We suggest ECB President Mario Draghi has his work cut out for him today. As the entirely political catalyst for Greece's crescendo-like bailout capitulation, he will - we hope - be questioned long and hard on his actions over the last 2 weeks (and going forward) with regard the increasingly 3rd world nation. As Bloomberg's Richard Breslow notes, Draghi needs to help calm a still tense situation. The only way he can do this is with as much tranquility as he can muster, make sure everyone knows he is still prepared to do whatever it takes. It appears the markets (FX and equities for sure) are anticipating uber-dovishness and as we noted in the preview, he will likely crow of the lack of contagion from Greece, how well his tools have worked, and how Q€ is working... we wonder if the Greek reporters will be blocked from the press conference?
ECB LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 0.050%
ECB LEAVES MARGINAL RATE UNCHANGED AT 0.300%
ECB DEPOSIT FACILITY RATE UNCHANGED AT MINUS 0.200%
Mario Draghi should remain "largely on message" in Thursday's ECB presser, with the deal struck in Brussels last weekend having spared him the inconvenience of convening a tense discussion about imminent Grexit. Expect the ECB to reiterate the central bank's commitment to implement PSPP in full and the market will no doubt be looking for any color the ECB cares to add about the event risks surrounding the implementation of a third Greek program and the recent turmoil in Chinese equity markets.
In an interview at Institutional Investor's Delivering Alpha conference, Elliott Management’s Paul Singer discusses the perils of investing in a world dominated by Keynesian central planners, paper money, the "craziness" of China’s margin-fueled equity bubble, and "connecting the dots."
While Janet Yellen's prepared remarks were her normal bland data-dependent-when-we-want-to-be, rate-hikes-maybe-sooner-or-later self, we suspect the Q&A of The Fed Chair's Humphey-Hawkins testimony will be worth the price of admission. Face to face with Jeb Hensarling - who dares to demand The Fed respond to Congressional probes - will be a highlight but it will be interesting to see if the politicians suck up to their debt-monetizer-in-chief or try to score politically populist points with elections not so very far away...
Yellen Statement To Congress: Rate Hike "Appropriate At Some Point This Year" If Economy Evolves As Expected - Full TextSubmitted by Tyler Durden on 07/15/2015 08:37 -0400
Key highlights from the first day of Janet Yellen's testimony before Congress: " If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end. But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time."
Just when the Chinese plunge protection team (and "arrest shortie" task force) seemed to be finally getting "malicious selling" under control, first we saw a crack yesterday when the composite broke the surge of the past three days as a result of yet another spike in margin debt funded purchases, but it was last night's reminder that "good news is bad news" that really confused the stock trading farmers and grandmas, which goalseeked Chinese economic "data" beat across the board, with Q2 GDP coming solidly above expectations at 7.0%, and retail sales and industrial production both beating, but in the process raising doubts that the PBOC will continue supporting stocks.
In a January 2013 report “Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans by NBFCs”, the Reserve Bank of India estimated that the ratio of paper gold trading to physical gold trading is 92:1. That is a lot of unbacked paper gold instruments. This has almost entirely separated the “gold price”, such as it is (the clearing price for vast volumes of paper gold “representations” with a fractional backing) from the fundamental supply and demand dynamics for actual physical gold bullion.
As Mr L. famously quipped. "Ever get the feeling you’ve been cheated?"
In his Pulitzer-Prize-winning book, Lords of Finance, the economist Liaquat Ahamad tells the story of how four central bankers, driven by staunch adherence to the gold standard, “broke the world” and triggered the Great Depression. Today’s central bankers largely share a new conventional wisdom – about the benefits of loose monetary policy. Are monetary policymakers poised to break the world again?
While slightly later than expected, a comprehensive deal on Iran’s nuclear weapons program has now been reached. As Reuters reports, the agreement will be greeted with alarm in several quarters, both in Washington and Tehran and internationally too, and could yet unravel. Internationally, the deal will accelerate unease in some Arab states, including Saudi Arabia, but it is Israeli Prime Minister Benjamin Netanyahu who remains the fiercest public critic and has issued a warning that the accord will "inevitably lead to a nuclear war." The deal profoundly changes the balance of power in the region, but averts the conflict that was likely otherwise, but as ECStrat notes, Iran offers exceptional investment opportunities, but the near term impact will be to continue oil’s decline back to its lows, potentially taking energy stocks with it.
Next week's key events and data, if we can look beyond Greece and China.
"It will be appropriate at some point this year...to raise the Fed funds rate and normalize monetary policy," Yellen recently explained but given recent comments from Fed heads and the FOMC Minutes, it appears the real meme is "everything is awesome, we promise and as long as it stays that way we will hike rates just a little bit, stand back and watch the implosion, then stand ready to step back in to save the world... oh, and if Greece, China, US Shale, or LatAm blow up contagiously, we won't normalize policy ever again." Yellen speaks on the US economic outlook at The City Club of Cleveland.
The global and European economies are increasingly dominated by bureaucrats taking arbitrary decisions on capital allocation, with little regard for rules or process. The decisions of the ECB to reject the applications of the Bank of Greece for additional funding under ELA could have only been politically motivated, and therefore in clear violation of the ECB’s independence as enshrined in Article 123 TFEU. It is time for EU bureaucrats to stop acting as autocrats.
"I want to be clear at the outset that I am not saying that it is appropriate for fiscal policymakers to increase the long-run level of public debt. I am simply pointing to one benefit associated with such an increase: It allows the central bank to be more effective in mitigating the impact of adverse shocks to aggregate demand."
China stocks have fallen by as much as -30% over the past three weeks. What would Janet Yellen do if the S&P 500 Index was falling by -30% in similarly short order?