"Former BoE governor King yesterday made a timely intervention, warning that central banks risk tipping the world into a currency war. We're there already, of course, but if $60bn per month of money printing by the ECB can't get the euro down (because of the USD), then what's next? The RBA has cut rates twice this year, and AUD/USD trades back over 0.8100. Is FX intervention next?"
China has officially entered the realm of "unconventional" monetary policy, joining the Fed, the ECB, the BoJ, and a whole host of other global central banks in an attempt to bring the supposedly all-mighty printing press and the unlimited balance sheet that goes with it to bear on subpar economic growth. We suspect the results will be characteristically underwhelming (at least in terms of lowering real interest rates, although in terms of boosting risk assets, the results may be outstanding) meaning it's likely only a matter of time before LTRO becomes QE in China just as it did in Europe.
The UK General Election will be held tomorrow. The polls close at 10 pm. We should have a pretty clear picture of the overall seat count by 5 to 6 am on Friday morning. The result, as SocGen notes, is almost certain to be a hung parliament. Then the fun will really start. However, at the macro level the implications of the election may be less pronounced than many anticipate. Monetary policy has been de-politicised through the BoE’s independence, the formation of a coalition government is likely to involve convergence towards centrist positions, and a minority administration that pursues policies outside the mainstream would be unlikely to survive given its fragile parliamentary basis. In either case, the political system is unlikely to deliver radically different macroeconomic outcomes.
Battered by Bill Gross and Jeff Gundlach, SocGen warns that the current correction in 10Y Bunds remains atypical from a technical perspective and bears the characteristics of a panic selling.
For the chartists out there (and these days that would mean pretty much all momentum-igniting algos who are the only ones left trading these here "markets") the following note from SocGen explaining why if/when the 10Y selloff rises above 2.32% it may be a time to panic (and vice versa) is quite relevant now that the 10Y is just a few basis points away.
China is faced with a new reality wherein the very conditions that have supported the country's rapid economic growth may now be set for a wholesale reversal, as the "migrant miracle" gives way to a consumer-driven economy characterized by rising wages, decreased savings and investment, and falling export competitiveness. Meanwhile, what was once a "demographic dividend" is quickly becoming a "demographic deficit" as the number of working-age Chinese begins to decline. Beijing's response to this new reality will go a long way towards shaping the country's economic future.
While many thought the selloff had peaked yesterday, and would henceforth be more orderly, they were proven wrong, when right out of the gates this morning, investors were very, so to say, bunderweight, on the German benchmark govvie and the yield promptly gapped up as high as 0.38% before retracing some of the sharp move higher.
When the ECB is finally forced, by distortions of its own making, to dive into the corporate bond market, and when, after that, Mario Draghi goes full-Kuroda and throws the ECB’s balance sheet behind European equities, the central bank may want to check in the following places for relative value because according to Bloomberg, these are the countries where the “bargains” are to be found in equities and fixed income...
Mario Draghi, perhaps blinded by confetti, doesn't see a scarcity of collateral while HSBC thinks that's a bit "strange," and Morgan Stanley doesn't really see what the problem is even as their own analysis shows that it is now "impossible" for Germany to fully implement their portion of the program under the capital key. Meanwhile, FT thinks it's possibly important that thanks to the absurd consequences of NIRP-dom, the ECB may soon take the plunge into euro corporate credit sending yields on corporate bonds negative.
Moments ago the Department of Commerce reported March starts and permits data, which after the February collapse was expected by everyone to rebound strongly because, well, it didn't snow as much in March as it did in February. Apparently it did, because not only did Housing Starts miss massively, and just as bad as in February, printing at 926K, on expectations of a 1.040MM rebound from last month's revised 908K.
While today's macro calendar is empty with no central bank speakers or economic news (just the monthly budget (deficit) statement this afternoon), it’s a fairly busy calendar for us to look forward to this week as earnings season kicks up a gear in the US as mentioned while Greece headlines and the G20 finance ministers meeting on Thursday mark the non-data related highlights.
The "ECB Taper" Twitter feed is born and SocGen says QE in Europe has a long ways to go with Mario Draghi having fulfilled only 7% of his promise to monetize the entirety of euro net issuance.
The FOMC surprised the market on March 18 by lowering "the dots" by about 50 basis points. While Yellen gave a fairly exhaustive explanation for this in her speech on March 27 (and Dudley just managed expectations this morning), SocGen notes that market participants hope for more color from the FOMC minutes today. As for the timing of the rates lift-off, the FOMC minutes are unlikely to offer any new insight.