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Global Easing Bonanza Continues As Norway, Taiwan Cut Rates To Spur Struggling Economies
On several occasions this year we’ve profiled Norway where the central bank, much like the Riksbank in neighboring Sweden, is walking a fine line between keeping rates low to support the economy (not to mention remain competitive in the global currency wars) and being mindful of the effect low rates have on an overheating housing market.
Like the Riksbank, The Norges Bank is in a tough spot. The property bubble quite clearly needs to be arrested but using monetary policy to rein in the housing market means leaning hawkish in a world of DM doves and that can be exceptionally dangerous especially when your economy is heavily dependent on oil and crude prices are crashing.
Indeed, the pain from low oil prices has become so acute that Norway may ultimately be forced to tap its $900 billion sovereign wealth fund in order to avoid fiscal retrenchment.

Given the above, no one was surprised (well, no one except PhD economists, most of whom got this one wrong) when the Norges Bank cut rates on Thursday, taking the overnight depo rate to a record low of 0.75%. Here’s Bloomberg:
Norway’s central bank cut interest rates to an all-time low and said it may ease policy further as it seeks to rescue an expansion in western Europe’s biggest petroleum producer amid a plunge in oil prices.
The overnight deposit rate was lowered by 25 basis points to 0.75 percent, the Oslo-based central bank said Thursday. The move was forecast by seven of the 17 economists surveyed by Bloomberg, with the remainder expecting no change. The bank forecast its rate may fall as low as 0.59 percent in third quarter of next year. The krone plunged 2 percent against the euro on the news, its biggest drop since August.
“Growth prospects for the Norwegian economy have weakened, and inflation is projected to abate further out,” Governor Oeystein Olsen said in a statement
After easing policy in June, Olsen signaled as much as a 70 percent chance of another rate cut this autumn. Since then, oil prices have dropped about 25 percent. That has driven down the krone by about 7 percent against the euro in the period, pushing inflation above the central bank’s 2.5 percent target.
The collapse in oil prices is already taking its toll on the $500 billion economy. Mainland growth slowed to 0.2 percent in the second quarter while total output shrank 0.1 percent. Unemployment is now hovering at the highest since 2006 as oil companies have cut more than 20,000 jobs.
Of course the FOMC’s “clean relent” was a factor as the following (again from Bloomberg) makes clear:
Governor Oeystein Olsen Says Fed’s decision to hold rates earlier this month came at a time when “interest rate expectations were down when we compared it with our previous estimates. The decision by the Fed supported that picture. It was not decisive, it underlined and strengthened our picture”
Says “all central banks are waiting for the Fed. There are a number of challenges with continuing in a low interest- rate world that have spillover effects on smaller economies. The low interest rate level in Norway is explained by the fact that rates internationally are at a very low level. That will be important for everybody
Says is ‘‘aware that lower rates could fuel the housing market. There are other forces in play here: the general increased slack in the economy -- increased unemployment -- stricter lending conditions in banks which are now imposed by the ministry. We already see and hear that it has had some effect on bank behavior. Most importantly, there are other considerations for guiding our interest rate decision -- the outlook for the Norwegian economy is slightly worse than what we saw in June”
And here's Goldman's take:
Norges Bank cut its policy rate path today by 25bp to 0.75%. Uncertainty ahead of today's decision was very high. Our base case was for no change, but we had pencilled in an almost equal risk of a cut. The consensus expectation was also for no cut, but only marginally so (Cons, GS: 1.0%). Norges Bank adopted something close in line with our alternative scenario, whereby the fall in oil prices was seen as materially affecting the economic outlook (via weaker offshore oil investments) and the recent upside surprise to inflation was seen as more transitory, resulting in a cut and the adoption of a dovish policy rate path. This path indicates around a 60%-70% probability of another cut over the coming year. In addition, the adopted path remains low and flat for most of 2017 and 2018. The revision to mainland growth was nevertheless small, while inflation in the coming two years was revised up.
All of the above served to send NOK plunging to a 13-year low against the dollar and a YTD low against Sweden's krona (paging Stefan Ingves: Sweden is still losing in the currency wars):
Bottom line: if the now ubiquitous "lower for longer" crude thesis plays out, and if the ECB ends up plunging further into NIRP and dragging the Riksbank and the SNB with it, don't be surprised to see Norway cut further even if doing so means exacerbating the housing bubble.
Meanwhile, in Taiwan, the central bank cut rates for the first time since 2009 overnight and it's not too difficult to guess why. The yuan devaluation depressed onshore demand just as it weighed on regional export competitiveness and ultimately, Taiwan simply couldn't afford to hold out any longer. Here's Bloomberg:
Taiwan lowered its policy rate for the first time since the global financial crisis, sending forwards on the island’s currency to a six-year low.
The central bank cut the benchmark discount rate by 12.5 basis points to 1.75 percent, it said in a statement in Taipei on Thursday. Eleven of 24 economists surveyed by Bloomberg predicted a cut, while the remaining 13 had expected the rate to be held for the 17th straight quarter.
Taiwan’s economy is slowing as its technology exports are weighed by increased competition from China, where growth is also moderating. The island’s expansion rate for the third quarter will be lower and inflation is subdued, central bank Governor Perng Fai-nan said at a press briefing after the rate decision was announced.
Speculation of a rate cut mounted as the island’s economic outlook deteriorated. In June, only two of 26 economists polled by Bloomberg expected a reduction in 2015, with three seeing a hike. Expectations for steady policy had helped make Taiwan’s dollar among the best performing emerging-market currencies this year as central banks from China to India all eased cash supply.
Like the rest of Asia, Taiwan is suffering from weaker exports and growth with the only surprise being that the central bank hadn’t cut before today, said Gareth Leather at Capital Economics Ltd. in London.
"It’s Taiwan playing catch up."
So in short, the global currency wars continue unabated as a combination of a dovish Fed, lackluster global demand, and slumping commodity prices conspire to accelerate the race to the bottom.
As we never tire of reminding the world's central banks, incessant rate cutting and the persistence of ultra accommodative monetary policy comes with very real risks including, but certainly not limited to, property bubbles like those seen in Norway and Sweden, and the irony is that when these risks finally manifest themselves in crisis, central banks will be in no position to respond because they will have exhausted their counter-cyclical breathing room by pushing forward with the very same policies that created the crises in the first place.
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The race winner will get banned for dopping! LOL
I know it's not funny ( The race to debase) but if you cannot laugh then..................................
Oh God! Now we have to wait for Yallen's speech today and then dissect every word that is emitted from her clueless mouth. This is starting to remind me of the Greek bullshit before they caved in to the EU bankers.
ZIRP outbreak spreading over the entire globe. Sooner or later they will realize the first country out of ZIRP and into to gold is the first country to recover.
I've heard that a case of the ZIRPs is accompanied by a burning sensation during urination. Maybe a central banker could confirm that.
Doping or Dropping ? I guess both make sense ;)
Oh know
The spelling Police are out..................No where to hide
My life is in danger and my wealth cause I cannot spell for it!
Heeeeeeeeeeeeeeeeeeelp
Spell checker does not work on ZH.
Yes it does, but not every word is in the dictionary, although a word can be added to the dictionary whether it's spelled correctly or not.
US Fed is out of touch with the rest of the world. They should be well into QE4 and NIRP by now. Idiots.
By faking a rate hike billions flow from overseas into T-Bills. Remember the Fed is a for profit bank.
But but but ..Bernie said..Denmark , Norway , Sweden , It was supposed to work , all the talk of "socialist northern europe happiness and bunnies for everyone" ?
Ah fuck. Let's print more shit ad infinitum and get it over with , that was always the plan anyway.
We havnt heard much from the socialist nannystate of Norway since the oil crash. 13 year lows for the currency sounds a lot like Brazil
They love ZIRP. The banks are the ones who profit. They don't care about money it's the power and all the hard assets they're getting now by lending free money. This is they're end plan. This is where they literally take over countries. Get rid of banks now!!!
Someone said it here first -
Higher rates = Barbarous relic
Spill city
The politicians deserve as much blame as the central banks - even if the politicians are bought by the banks. We continue to see productive projects like Keystone delayed while adding on countless new laws and regulations to 'prevent' job growth - done in the name of social justice, global warming, or other politically correct cause. Toss in politicians approving trade deals that export their country's jobs - while lowering trade barriers in order to let in the foreign imports of what their country used to make. Eventually a country has lost its ability to grow or even to maintain consumption -- as has happened to Japan, the U.S., Europe, and it is even happening as China moves production to Vietnam and Thailand!
The only hope is to find a politician able to act independently and actually implement a pro growth agenda with less regulation.
Looks like everything is going according to plan.
"Race through the bottom"
through, not to.
According to Bank of America Merrill Lynch:
http://is.gd/5vle0j
Strategy Snippet
You can have too much of a good thing
The Fed is helping so much it hurts
We have noted that each incremental instance of monetary stimulus has been met with diminishing returns for risk assets. We think further easing, or a lack of tightening, in the U.S. is a negative for stocks. The expectation for Thursday’s FOMC policy decision was a rate hike and dovish commentary, or no hike and hawkish commentary. Instead, the Fed left rates unchanged and delivered a dovish message. In response, the S&P 500 sold off into the close and was down the next day. As we have noted recently, the biggest risk to equities could be another round of QE—suggesting that $4.5tn was not enough to prop up the U.S. economy. Also, the read across for global risk assets could be that significant liquidity provided by central banks may not always be sufficient to drive markets higher.
Tactical delay or real economic deterioration?
Our base case is that the Fed’s lack of action is a tactical delay, and therefore does not impact our outlook. We are maintaining our recently lowered S&P 500 year-end target of 2100. We note that our technical team sees risks to the bull market, and our global quant team’s Global Wave has been declining for the last eight months. Our economists’ real- time indicator of global growth, the GLOBALcycle, softened in August (led by EMs), and we will be closely watching for signs of stabilization or further deterioration.
The Fed on hold = more of the same
The story for the last five years looks set to continue for at least the next few months. With easy monetary policy and a scarcity of growth and value, we would expect to see positive momentum in Growth and Dividend Yield stocks continue. But, given our economists’ expectations for a pick-up in global growth over the next several quarters, buying cheap, unloved cyclicals could start to play out. This would also be true for Energy, which is the ultimate pain trade. Energy has record low valuations, ownership and investor sentiment, and our commodity strategists forecast a year-end rally in oil prices.
Multinationals: intersection of quality & weak dollar beneficiaries
Buying multinationals looks increasingly attractive. These high quality stocks are beaten- down, inexpensive and under-owned by active funds. The companies have produced upside earnings surprises, and the stocks have been outperforming since mid-August, despite the volatility associated with concerns about global growth. The performance of foreign- exposed stocks is now more correlated to moves in the US dollar than at any point in nearly a decade. Dollar strength has been a source of pain for multinationals so far this year, but this could reverse if a dovish Fed exerts more downward pressure on the dollar.
China risks - avoid Materials
With the recent slowdown in China, we are mindful of the risk of a recession. The area most exposed to China is the Materials sector. This sector’s performance is most highly correlated with China’s stock market, as well as with monetary conditions in the region. Metals and Mining looks particularly unattractive given overcapacity in China, and screens as a Value Trap in our work. Health Care is the least correlated with China.
Norway is about to close a deal to adquire 50 new f-35 and their currency is bleeding, hows that?
unicorn economy and unicorn airplanes fit each other