Real Interest Rates

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Brazil's Disastrous Debt Dynamics Could "Create Contagion" For Emerging Markets, Barclays Warns

“Brazil is confronting a toxic combination of a primary budget deficit, high public debt (relative to EM countries), very high real interest rates (the Selic stands at 14.25%), sluggish trend growth, a negative commodity price shock and potential contingent liabilities for the sovereign, which together spell trouble for public debt dynamics.”

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And Now The ECB's Minutes: One Trader's Take

The ECB has real policy choices they will have to choose between, and the implications are real. A further foray into negative deposit rates, extension and enlargement of QE, even a less likely change to the main financing rate. Each choice has externalities internally and is also likely to provoke a reaction from other affected countries. The Riksbank and SNB will be watching as closely as EGB traders. The ECB is in easing mode. The Fed plans to tighten. Relative value trades have further to play out

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Did Goldman Sachs Just Find The Smoking Gun In Today's FOMC Minutes?

The market's reaction to today's FOMC Minutes was, to some, a little odd given the "December is on" hawkish narrative being sold to the public. Stocks rallied, longer-dated bonds rallied, gold managed gains, and the US Dollar sold off... not exactly the reaction one would expect from a 'hawkish' Fed statement. But there is one thing that would explain those moves... and it appears Goldman Sachs found it buried deep inside the 12 pages of Minutes...

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AsiaPac Calm Before BoJ Storm, Japanese Household Spending 'Unexpectedly' Drops As China Releveraging Continues

As all eyes, ears, and noses anxiously await the scantest of dovishness from Kuroda and The BoJ tonight (despite numerous hints that they will not unleash moar for now), the data that was just delivered may have helped the bad-news-is-good-news case. Most notably Japanese household spending dropped 0.4% YoY (with tax hike issues out of the way) missing expectations by a mile as the 'deflationary' mindset remains mired in Japanese heads. AsiaPac stocks are hovering at the week's lows unable to mount any bid as China fixed the Yuan notably stronger and instigated a new central pricing plan for pork prices (which suggests concerns about inflation domestically). Once again Chinese margin debt reaches a new 8-week high as 'stability' has prompted releveraging among the farmers and grandmas.

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“Ignore The Noise” & Focus On The Fact That Central Banks “Remain Extremely Accommodative”

Gold will also be vulnerable towards the end of an interest rate tightening cycle as was the case in January 1980. Today, central banks including the Fed  are having difficulty raising interest rates in even a small nominal way.

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Goldman Is Getting Nervous: "There Are Significant Risks To Our Forecast For Gold Price Weakness"

The "very serious people" are starting to get nervous, because while most other "commodities" have seen their prices plummet in the biggest crash since Lehman, gold just went green for the year. Enter Goldman Sachs: "While our base case remains for higher US real rates and lower gold prices, there are significant risks that our forecast for gold price weakness is pushed out, should the Fed surprise us and remain on hold in December."

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Futures Surge As ECB Bankers Resort To Verbal Intervention, Suggest More QE Needed

Aside from Chinese monetary data, it was a relatively quiet session in which traders were focusing on every move in the suddenly tumbling USD, and parsing every phrase by central bankers around the globe, as well as the previously noted piece by Fed mouthpiece Jon Hilsenrath which effectively ended the debate whether there will be rate hikes in 2015. Adding to the overnight froth were ECB speakers first Ewald Nowotny and then Spain's Restoy, who said that euro-area core inflation "clearly" below goal, remarks which were immediately assumed to signal increasing pressure to boost stimulus, and which promptly translated into even more weakness in EUR and equity strength, pushing US futures up about 15 points from yesterday's close.

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Axel Merk: Got Gold?

We think the market may have gotten ahead of itself, accepting the narrative that the Fed will raise rates as many other countries ease. We believe the market is gradually realizing that the Fed is far less flexible than it hoped it would be, thus causing a re-pricing of expectations. We don't think this will necessarily change the Fed's "desire" to pursue an exit. This re-pricing of expectations may have profound implications for the U.S. dollar, and with it, the price of gold.

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Bernanke: The Courage To Print - Reading Between The Lies

The Fed needs to extricate itself from manipulating the financial markets. It needs to end backstopping market liquidity. It must never again print Trillions of new “money” out of thin air. Because so long as the marketplace perceives that the markets are "too big to fail", there will be speculative excess, major securities markets mispricings and Bubble fragilities. No one – average investor or sophisticated financial operator – has a clue as to the degree Fed policies have distorted asset prices.

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FOMC Minutes Confirm Economy Not Ready For Rate-Hike This Year, Worried About Inflation, "Global Risk"

Given the tumble and stock save since September's infamous "chickening out" FOMC Meeting, investors hope today's minutes will provide some color on just how close Janet and her merry men were to pulling the trigger:


With all the blame pinned on global turmoil (which has now "calmed" apparently) the S&P 500 has roundtripped to unchanged post-FOMC and given these minutes which suggest this was not a close-call at all. However, this was before the Sept payrolls data.

Pre-FOMC Minutes: S&P Futs 1988.25, 10Y 2.095%, Gold $1145, EUR 1.1285

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The One Phrase That Actually Matters In Yellen's Speech: "Nominal Interest Rates Cannot Go Much Below Zero"

"...the federal funds rate and other nominal interest rates cannot go much below zero, since holding cash is always an alternative to investing in securities. ... the lowest the FOMC can feasibly push the real federal funds rate is essentially the negative value of the inflation rate. As a result, the Federal Reserve has less room to ease monetary policy when inflation is very low. This limitation is a potentially serious problem because severe downturns such as the Great Recession may require pushing real interest rates far below zero for an extended period to restore full employment at a satisfactory pace."

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Yellen "Do-Over" Speech - Live Feed

When risk sold off last week in the wake of the Fed’s so-called “clean relent,” it signalled at best a policy mistake and at worst the loss of any and all credibility. Tonight, Yellen gets a do-over.

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Low Interest Rates Cannot Save A House Of Cards

While the Federal Reserve has chosen to keep the Federal Funds rate near zero, it is merely delaying the inescapable and inevitable result of its own monetary policy – another needed economic correction that its actions will have generated but which it will, no doubt, blame on the supposed “failures” of the market economy.

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US Equity Futures Hit Overnight Highs On Renewed Hope Of More BOJ QE

After sliding early in Sunday pre-market trade, overnight US equity futures managed to rebound on the now traditional low-volume levitation from a low of 1938 to just over 1950 at last check, ignoring the biggest single-name blowup story this morning which is the 23% collapse in Volkswagen shares, and instead have piggybacked on what we said was the last Hail Mary for the market: the hope of more QE from either the ECB or the BOJ. Tonight, it was the latter and while Japan's market are closed until Thursday for public holidays, its currency which is the world's preferred carry trade and the primary driver alongside VIX manipulation of the S&P500, has jumped from a low of just over 119 on Friday morning to a high of 120.4, pushing the entire US stock market with it.

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