, was hoping for earlier today when they paid an exorbitant amount of money to hear the former chairman talk. Bernanke confirmed as much when he said he could now speak more freely about the crisis than he could while at the Fed - "I can say whatever I want."
So what was the reason, according to the man who was easily the most powerful person in the world for nearly a decade?
In the aftermath of the recent Wall Street Journal profile piece that, rather meaninglessly, shifted attention to Bill Gross as quirky manager (who isn't) to justify El-Erian's departure and ignoring Bill Gross as the man who built up the largest bond fund in the world, the sole head of Pimco was eager to return to what he does best - thinking about the future and sharing his thoughts with one of his trademark monthly letters without an estranged El-Erian by his side. He did that moments ago with "The Second Coming" in which the 69-year-old Ohian appears to have pulled a Hugh Hendry, and in a letter shrouded in caveats and skepticism, goes on to essentially plug "risk" assets. To wit: "As long as artificially low policy rates persist, then artificially high-priced risk assets are not necessarily mispriced. Low returning, yes, but mispriced? Not necessarily.... In plain English – stocks, bonds and other “carry”-sensitive assets would outperform cash."
Since Ukraine is the only wildcard variable in the news these past few days, it was to be expected that following i) the end of the large Russian military drill begun two weeks ago and ii) a press conference by Putin in which he toned down the war rhetoric, even if he did not actually say anything indicating Russia will difuse the tension, futures have soared and have retraced all their losses from yesterday. And not only in the US - European equity indices gapped higher at the open this morning in reaction to reports that Russian President Putin has ordered troops engaged in military exercises to return to their bases. Consequent broad based reduction in risk premia built up over the past few sessions meant that in spite of looming risk events (ECB, BoE policy meetings and NFP release this Friday), Bund also failed to close the opening gap lower. At the same time, USD/JPY and EUR/CHF benefited as the recent flight to quality sentiment was reversed, with energy and precious metal prices also coming off overnight highs.
A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission: "The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky...I’m becoming more and more convinced that all of the models we use are basically useless... We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right." Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic. But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.
Chinese Manufacturing PMI Slumps To 8-Month Low, Services PMI To 3-Month High; Goldman Admits Growth DeceleratingSubmitted by Tyler Durden on 03/02/2014 21:09 -0400
UPDATE:*CHINA HSBC MANUFACTURING PMI AT 48.5 FOR FEB. (as expected and marginally above the Flash print)
Chinese manufacturing PMI fell to an 8-month low holding barely above the crucial 50 level yesterday forcing Goldman to admit that "this signals further deceleration" in Chinese growth. All sub-indices showed signs of cyclical slowdown from January to February with perhaps the two most-critical ones - production and new orders - showing considerably larger falls than the headline index itself as we await this evening's HSBC print to confirm an average 'contraction'. China's Services PMI just printed at 55, up from 53.4, to a 3-month high led by a surge in the "expectations" sub-index.