en Stocks Surge As ECB Expands QE Monetization Limits, Boost Purchase Threshold From 25% to 33% Per Issue <p>ABN Amro was right: moments ago Mario Draghi announced that, just as the Pavlovian Dogs were salivating, the ECB would not leave markets hanging, and while not boosting QE in size, announced he would increase the amount of monetizable assets, i.e., the ECB's share limit per CUSIP equivalent, from 25% to 33%. The result: an immediate surge in both stocks (ES jumping 21 points) and bonds (the 10Y dropping to 2.156%).</p> <p><a href=""><img src="" width="600" height="525" /></a></p> <p>&nbsp;</p> <p>Which has snapped EURUSD 100pips lower - erasing all the post-FOMC Minutes gains...</p> <p><a href=""><img src="" width="600" height="313" /></a></p> <p>&nbsp;</p> <p>But wait, that's not all: as was clear to all but the most tenured economists, Draghi also just cut Europe's GDP outlook across the board.</p> <ul> <li>ECB STAFF SEE 2017 EUROZONE GDP AT 1.8% V JUNE 2.0%</li> <li>ECB STAFF SEE 2016 EUROZONE GDP AT 1.7% V JUNE 1.9%</li> <li>ECB STAFF SEE 2015 EUROZONE GDP AT 1.4% V JUNE 1.5%</li> </ul> <p>And here is why more QE, also in absolute terms, is also assured:</p> <ul> <li>ECB STAFF SEE 2017 EUROZONE HICP AT 1.7% V JUNE 1.8%</li> <li>ECB STAFF SEE 2016 EUROZONE HICP AT 1.1% V JUNE 1.5%</li> <li>ECB STAFF SEE 2015 EUROZONE HICP AT 0.1% V JUNE 0.3%</li> </ul> <p><strong>Expect the stock surge to continue, because there is nothing more bullish for risk that confirmation what sent risk higher in the first place isn't working, so even more will have to be used.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="956" height="837" alt="" src="" /> </div> </div> </div> Eurozone Monetization Thu, 03 Sep 2015 12:43:13 +0000 Tyler Durden 512805 at “No Safe Assets Anymore” So “Focus On Precious Metals” – Faber <p><strong>DAILY PRICES<br /></strong><span style="font-size: 1em; line-height: 1.3em;">Today’s Gold Prices: USD1130.05, EUR 1005.88 and GBP 739.63 per ounce.<br /></span><span style="font-size: 1em; line-height: 1.3em;">Yesterday’s Gold Prices: USD 1140.00, EUR 1010.73 and GBP 746.46 per ounce.<br /></span><span style="font-size: 1em; line-height: 1.3em;">(LBMA AM)</span></p> <p><span style="font-size: 1em; line-height: 1.3em;">“No Safe Assets Anymore” So “Focus On Precious Metals” – Faber</span></p> <p><span style="font-size: 1em; line-height: 1.3em;">Respected economist and historian and the editor of the ‘Gloom, Boom &amp; Doom Report’ Marc Faber warned on Bloomberg TV’s Market Makers yesterday that there are now “no safe assets” including deposits and said that he is focusing “on precious metals.”</span></p> <p><span style="font-size: 1em; line-height: 1.3em;">In another informative and interesting interview, Faber spoke about dangerous central bank policies and the stupidity of QE, the cause of inequality including competitive currency devaluations and warned that even deposits are no longer safe.</span></p> <p><span style="font-size: 1em; line-height: 1.3em;"><img src="" width="521" height="366" /></span></p> <p><a href="">Marc Faber – There Is No Safe Asset Anymore (via Bloomberg TV)</a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“I think that because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks there is no safe asset anymore. When I grew up in the ’50s it was safe to put your money in the bank on deposit. The yields were low, but it was safe.”</p> <p>“But nowadays, you don’t know what will happen next in terms of purchasing power of money. What we know is that it’s going down.”</p> </blockquote> <p>He was trenchant in his criticism of central bank monetary policies:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“In my humble book of economics, wealth is being created through, essentially, a mixture of capital spending, and land and labor. And if these three production factors are used efficiently, it then creates a prosperous society, as America became prosperous from its humble beginnings in 1800, or thereabout, to the 1960s, ’70s. But it’s ludicrous to believe that you will create prosperity in a system by printing money. That is economic sophism at its best.”</p> </blockquote> <p>Faber said that investors should&nbsp;“focus on&nbsp;<a href="">precious metals”&nbsp;and gold&nbsp;</a>and precious metal mining shares.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“I would rather focus on precious metals, gold, silver, platinum because they do not depend on the industrial demand as much as base metals, as industrial commodities.”</p> </blockquote> <p>Marc Faber is a long-time advocate of owning physical gold which action he describes as being “your own central bank” and he believes that Singapore is the safest place to store gold internationally.</p> <p>IMPORTANT NEWS</p> <p><a href="">Global stocks enjoy relief rally ahead of ECB, but investors wary</a>&nbsp;– Reuters<br /><a href="">Five Chinese ships in Bering Sea as Obama visits Alaska</a>&nbsp;– Reuters<br /><a href="">In Dramatic Escalation, China Sends Five Navy Ships Off Alaska Coast For First Time Ever</a>&nbsp;– Zero Hedge<br /><a href="">Gold slips on firmer dollar; U.S. jobs data eyed for cues</a>&nbsp;– Reuters<br /><a href="">Gold Holds Loss as Investors Seek Fed Rate Clues From Jobs Data</a>&nbsp;– Bloomberg</p> <div>IMPORTANT COMMENTARY</div> <div> <p><a href="">Gold Keeps Its Gleam Long After The Last Gold Standard</a>&nbsp;– Forbes<br /><a href="">Eleven Crazy Days — Many More Coming</a>&nbsp;–<br /><a href="">SILVER MARKET OUTBREAK: Surging Physical Demand &amp; Falling Inventories</a>&nbsp;– SRSRocco Report<br /><a href="">Central Banks Nervous As Alternative Currency With David Bowie’s Face Goes Vira</a>l – Zero Hedge<br /><a href="">Why A Londoner Became a Backwoods California Gold Prospector</a>&nbsp;– National Geographic</p> </div> <p>Read more <a href="">News &amp; Commentary</a></p> <p>Watch:&nbsp;<a href="" style="font-family: proxima_nova_regular; font-size: 13px; letter-spacing: 0.015em; line-height: 17px;">Marc Faber Video on Storing Gold in Singapore<br /></a><span style="font-size: 1em; line-height: 1.3em;">Download:&nbsp;</span><a href="" style="font-size: 1em; line-height: 1.3em;">Essential Guide To Storing Gold In Singapore<br /></a><span style="font-family: proxima_nova_regular; font-size: 13px; letter-spacing: 0.015em; line-height: 17px;">Downnload:&nbsp;</span><a href="" style="font-family: proxima_nova_regular; font-size: 13px; letter-spacing: 0.015em; line-height: 17px;">Essential Guide To Storing Gold Offshore</a></p> <p style="box-sizing: border-box; margin: 0px 0px 10px; font-family: proxima_nova_regular; font-size: 13px; letter-spacing: 0.015em; line-height: 17px; outline: 0px !important;"><span style="box-sizing: border-box; outline: 0px !important; font-weight: bold;"><a href="" style="box-sizing: border-box; outline: 0px !important; color: #737373; text-decoration: underline; background: 0px 0px;"><span style="box-sizing: border-box; outline: 0px !important; font-weight: 400;"><br style="box-sizing: border-box; outline: 0px !important;" /></span></a></span></p> <p style="box-sizing: border-box; margin: 0px 0px 10px; font-family: proxima_nova_regular; font-size: 13px; letter-spacing: 0.015em; line-height: 17px; outline: 0px !important;"><a href="" style="box-sizing: border-box; outline: 0px !important; color: #737373; text-decoration: underline; background: 0px 0px;"><img src="" alt="Essential Guide To Storing Gold Offshore" width="98" height="139" style="box-sizing: border-box; vertical-align: middle; float: left; margin: 0px auto; max-width: 100%; height: auto; padding: 3px; display: block; outline: 0px !important;" class=" size-full wp-image-3650 alignleft" /></a></p> <p style="box-sizing: border-box; margin: 0px 0px 10px; font-family: proxima_nova_regular; font-size: 13px; letter-spacing: 0.015em; line-height: 17px; outline: 0px !important;">&nbsp;</p> Central Banks China Marc Faber Monetary Policy Precious Metals Purchasing Power Reuters Thu, 03 Sep 2015 12:40:15 +0000 GoldCore 512804 at Initial Jobless Claims Jumps Most In 2 Months - Unchanged Since End Of QE3 <p><strong>Initial jobless claims have risen for 5 of the last 6 weeks</strong> with the last week showing a 12k rise to 282k. This is the biggest weekly rise in 2 months and raises the claims print overall to <strong>2-month highs</strong>. Perhaps most remarkable is that initial jobless claims are now back up to unchanged since the end of QE3.</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="303" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="961" height="486" alt="" src="" /> </div> </div> </div> Initial Jobless Claims Thu, 03 Sep 2015 12:37:31 +0000 Tyler Durden 512803 at Mario Draghi's Panic Button, Birthday Presser - Live Feed <p>Now that the <a href="">formalities are out of the way</a> with rates unchanged, the fireworks can begin as Mario Draghi gets set for his post-meeting presser <strong>where markets hope to hear that the ECB is set to expand QE</strong> in the face of collapsing EMU inflation expectations, mounting global headwinds, rising volatility, and EM chaos.&nbsp;</p> <ul> <li><strong style="font-size: 1em; line-height: 1.3em;">DRAGHI SAYS ISSUE SHARE LIMIT FOR QE RAISED TO 33% FROM 25%</strong></li> <li><strong style="font-size: 1em; line-height: 1.3em;">ECB CUTS EURO-AREA INFLATION FORECASTS FOR 2015-2017</strong></li> <li><strong style="font-size: 1em; line-height: 1.3em;">DRAGHI SAYS MAY SEE NEGATIVE INFLATION RATES IN COMING MONTHS</strong></li> <li><strong style="font-size: 1em; line-height: 1.3em;">ECB CUTS GDP FORECASTS FOR 2015-2017</strong></li> <li>GERMAN BUNDS EXTEND GAIN AS DRAGHI RAISES QE ISSUE SHARE LIMIT</li> <li><strong>NEW DOWNSIDE RISKS TO GROWTH AND INFLATION</strong></li> <li>DATA ALSO SHOW SLOWER RECOVERY OF INFLATION</li> <li>DATA SHOW CONTINUED, SOMEWHAT WEAKER RECOVERY</li> <li>BUT SUBJECT TO NO BLOCKING POWER FOR EUROSYSTEM</li> <li>DRAGHI: <strong>ECB CAN ADJUST SIZE, DURATION OF QE IF NEEDED</strong></li> </ul> <p>Full preview is <a href="">here</a>, watch live below.</p> <p>(live feed)</p> <script id="tv11441284627876" type="text/javascript" src=""></script><p>&nbsp;</p> <p>* &nbsp;* &nbsp;*</p> <p><em>Full opening remarks:</em></p> <p>Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council. As usual, let me start with the decisions taken.</p> <p>Based on our regular economic and monetary analysis, and in line with our forward guidance, the Governing Council decided to keep the key ECB interest rates unchanged.</p> <p>Our asset purchase programme continues to proceed smoothly. Regarding non-standard monetary policy measures, following the announced review of the public sector purchase programme’s issue share limit after the first six months of purchases, the Governing Council decided to increase the issue share limit from the initial limit of 25% to 33%, subject to a case-by-case verification that this would not create a situation whereby the Eurosystem would have blocking minority power, in which case the issue share limit would remain at 25%.</p> <p>Underlying our monetary policy assessment was a review of recent data, new staff macroeconomic projections and an interim evaluation of recent market fluctuations. The information available indicates a continued though somewhat weaker economic recovery and a slower increase in inflation rates compared with earlier expectations. More recently, renewed downside risks have emerged to the outlook for growth and inflation. However, owing to sharp fluctuations in financial and commodity markets, the Governing Council judged it premature to conclude on whether these developments could have a lasting impact on the outlook for prices and on the achievement of a sustainable path of inflation towards our medium-term aim, or whether they should be considered to be mainly transitory.</p> <p>Accordingly, the Governing Council will closely monitor all relevant incoming information. It emphasises its willingness and ability to act, if warranted, by using all the instruments available within its mandate and, in particular, recalls that the asset purchase programme provides sufficient flexibility in terms of adjusting the size, composition and duration of the programme.</p> <p>In the meantime, we will fully implement our monthly asset purchases of €60 billion. These purchases have a favourable impact on the cost and availability of credit for firms and households. They are intended to run until the end of September 2016, or beyond, if necessary, and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term.</p> <p>Let me now explain our assessment of the available information in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.3% in the second quarter of 2015, which was somewhat lower than previously expected. The latest survey indicators point to a broadly similar pace of real GDP growth in the second half of this year. Overall, we expect the economic recovery to continue, albeit at a somewhat weaker pace than earlier expected, reflecting in particular the slowdown in emerging market economies, which is weighing on global growth and foreign demand for euro area exports. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the decline in oil prices should provide support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment. However, economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.</p> <p>This assessment is also broadly reflected in the September 2015 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.4% in 2015, 1.7% in 2016 and 1.8% in 2017. Compared with the June 2015 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down, primarily due to lower external demand owing to weaker growth in emerging markets.</p> <p>The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties related to the external environment. Notably, current developments in emerging market economies have the potential to further affect global growth adversely via trade and confidence effects.</p> <p>According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.2% in August 2015, unchanged from June and July. Compared with the previous month, this reflects a further decline in energy price inflation, compensated for by higher price increases for food and industrial goods. On the basis of the information available and current oil futures prices, annual HICP inflation rates will remain very low in the near term. Annual HICP inflation is expected to rise towards the end of the year, also on account of base effects associated with the fall in oil prices in late 2014. Inflation rates are foreseen to pick up further during 2016 and 2017, supported by the expected economic recovery, the pass-through of past declines in the euro exchange rate and the assumption of somewhat higher oil prices in the years ahead as currently reflected in oil futures markets. However, this increase in annual inflation rates is currently expected to materialise somewhat more slowly than anticipated thus far.</p> <p>This assessment is also broadly reflected in the September 2015 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.1% in 2015, 1.1% in 2016 and 1.7% in 2017. In comparison with the June 2015 Eurosystem staff macroeconomic projections, the outlook for HICP inflation has been revised down, largely owing to lower oil prices. Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the September staff inflation projections.</p> <p>In this context, the Governing Council will closely monitor the risks to the outlook for price developments over the medium term. We will focus in particular on the pass-through of our monetary policy measures, as well as on global economic, financial, commodity price and exchange rate developments.</p> <p>Turning to the monetary analysis, recent data confirm robust growth in broad money (M3). The annual growth rate of M3 was 5.3% in July 2015, compared with 4.9% in June. Annual growth in M3 continues to be increasingly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 12.1% in July, compared with 11.7% in June.</p> <p>Loan dynamics continued to improve. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.9% in July, up from 0.2% in June, continuing its gradual recovery since the beginning of 2014. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued. They continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors, and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.9% in July 2015, after 1.7% in June. Overall, the monetary policy measures we have put in place since June 2014 provide clear support for improvements both in borrowing conditions for firms and households and in credit flows across the euro area.</p> <p>To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis indicates the need to firmly implement the Governing Council’s monetary policy decisions and to monitor closely all relevant incoming information as concerns their impact on the medium-term outlook for price stability.</p> <p>Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. Further product and labour market reforms, and particularly actions to improve the business environment, including an adequate public infrastructure, are vital to increase productive investment, boost job creation and raise productivity. The swift and effective implementation of these reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes and accelerate the benefits of reforms, thereby making the euro area more resilient to global shocks. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is crucial for confidence in our fiscal framework.</p> <p>We are now at your disposal for questions.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="376" height="250" alt="" src="" /> </div> </div> </div> M1 M3 Monetary Policy Rate of Change recovery SWIFT Unemployment Volatility Thu, 03 Sep 2015 12:27:53 +0000 Tyler Durden 512802 at For The Average American, A Modest 10% Correction Is Now A "Market Crash" <p>To most Wall Street pundits and strategists, the recent 10% correction in all three US key indices can be summarized with one word, or rather, acronym: <strong>BTFD.</strong> After all, someone has to pay those year-end bonuses, and that becomes problematic if the S&amp;P is down on the year. Nevermind that none of these pundits actually predicted the correction, even though as we warned repeatedly, with the vol of all other products screaming, equity VIX was in its own little world for most of 2015 until two weeks ago, when reality finally caught up with it.</p> <p>But what about the average American: how does Joe Sixpack feel about the recent 10% drop in the S&amp;P? For the answer we went straight to the source - google trends. What it revealed was disturbing.</p> <p>As the chart below shows, in the age of artificially supressed volatility, even a plain vanilla market correction now generates the type of emotional shock comparable to the biggest market collapse since the Great Depression, and judging by the <a href="">Google Trends chart</a>, searches for "market crash" are on par with those recorded during late 2008!</p> <p>Worse, due to SEO optimizing algos which seek to give readers precisely what they are looking for, many websites which have algo-written headlines and news, have been perpetuating the shock from the market drop, by blasting headlines that while seeking to be click bait, merely encourage the fear witnessed in the recent two weeks, thus exacerbating the impact of the market drop.</p> <p>One wonders what would happen if there is a bear market, or worse: a real crash, comparable to the 60% plunge witnessed when Lehman failed?</p> <p><a href=""><img src="" width="600" height="330" /></a></p> <p><em>Source: <a href="">google trends</a></em><a href=""></a></p> Bear Market Google Great Depression headlines Lehman Market Crash None Reality Volatility Thu, 03 Sep 2015 12:25:25 +0000 Tyler Durden 512801 at Total 2015 Job Cuts To Be Biggest Since 2009: Challenger <p>Moments ago Challenger <a href="">reported August job cuts</a>, which at 41,186 were a 60% drop from the 115,730 reported last month (the highest since September 2011), which however was driven by a one-time mass layoffs last month in military staffing. Putting August in its correct perspective, the number was 2.9% higher than the same month a year ago, when 40,010 planned job cuts were announced. </p> <p>What is troubling is that this marks the seventh month this year that the job-cut total was higher than the comparable month from 2014.</p> <p>What is worse is that for all the euphoria about initial claims printing at or near record lows, the reality as measured from the bottom-up, is far different and as Challenger notes, so far in 2015 employers have announced 434,554 job cuts: <strong>that is up 31 percent from the 332,931 planned layoffs in the first eight months of 2014. </strong></p> <p><strong></strong>What is worst, and what reveals the true picture of the economy, is that with monthly totals averaging 54,319, <strong>2015 job cuts are on track to exceed 650,000 for the year, which would be the highest year-end tally since 2009 (1,272,030).</strong> </p> <p>In other words, not only is the economy no longer growing at its previous pace, but due to the ongoing oil rout, tens of thousands of highly-paid workers mostly in the oil space are getting pink slips just as the Fed is preparing to tighten. Putting a number to that estimate, Challenger says that "since the beginning of the year, <strong>oil prices have been blamed for 82,268 layoffs, mostly in the energy sector, but also among industrial goods manufacturers that supply equipment and materials for oil exploration and extraction</strong>."</p> <p><a href=""><img src="" width="600" height="646" /></a></p> <p>Curiously, the biggest culprit for August job cuts was not the energy sector (expect many more layoffs here), but retail. <strong>The retail sector saw the heaviest job cutting in August, with 9,601 planned layoffs reported during the month. </strong>Most of those were related to bankruptcy of east coast supermarket chain A&amp;P, which is closing more than 100 stores and laying off a reported 8,500 workers by Thanksgiving. </p> <p>The retail sector has announced 57,363 job cuts so far this year, which is a 90 percent increase over the 30,109 job cuts announced by this point in 2014. </p> <p>“Overall, retail is relatively healthy, but we have seen some big layoffs this year, particularly from long-time players that simply have not been able to keep up with changing consumer trends. These retailers somehow manage to survive, but only through multiple bankruptcies, such as A&amp;P. Earlier this year RadioShack announced 5,400 job cuts,” said John A. Challenger, chief executive officer of Challenger, Gray &amp; Christmas.</p> <p>The industrial goods sector saw the second heaviest downsizing activity in August, announcing 7,949 layoffs during the month. <strong>That is the largest number of job cuts for this sector since March, when 9,163 job cuts were announced</strong>.</p> <p>Finally, going back to oil, Challenger was optimistic, however this optimism is misplaced. This is what it said:</p> <p>“The stream of job cuts related to oil prices appears to be ebbing. The majority of these cuts came in the first four months of 2015, when we saw more than 68,000 layoffs related to oil. Since May, fewer than 14,000 job cuts have been attributed to oil prices,” noted Challenger. </p> <p>There is a problem: as ConocoPhillips just announced two days ago when it fired 10% of its global workforce, oil companies which had been betting on an oil rebound, all got flatfooted by the second drop in oil price. This will lead to tens of thousands of more highly paid jobs being pink slipped in the coming months.</p> <p>“It is too soon to say if we have seen the last of the big oil cuts. As we head into the final months of 2015, there are definitely some red flags that suggest we may see more layoffs from the energy sector, as well as in other areas of the economy. The problems that China is facing could send shockwaves throughout the global economy, including the United States,” Challenger continued. </p> <p>Finally, one thing that is certain: of all states, Texas continues to bear the brunt of the layoff pain. And if oil continues trading in the $30/$40 range, the pain is far from over.</p> <p><a href=""><img src="" width="600" height="639" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="836" height="890" alt="" src="" /> </div> </div> </div> China Global Economy Reality Thu, 03 Sep 2015 12:06:53 +0000 Tyler Durden 512800 at ECB Keeps Rates Unchanged, Focus Turns To Draghi Press Conference <p>As expected, there was no change in the ECB's three key interest rates, with the main refi, lending and deposit rates staying where they were at 0.05%, 0.30% and -0.20%, respectively.</p> <p><em>From the <a href="">press release</a>:</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.05%, 0.30% and -0.20% respectively. </p> <p>&nbsp;</p> <p>The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.</p> </blockquote> <p>This is not a surprise. The question is whether Draghi will hint at, or outright boost, QE in 45 minutes, how much he will cut Europe's GDP and inflation outlook, and whether there will be another confetti shower. </p> <p>Stay tuned</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1200" height="833" alt="" src="" /> </div> </div> </div> Thu, 03 Sep 2015 11:48:05 +0000 Tyler Durden 512799 at In Risky Move, Riksbank Holds Rates But Warns Will Cut If ECB Boosts QE <p>In July, Sweden’s Riksbank did a funny thing - they <a href="">doubled down</a> on QE even after it became clear that QE had failed. And we don’t just mean "failed" in the somewhat abstract sense that all global QE has failed when it comes to bringing about a robust recovery and shaking the global economy out of the demand doldrums. <strong>We mean it actually failed.</strong> As in, the Riksbank sucked up so much of the available high quality collateral that 10Y yields and the krona <a href="">started moving in the wrong direction</a> in a very non-accommodative self-feeding loop.&nbsp;</p> <p>Be that as it may, not everyone was convinced that demonstrable evidence of failure would be enough to deter further easing at Thursday’s meeting, but lo and behold, the Riksbank stood pat.&nbsp;</p> <ul> <li><strong style="font-size: 1em; line-height: 1.3em;">SWEDEN'S RIKSBANK LEAVES KEY RATE UNCHANGED AT -0.35 %</strong></li> </ul> <p style="padding-left: 30px;"><img src="" width="329" height="282" /></p> <p>Of course in a world where everyone has been forced to adopt an overwhelming easing bias, being complacent can be a death sentence, so we can only assume that the Riksbank might be simply hoping against hope that everyone else also remains on hold so that it’s not forced to triple down on the first official QE failure and indeed, the consensus seems to be that the bank’s perceived complacency will be temporary - very temporary. Here’s a look at some analyst commentary courtesy of Bloomberg: &nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Nordea sticks to forecast of a Riksbank rate cut in Oct. for now, but says the odds of further easing have diminished. SEK developments remain crucial, Nordea says in note. <strong>Says Riksbank on the optimistic side on inflation forecast longer out; together with the easing bias in the rate path this suggests that Riksbank is not done yet.</strong></em></p> <p>&nbsp;</p> <p><em><strong>Riksbank Will Need to Do More This Year: Danske Bank.</strong> Bank could cut rates further in December, and “it’s also quite likely they’ll need to do more in terms of QE,” Michael Grahn, analyst at Danske Bank, says by phone.</em></p> <p>&nbsp;</p> <p><em>SEB Sees High Likelihood of Riksbank Rate Cut in Oct. <strong>Risk for krona strength if Riksbank doesn’t confirm determination to do more increases probability for more action, as market expectations for another rate cut continue to be high, SEB says in note.</strong></em></p> </blockquote> <p>You get the idea.&nbsp;</p> <p>And of course, after the policy announcement, the krona rocketed to a 5-week high against the euro.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Swedish krona rises as much as 0.72% vs EUR to 9.4002, highest since July 24 after Riksbank holds key rate unchanged at -0.35%.</em></p> </blockquote> <p>Note that this looks to have been a particularly risky thing to do ahead of today’s ECB decision, especially in light of expectations for Draghi to announce an expansion of PSPP. And the Riksbank is well aware of the potential pitfalls. From Bloomberg again:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Riksbank Governor Stefan Ingves says any <strong>rapid strengthening of krona would pose risk to inflation rise. Riksbank won’t be passive if ECB makes big changes in its policy,</strong> Riksbank Governor Stefan Ingves says at press conference.</em></p> </blockquote> <p>And at the punchline to the whole charade is that, as predicted by Morgan Stanley, and as predicted here when we noted in July that Sweden is undoubtedly a proponent of the post-crisis central banker mantra of "if it’s broken, break it some more," the Riksbank effectively acknowledged that QE had broken the market but instead of taking that as a warning, it will simply move on to breaking other markets:</p> <ul> <li><span style="font-size: 1em; line-height: 1.3em;">RIKSBANK: COULD PURCHASE OTHER TYPES OF SECURITIES</span></li> </ul> <p>And finally, as tipped above, the currency wars will continue unabated:</p> <ul> <li><span style="font-size: 1em; line-height: 1.3em;">RIKSBANK: PREPARED TO INTERVENE ON THE FOREIGN EXCHANGE MKT</span></li> </ul> <div>* &nbsp;* &nbsp;*&nbsp;</div> <div>Because no Riksbank post is complete without it...</div> <div><img src="" width="598" height="913" /></div> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="434" height="304" alt="" src="" /> </div> </div> </div> Danske Bank Global Economy Morgan Stanley recovery Thu, 03 Sep 2015 11:39:31 +0000 Tyler Durden 512798 at Frontrunning: September 3 <ul> <li>U.S. Treasury's Lew says China will be held accountable on currency (<a href="">Reuters</a>) ... but not Japan</li> <li>Bank of Japan Not Convinced of Need for Further Easing (<a href="">WSJ</a>)</li> <li>Stocks Advance With Commodities on Signs of European Revival (<a href="">BBG</a>)</li> <li>ECB Said to Seek 645 Million Euros of Dutch, Irish Mortgage Debt (<a href="">BBG</a>)</li> <li>IMF Says China Slowdown, Other Risks Threaten Global Outlook (<a href="">WSJ</a>)</li> <li>Xi Says China No Threat, Announces Military Cuts at Parade (<a href="">BBG</a>)</li> <li>China holds massive military parade, to cut troop levels by 300,000 (<a href="">Reuters</a>)</li> <li>Migrants leave Budapest for Austrian frontier; pressure builds for EU action (<a href="">Reuters</a>)</li> <li>Inside Uber’s Fight With Its Chinese Nemesis, Didi Kuaidi (<a href="">WSJ</a>)</li> <li>Apple’s Latest Challenge: Topping Its Own Success (<a href="">WSJ</a>)</li> <li>Troubling image of drowned boy captivates, horrifies (<a href="">Reuters</a>)</li> <li>Market Bets Abound, but Where Are the Banks? (<a href="">WSJ</a>)</li> <li>Foreigners Flee Japan Stocks at Fastest Pace Since at Least 2004 (<a href="">BBG</a>)</li> <li>Another 57 Clinton email threads contain foreign governments' information (<a href="">Reuters</a>)</li> <li>Guatemala's President Perez resigns over graft scandal (<a href="">Reuters</a>)</li> <li>Selfie madness: too many dying to get the picture (<a href="">Reuters</a>)</li> <li>FBI has kept tabs on Nevada's Burning Man festival, documents say (<a href="">Reuters</a>)</li> </ul> <p>&nbsp;</p> <p><strong>Overnight Media Digest</strong></p> <p><em><span style="text-decoration: underline;">WSJ</span></em></p> <p>- Five Chinese navy ships are currently operating in the Bering Sea off the coast of Alaska, Pentagon officials said Wednesday, marking the first time the U.S. military has seen them in the area. The officials have been tracking the movements in recent days of three Chinese combat ships, a replenishment vessel and an amphibious landing ship after observing them moving toward the Aleutian Islands, which are split between U.S. and Russian control. (<a href="" title=""></a>)</p> <p>- As Apple Inc prepares to introduce its latest iPhones next week, the company's biggest challenge is one of its making: how to top its own success. Apple's iPhone 6 and iPhone 6 Plus reignited sales growth for the smartphone but analysts predict muted growth for its latest models due out next week. (<a href="" title=""></a>)</p> <p>- The United Auto Workers union is pitching Detroit auto makers on a proposed health-care purchasing cooperative as a way to lower employee costs and potentially raise funds to finance worker salary increases. (<a href="" title=""></a>)</p> <p>- The group backing Wisconsin Governor Scott Walker hopes focusing on the Palmetto State and Iowa can help the candidate gain traction after he fell out of the top tier of Republican presidential candidates. (<a href="" title=""></a>)</p> <p>- Many small businesses aren't racing to update their checkout systems ahead of an Oct. 1 shift that will put merchants on the hook for some fraudulent card charges. That is the date when retailers are expected to begin using new security technology that accepts credit and debit cards with microchips, and for banks to have replaced their magnetic stripe cards with cards that use chip-enabled technology. (<a href="" title=""></a>)</p> <p>- The giants of Silicon Valley are bulking up in the European Union's de facto capital, hiring lobbyists and jostling for the favor of the Web's most ambitious regulators. (<a href="" title=""></a>)</p> <p>- China's multibillion-dollar ride-hailing market has erupted into a brawl between Uber and Beijing startup Didi Kuaidi. Uber and Didi Kuaidi are fighting to raise funds for expansion while they compete to woo drivers to their private-car-hailing services and navigate China's tough regulatory environment. (<a href="" title=""></a>) </p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">FT</span></em></p> <p>Rebekah Brooks, cleared last year of orchestrating a criminal campaign that damaged the British establishment, will return to her old job running the News Corp's British newspapers on Monday.</p> <p>The executive committee of Volkswagen AG's supervisory board has proposed extending Martin Winterkorn's contract as chief executive until the end of 2018, the company said on Tuesday, opening the door to the appointment of a new chairman.</p> <p>Natalie Massenet, founder and executive chairman of online fashion group Net-A-Porter (NAP) abruptly resigned on Wednesday ahead of its planned acquisition by Italy's Yoox .</p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">NYT</span></em></p> <p>- Eurozone growth has improved since the central bank began its stimulus program, but there are new uncertainties in European and global economies. (<a href="" title=""></a>)</p> <p>- Petco &lt;IPO-PTAS.N&gt; has drawn takeover interest from private equity shops including Kohlberg Kravis Roberts &amp; Company as it continues preparing for an initial public share offering, a person briefed on the matter said on Wednesday. (<a href="" title=""></a>)</p> <p>- Natalie Massenet, the founder of Net-a-Porter and the woman who persuaded high fashion that it had a home online, is leaving the British luxury e-commerce group she built, just five months after announcing a merger with its Italian archrival, Yoox.</p> <p>- Puerto Rico has secured a first foothold in its struggles with a towering $72 billion mountain of debt. The island's electric power authority and a group of big investors agreed late Tuesday on terms for restructuring as much as $5.7 billion of bonds. (<a href="" title=""></a>)</p> <p>- The board of the California State Teachers' Retirement System, known as Calstrs, is discussing whether it would be best to shift as much as $20 billion of its portfolio out of stocks and even out of some fixed-income positions, in favor of something new, a "risk mitigation strategy." (<a href="" title=""></a>)</p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">Britain</span></em></p> <p>The Times</p> <p>Net-A-Porter founder quits before merger</p> <p>Natalie Massenet has stepped down from Net-A-Porter, the online luxury fashion retailer that she founded 15 years ago. Yoox SpA, which bought Net-A-Porter in March, said on Wednesday Massenet had tendered her resignation. It said that she would not join the board of the enlarged company when the sale is completed next month. (<a href="" title=""></a>)</p> <p>Juke box jury rules in favour of Sunderland</p> <p>Nissan Motor Co Ltd has given the green light to produce the next generation of its successful Juke model in Britain. The Nissan plant at Sunderland, Britain's biggest car factory, fought off competing claims from within the Japanese manufacturer's group, including its Barcelona operations, and from underutilised facilities around France that are owned by Renault, its alliance partner. (<a href="" title=""></a>)</p> <p>Eggborough coal plant to close at cost of 240 jobs</p> <p>One of Britain's biggest power stations is to close, with the loss of 240 jobs. The planned closure of Eggborough, a coal-fired plant in North Yorkshire that produces 4 percent of Britain's electricity, was announced as the owner of the nearby Drax plant said that it was suing the government over George Osborne's removal of a green tax break. (<a href="" title=""></a>)</p> <p>The Guardian</p> <p>Broadgate Quarter sale collapses as Chinese investor pulls out</p> <p>A major City property sale has collapsed after a Chinese investor abruptly pulled out of its 455 million pounds purchase of Broadgate Quarter. The joint owners of the building in the heart of London's Square Mile, the U.S. property developer Hines and HSBC Alternative Investments, had been close to completing the sale after weeks of due diligence. (<a href="" title=""></a>)</p> <p>265 Phones 4u stores still vacant a year after collapse</p> <p>At least 265 former Phones 4u stores are still empty almost a year after the company collapsed, as Britain's struggling high streets fail to attract replacement tenants. The large number of unoccupied stores reflects the damage caused by the controversial administration, which led to the loss of 3,500 jobs. (<a href="" title=""></a>)</p> <p>The Telegraph</p> <p>South African tycoon Christo Wiese eyes UK supermarkets</p> <p>The South African billionaire who has recently snapped up Virgin Active, the gym chain, and New Look, the high-street retailer, is now training his sights on Britain's struggling supermarket industry, it can be revealed. Christo Wiese said there were parallels between the grocery sector in his home country, where he has built up the ShopRite empire into the continent's largest food retailer, and the highly competitive UK market. (<a href="" title=""></a>)</p> <p>Sky News</p> <p>Brooks Back At News UK As Sun Gets New Editor</p> <p>Rebekah Brooks is to return to her job running News Corp's British newspaper arm after being cleared of involvement in the phone hacking scandal. The company said she would resume her role as News UK chief executive from Monday, four years after she stood down from the role at News International following the closure of the News of the World. (<a href="" title=""></a>)</p> <p>3i Review To Spark 275 mln stg Tommee Tippee Bids</p> <p>The owner of the Tommee Tippee range of baby products, Mayborn Group, is close to being put up for sale in a move that will underline the revival of 3i, the British private equity group. Mayborn is understood to be valued by 3i at roughly 275 million pounds including debts, with a number of unsolicited approaches said to have been made by potential bidders in recent months. (<a href="" title=""></a>) <em><span style="text-decoration: underline;"><br /></span></em></p> Apple China Detroit Eurozone Fail FBI France Japan Newspaper Private Equity Puerto Rico Reuters Volkswagen Thu, 03 Sep 2015 11:32:06 +0000 Tyler Durden 512797 at All Eyes On The ECB: Fearful Markets Pray Mario Draghi "Panicks" <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>"Markets stop panicking when policy makers start panicking"</em> - BofA strategist Michael Hartnett</p> </blockquote> <p>All eyes will be on Mario Draghi on Thursday as <a href="">expectations</a> for something big from the former Goldmanite have grown over the past two weeks. More specifically, some now think the odds of QE expansion have increased considerably in light of recent events. Here's what we said on Wednesday:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Why would the ECB expand QE you ask? Well, <strong>first because if we're going by inflation, PSPP really hasn't worked as evidenced by collapsing expectations.</strong></em></p> <p>&nbsp;</p> <p><img src="" width="584" height="466" /></p> <p>&nbsp;</p> <p><em><strong>And second because the only thing that can offset the synthetic inverse QE that China and/or the rest of the EMs embarked on, is more quite tangible QE conducted elsewhere, ideally at the ECB (which is currently 6 months into its first QE episode)</strong>, or Japan (although the ceiling to debt monetization there may have been already hit with the BOJ already monetizing more than 100% of all gross issuance) but not the Fed, whose rate hike intentions are what started this entire global reserve liquidation fiasco in the first place.</em></p> <p>&nbsp;</p> <p><em><img src="" width="500" height="366" /><br /></em></p> </blockquote> <p>So in short, the deflationary bogeyman still lurks, as does more than a $1 trillion in expected EM FX reserve draw downs spearheaded by China with Saudi Arabia right behind Beijing.&nbsp;<span style="font-size: 1em; line-height: 1.3em;">That will serve to remove liquidity from markets and put upward pressure on core rates, effectively working at cross purposes with DM central bank easing. </span></p> <p><span style="font-size: 1em; line-height: 1.3em;"><strong>And then there's the outright turmoil in China's financial markets, the confusion wrought by the yuan deval, heightened volatility across the globe and chaos in emerging markets from LatAm to AsiaPac.</strong> Put simply, Draghi's famous jawboning might not do the trick this time especially with everyone casting a wary eye towards the Fed.</span></p> <p><span style="font-size: 1em; line-height: 1.3em;">Bottom line: nothing calms the market like a panicked central banker.</span></p> <p>On EUR/USD via Bloomberg:</p> <ul> <li><span style="font-size: 1em; line-height: 1.3em;">EUR/USD is little changed at 1.1225 within tight range today as traders wait for ECB rate decision at 1:45pm CEST and press conference afterwards.&nbsp;</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Traders currently in wait-and-see, headline-trading mode, and they aren’t pre-committing to cash positions</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">All eyes on whether Draghi will talk down the euro and/or signal a possible expansion of ECB’s QE if needed</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Dovish stance will see EUR testing 21-DMA support at 1.1194 ** Pair has been trading above that lvl since Aug. 10</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Next support at 1.1102/07 21-DMA/Aug. 20 low</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Bids seen at 1.1185/90 and 1.1150, a trader in London says</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Should Draghi disappoint EUR bears, pair may test offers at 1.1275/80: trader</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Daily trendline resistance since Aug. 27 at 1.1308 and 1.1364 high on that day may cap reaction initially</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Any knee-jerk response might be short lived as all important NFP data expected tmrw</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Probability of a Sept. Fed liftoff now at 32%</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">Below, find some color on today's pivotal ECB decision from everyone you might care to hear from.</span></li> </ul> <p>* &nbsp;* &nbsp;*</p> <p><em>From Bloomberg's Richard Breslow:</em></p> <p>With China closed, global equities are having a calm up day which perhaps gives some insight into the broader view of risk without Shanghai panic, Bloomberg’s Richard Breslow writes. By and large it has been a quiet day as we await the ECB and nonfarm payrolls. No one is looking for the ECB to move on rates. The market is looking for the staff projections to be cautious with any outlook change and the heavy lifting to be done by Draghi at the press conference with a ready-to-act statement on unwarranted tightening. Any sign of cautiousness could be a mistake as global markets need bold actions. The economy needs it, the currency needs it.</p> <ul> <li><span style="font-size: 1em; line-height: 1.3em;"><strong>The five year/five year inflation gauge that Draghi has said the ECB watches very carefully remains at very depressed levels. There is no sign from the swaps market that inflation is expected to hit target as far as the eye can see. Say what you will about the market being wrong, but the market has had a better track record on predictions than many central bankers.</strong> Germany is not the euro zone. Isn’t that the message we are meant to have learned throughout the financial crisis? I would certainly ask Draghi if this swap still figures highly in their forecasts</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">At the other end of the spectrum, bund yields are staying elevated. (Yikes, I can’t believe I am calling 80bps elevated.) Much has been written about why bund yields are higher despite the equity turmoil, but the reality remains. From a technical level 80 bps has been interesting. <strong>The ECB wouldn’t want yields to break higher. And the last thing the rest of Europe needs is higher yields. </strong>This week three euro- zone countries will have sold bonds at yields that have been moving higher since their last go rounds</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">The euro remains in the middle of its YTD range with the USD. As long as EUR/USD remains above 1.1100-1.1150, let alone its 55-day moving average, technicians view it as a buy. The euro zone, again Germany aside, can’t afford a strengthening currency. This includes the rest of the core as well as the peripherals. It’s not currency war to get the EUR down, it’s economics if they want to strengthen the economy. EUR/GBP poking its head above the 200-DMA won’t have gone unnoticed</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">The IMF which has continued its serial downgrading of global growth forecasts has said so again. After cutting its growth forecasts in July, IMF Managing Director Lagarde said earlier this week that, “the global expansion outlook is worse than the lender anticipated less than two months ago,” with advanced and Asian economies growing more slowly than expected. Ahead of this week’s G-20 meeting the IMF argues that “Advanced economies should maintain supportive policies. In most advanced economies substantial output gaps and below-target inflation suggest that the monetary stance must stay accommodative”</span></li> <li><span style="font-size: 1em; line-height: 1.3em;"><strong>Global equity markets have been in a panic. Volatility has spiked. A strongly dovish ECB will help. If volatility is the supposed enemy of a central banker then here you go. </strong>The PMIs have not been spectacular. Even the Spanish economic miracle took a breather this week with employment data described as showing a deceleration in the economy by Miguel Cardoso, chief Spain economist at Banco Bilbao Vizcaya Argentaria SA.</span></li> <li><span style="font-size: 1em; line-height: 1.3em;">This really isn’t the time for the ECB to go small. It is an opportunity for them to exert some leadership</span></li> </ul> <p><em>From Deutsche Bank:</em></p> <p><strong>We expect the ECB to respond to recent events with verbal intervention.</strong> Our new market-based Financial Condition Index (FCI) has tightened sharply in the last couple of weeks. But the ECB sees gradual spillovers from its accommodative policy stance into bank credit counterbalancing tighter financial market conditions. Euro area GDP growth expectations remain largely static, with lower oil prices and easy credit conditions offsetting a stronger euro and slower global growth. This facilitates a “steady hand” on policy. However, we expect the ECB staff inflation forecast for 2017 to be revised marginally lower. Although we believe that fears of a hard landing in China are overdone, capital outflows could put upward pressure on the euro or — through falling FX reserves — on long-term government bond yields. We expect the ECB to reiterate its readiness to act, if necessary.</p> <p><em>From Citi:</em></p> <p><strong>The review of financial, economic and monetary developments is likely to highlight some growing uncertainty about the state of health of the global economy at a time of increased financial market volatility related to the deterioration in Chinese economic prospects and possibility of a first rate hike by the US Federal Reserve. </strong>The assessment of the euro area economy will likely be similar to previous iterations, in our view, acknowledging an ongoing but moderate recovery. From an inflation perspective, we suspect that the ECB will take heart from the slight increase in core inflation rates. However, we expect that the probable lowering of inflation mid-points, and of the longer-dated estimates, together with the sizeable correction in market-based inflation expectations, could lead to some strengthening in the ECB’s language about the need to maintain an accommodative monetary policy stance.</p> <p><em>From Goldman:</em></p> <p>Compared with the July meeting, the immediate risk of a systemic event on the back of developments in Greece has declined significantly.<strong> However, the external risks for the Euro area seem to have increased. In particular, questions regarding the momentum of the Chinese economy are likely to weigh on the minds of Governing Council members. Judging from the accounts of the last meeting, the Governing Council was already concerned in July about the negative impact on the Euro area from a potential slowdown of the Chinese economy. &nbsp; &nbsp;</strong></p> <p>We think the sharp decline in the oil price (around EUR10 since the July meeting) will be another focal point of the discussion in the Governing Council. While a lower oil price is clearly positive for the growth outlook of the Euro area, the negative short-term effect on inflation - given the still low overall level of annual inflation rates - will be a cause for concern, at least for some Governing Council members. The decline of around 20bp observed in 5-year-forward inflation-linked swap rates to below 1.7% since the July meeting will add to these concerns. After all, the rationale given for the introduction of the expanded asset purchase programme in January this year was the risk that the oil price decline "could adversely affect medium-term price developments" and that "this assessment is underpinned by a further fall in market-based measures of inflation expectations over all horizons and the fact that most indicators of actual or expected inflation stand at, or close to, their historical lows".</p> <p>Overall, we expect the Governing Council (GC) to acknowledge the continuing uncertainty regarding the economic and inflation outlook. We also expect a signal similar to the July statement that the GC is willing to act should clear evidence emerge that the ECB's baseline scenario of a moderate recovery is at risk: "If any factors were to lead to an unwarranted tightening of monetary policy, or if the outlook for price stability were to materially change, the Governing Council would respond to such a situation by using all the instruments available within its mandate."</p> <p><em>From BofA:</em></p> <p>Events colliding with the ECB's yearning for plain sailing In an interview with Boersen Zeitung last week, ECB board member Benoit Coeuré stated that “we do not wake up every morning and look at the economic indicators in order to decide whether to raise or lower interest rates or whether to stop or expand QE”, conveying a sense that QE should be allowed time to work through the economy and is not designed to “micro manage” the cycle. The decision to reduce the frequency of the Governing Council meetings – announced in July 2014 – also signalled the ECB’s willingness to wean the market off speculating on how the central bank would react to short-term “noise”. Finally, we also believe that with QE, as it was designed in January, the central bank has found a delicate internal compromise, and that the bar for any material tweaking is quite high. Still, the ECB has been “asymmetric” for quite some months, firmly dismissing any tapering of the programme before September 2016, but open to more action. <strong>Draghi noted in July that it was ready to do more “if any factor were to lead to an unwarranted tightening in monetary conditions or if the outlook for price stability were to materially change”. The issue then is whether the China-related turmoil would qualify as a “material change”.</strong> We believe there is enough room for more dovish talking, but not – yet – for action, even if the latest developments sit well with our view that the ECB, by year-end, will have to make a continuation of QE after September 2016 a baseline and not a possibility, given a deteriorating inflation outlook.</p> <p>During his July press conference, Draghi mentioned in the prepared statement that “market based inflation expectations have, on balance, stabilised or recovered further since our meeting in early-June”. This no longer holds with “5 year/5 year” down to 1.62%. It is always tempting for central banks to dismiss market-based inflation expectations, given their tendency to over-react to the latest developments, but even before the materialisation of the Chinese turmoil, we had reservations about the ECB’s inflation trajectory. On the basis of the move in oil prices alone, we estimate the central bank will have to revise down its forecasts by 0.3 pp in 2015 and by 0.2 pp in 2016. Because of the quirk in the slope of the oil futures curve, the central bank should be able to claim that 2017 will still be consistent with their definition of price stability, but this comes at a cost in terms of price level gap.&nbsp;</p> <p><em>From Credit Suisse:</em></p> <p>The ECB will present its new staff projections for inflation and growth. Our economists expect that the ECB will lower its 2017 inflation forecast from 1.8% in the March and June forecasts to 1.7% in the September forecasts. This could indicate that QE is unlikely to end before September 2016 and run potentially longer. However, our economists do not expect a firm extension. We believe the market will take the lowering of the 2017 forecasts as moderately dovish and we would expect a small rally on this. If the ECB only lowers its forecasts to 1.7% for 2017, it would still be significantly more optimistic about inflation than our economists or the market (see Exhibit 22). Our economists' baseline scenario for inflation is an increase to 1.5% by year-end 2017 and an average inflation of 1.35% for the same year. While they expect 2016 inflation to be significantly driven by oil and currency moves, the 2017 number is approximately unchanged in each of their risk scenarios. The market, however, is significantly more bearish on inflation for 2017. The market based average inflation in 2017 is approximately 0.75%, which would still be close to 1% below the ECB's new forecast.</p> <p><em>From Credit Agricole:</em></p> <p>The ECB should worry in our view about a potential China-induced global demand shock which could hurt the Eurozone recovery (exports account for more than a quarter of Eurozone’s GDP) and inflation outlook (the recent EUR TWI appreciation and lower commodity prices should drag the Eurozone headline inflation lower still).</p> <p>There are several ways in which the ECB could telegraph its dovish message:</p> <p><strong>1/ Downward revision of inflation and growth forecasts</strong> - of particular importance will be the new HICP mid-point projections for 2016 and 2017 (that stand at 1.5%YoY and 1.8%YoY currently). A forecast downgrade seems widely anticipated by now and the real question is more about the magnitude of the correction. A significant downward revision (eg a new inflation forecast of close to or below 1.2% for 2016 and 1.5% for 2017) would signal that the current QE program could extend beyond September 2016. In addition, indications that the Governing Council is now less optimistic about the Eurozone growth over longer term (GDP growth forecasts are 1.9% for 2016 and 2.1% for 2017) should be seen as a dovish surprise, strengthening the ECB’s commitment to QE for longer.</p> <p><strong>2/ Verbal intervention in EUR</strong> – EUR has been one of the biggest beneficiaries from the China-induced market turmoil with the TWI index at one point appreciating by more than 5%. The ECB President is fully aware of the fact that if the latest FX appreciation is left unaddressed, EUR could extend its gains broadly. We therefore think that EUR could feature prominently during the press conference with Draghi highlighting the importance of the currency as driver of inflation in the environment of persistent downside pressure on global commodity prices.</p> <p><em>From Barclays:</em></p> <p>Since the last policy meeting in July, there have been several macroeconomic and financial factors that have reduced the near- and medium-term inflation outlook and tightened overall financial conditions. The ECB staff macroeconomic projections are likely to show a downward revision in inflation forecasts for both 2015 and 2016, resulting from a stronger euro and weaker oil price futures. Therefore, we expect President Draghi to maintain an accommodative stance during his introductory statement, likely insisting that the Governing Council still has tools available should monetary and financial conditions tighten further. <strong>We now expect further easing to be announced before year-end as we believe inflation is unlikely to return to levels consistent with the ECB’s objective of price stability over the next two years. A time extension of the asset purchase programme to beyond September 2016 is the most likely option, in our view, and we think it could be decided as early as next week.</strong> Other options include an extension of the size and the scope of asset purchases and a cut in the deposit rate – the latter would be the most effective against a strong euro, in our view, but we do not expect such announcements next week, although the Governing Council will probably start discussing these options.&nbsp;</p> <p><em>Bonus: Barclay's QE tracker</em></p> <p><a href=""><img src="" width="600" height="500" /></a></p> <p><em>And one more thing: Can the ECB actually do anything to offset FX reserve drawdown when EM flows only seem to track the Fed?&nbsp;</em></p> <p><a href=""><img src="" width="600" height="240" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="608" height="446" alt="" src="" /> </div> </div> </div> Barclays Baseline Scenario Bond Central Banks China Credit Conditions Credit Suisse Deutsche Bank Equity Markets Eurozone Federal Reserve Germany Global Economy Greece Japan LatAm Market Conditions Monetary Policy Monetization Reality recovery Saudi Arabia Time Extension Volatility Yuan Thu, 03 Sep 2015 11:01:03 +0000 Tyler Durden 512796 at