Pizzaflation is creeping through the nation. Inflation is slow, and subtle, and making our favorite things like Pizza unaffordable. Pizzaflation explains the deterioration of the US Dollar in something we all love; Pizza.
Just after midnight east coast time, the BOJ presented its new and improved monetary policy dubbed “QQE with Yield Curve Control,” in which the central bank said it would buy JGBs such that 10-year yield remain at the current level of around zero percent. The BOJ will also buy JGBs at designated yields, and generally steepen the curve even as it failed to lower rates or add more QE. Wall Street took one look at what the BOJ came up with... and hated it immediately.
"I think what's going on in China is troubling ... some of the valuations there are really quite extraordinary... We've double checked these numbers about seven times, because I found them quite hard to believe."
The dollar index rose to a two-week high on Monday, while bond yields jumped to their highest since June and global stocks sold off after senior Federal Reserve officials indicated a U.S. interest rate increase was on the cards in the near term. The Fed effect - and the stronger dollar - reverberated through markets, pressuring stocks in Europe and emerging markets, pushing oil below $47 and the commodity complex lower.
After a flurry of disappointing GDP reports from the US and Europe, not to mention last week's uniformly poor Chinese economic data, Japan was the latest country to report that nominal economic growth in the second quarter rose a disppointing 0.2% annualized, missing expectations of a 0.7% increase, and down from the revised 2.0% GDP growth in Q1, while on a sequential basis GDP was flat with the first quarter.
With all eyes on today's jobs report, where consensus expects a 180K payrolls gain, European, Asian stocks and S&P futures all rise amid a surge in government debt as markets digest the BOE's "kitchen sink" easing for a second day. But please don't overthink it. In deja vu fashion, Bloomberg summarizes the action simply as "stocks rose around the world on speculation central bank stimulus measures will support the global economy." We've heard that just a few times before.
In a mostly quiet session, European and Asian stocks rose, pushed higher by financial stocks and the USDJPY which initially dipped on some hawkish comments by BOJ deputy governor Iwata, only to rebound later in the session, lifting the Nikkei 1.1%, while the Stoxx 600 rose 0.4% led higher by the banking sector. S&P futures are unchnaged after yesterday's last hour ramp. The key event is the BOE decision due in half an hour.
After 7 consecutive drops in the Dow Jones, the Industrial average is set for an 8th decline with US equity futures modestly lower in the premarket as risk-averse sentiment persists overnight. Oil’s continued slide and recent plunge into a bear market, despite some stabilization this morning just south of $40, has finally rekindled global growth concerns, and is keeping a lid on bullishness. European stocks are little changed, while Asian stocks and S&P futures fall.
Turns out China's capital controls enacted back in December to curb capital outflows might be working... which we're sad to report is bad news for all the 20-something year old I-bankers and tech geniuses reading this post from the comfort of their $2mm, 800 square foot apartments in New York and San Fran.
"With the encouragement of regulators, some lenders, including HSBC, have even run modelling for the imposition of capital controls, according to people briefed on the exercise. Banks said regulators had demanded a stress test that modelled for a 20 per cent fall in sterling."
Standard Chartered CEO Bill Winters is fighting the battle to right the ship at the bank on two fronts. First, Winters needs to figure out a way to deal with plunging revenues and billions in NPLs. On the other front, the CEO is working to change a culture in which he is finding many bankers consider themselves "above the law."