Tag: news

It took Hilsenrath just under a minute to pump out his 1057 word thesis on the FOMC minutes. As usual, this is indicative of a comfortable embargo cushion which one can be assured was unbreached, as anything else would be very illegal.

From the WSJ:

Fed Minutes Takeaways: On Track to End QE, but Stick to Low Rates

Federal Reserve officials had a wide-ranging discussion about the outlook for monetary policy at their Oct. 29-30 policy meeting. The bottom line was that they stuck to the view that they might begin winding down their $85 billion-per-month bond-buying program in the “coming months” but are looking for ways to reinforce their plans to keep short-term interest rates low for a long-time after the program ends.

They struggled to build a consensus on how they would respond to a variety of different scenarios. One example: What to do if the economy didn’t improve as expected and the costs of continuing bond-buying outweighed the benefits? Another example: How to convince the public that even after bond buying ends, short-term interest rates will remain low.

Here is a first look at key passages (in italics) and what they suggest about Fed policy:

ECONOMIC OUTLOOK: It looked a little softer in the near-term, but officials weren’t veering from their view on how the recovery would play out:

Although the incoming data suggested that growth in the second half of 2013 might prove somewhat weaker than many of them had previously anticipated, participants broadly continued to project the pace of economic activity to pick up. The acceleration over the medium term was expected to be bolstered by the gradual abatement of headwinds that have been slowing the pace of economic recovery—such as household-sector deleveraging, tight credit conditions for some households and businesses, and fiscal restraint—as well as improved prospects for global growth. While downside risks to the outlook for the economy and the labor market were generally viewed as having diminished, on balance, since last fall, several significant risks remained, including the uncertain effects of ongoing fiscal drag and of the continuing fiscal debate.

OUTLOOK FOR BOND BUYING: Given their expectations for the economy, they still expect to end the program in the months ahead:

Participants reviewed issues specific to the Committee’s asset purchase program. They generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.

WHAT IF THE BOND-BUYING PROGRAM STOPS WORKING BEFORE THE LABOR MARKET IMPROVES: The Fed might end bond buying and find another way to stimulate the economy.

Some participants noted that, if the Committee were going to contemplate cutting purchases in the future based on criteria other than improvement in the labor market outlook, such as concerns about the efficacy or costs of further asset purchases, it would need to communicate effectively about those other criteria. In those circumstances, it might well be appropriate to offset the effects of reduced purchases by undertaking alternative actions to provide accommodation at the same time

KEEP IT SIMPLE, STUPID: Fed officials are trying harder to keep a consistent message after the confusion in markets earlier this year.

Participants broadly endorsed making the Committee’s communications as simple, clear, and consistent as possible, and discussed ways of doing so. With regard to the asset purchase program, one suggestion was to repeat a set of principles in public communications; for example, participants could emphasize that the program was data dependent, that any reduction in the pace of purchases would depend on both the cumulative progress in labor markets since the start of the program as well as the outlook for future gains, and that a continuing assessment of the efficacy and costs of asset purchases might lead the Committee to decide at some point to change the mix of its policy tools while maintaining a high degree of accommodation

MODEST SUPPORT FOR THRESHOLD CHANGE: The Fed has been saying it will keep short-term rates low until after the jobless rate falls below 6.5%. Some economists think the Fed should lower that threshold to provide more support to the job market. There wasn’t a great deal of support for such a move.

A couple of participants favored simply reducing the 6½ percent unemployment rate threshold, but others noted that such a change might raise concerns about the durability of the Committee’s commitment to the thresholds.

INFLATION BOUNDS: The Fed is also considering offering a lower bound on inflation. That got some support, though not rousing.

In general, the benefits of adding this kind of quantitative floor for inflation were viewed as uncertain and likely to be rather modest, and communicating it could present challenges, but a few participants remained favorably inclined toward it.

LOW RATES FOR LONG: Fed officials appear to be gravitating toward an “inertial” policy approach. In other words, toward assuring the public that the Fed won’t be in a hurry to raise short-term rates even after its 6.5% threshold is crossed.

Several participants concluded that providing additional qualitative information on the Committee’s intentions regarding the federal funds rate after the unemployment threshold was reached could be more helpful. Such guidance could indicate the range of information that the Committee would consider in evaluating when it would be appropriate to raise the federal funds rate. Alternatively, the policy statement could indicate that even after the first increase in the federal funds rate target, the Committee anticipated keeping the rate below its longer-run equilibrium value for some time, as economic headwinds were likely to diminish only slowly. Other factors besides those headwinds were also mentioned as possibly providing a rationale for maintaining a low trajectory for the federal funds rate, including following through on a commitment to support the economy by maintaining more-accommodative policy for longer. These or other modifications to the forward guidance for the federal funds rate could be implemented in the future, either to improve clarity or to add to policy accommodation, perhaps in conjunction with a reduction in the pace of asset purchases as part of a rebalancing of the Committee’s tools

DON’T FORGET IOER: The Fed pays 0.25% to banks that keep reserves on deposit with the central bank. Some economists think it should reduce that rate to encourage lending. The idea hasn’t had much traction in the past, but it is back in play.

Most participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1CzL8RUqeKI/story01.htm Tyler Durden

With the schizophrenia that seems to have availed across the FOMC members (hawks are doves, doves are hawks, tapering is not tightening, etc.) it is not surprising that the minutes reflect some confusion:

• *FOMC SAW `SEVERAL SIGNIFICANT RISKS’ REMAINING FOR ECONOMY
• *FED TAPER LIKELY IN COMING MONTHS ON BETTER DATA, MINUTES SHOW
• *METLIFE FOUNDATION, SESAME WORKSHOP PARTNER TO PROVIDE FINL
• *FOMC SAW DOWNSIDE RISKS TO ECONOMY, LABOR MARKET `DIMINISHED’
• *FOMC SAW CONSUMER SENTIMENT REMAINING `UNUSUALLY LOW’
• *FOMC SAW RECOVERY IN HOUSING AS HAVING `SLOWED SOMEWHAT’

So summing up – when we get to an unknown point in the future with an unknown state of parameters, we may do an unknown amount of tapering – maybe possibly. Pre-Minutes: SPX 1791, 10Y 2.75, EUR 1.3444, Gold $1262

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EU-V8WhCsfE/story01.htm Tyler Durden

With the schizophrenia that seems to have availed across the FOMC members (hawks are doves, doves are hawks, tapering is not tightening, etc.) it is not surprising that the minutes reflect some confusion:

• *FOMC SAW `SEVERAL SIGNIFICANT RISKS’ REMAINING FOR ECONOMY
• *FED TAPER LIKELY IN COMING MONTHS ON BETTER DATA, MINUTES SHOW
• *METLIFE FOUNDATION, SESAME WORKSHOP PARTNER TO PROVIDE FINL
• *FOMC SAW DOWNSIDE RISKS TO ECONOMY, LABOR MARKET `DIMINISHED’
• *FOMC SAW CONSUMER SENTIMENT REMAINING `UNUSUALLY LOW’
• *FOMC SAW RECOVERY IN HOUSING AS HAVING `SLOWED SOMEWHAT’

So summing up – when we get to an unknown point in the future with an unknown state of parameters, we may do an unknown amount of tapering – maybe possibly. Pre-Minutes: SPX 1791, 10Y 2.75, EUR 1.3444, Gold $1262

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EU-V8WhCsfE/story01.htm Tyler Durden

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

Back in July, we highlighted a ridiculous and insulting campaign that McDonalds ran with Visa in which the company tried to help its impoverished employees plan a budget. The only thing the campaign did was embarrass the company by proving that you can’t survive working there.

Well the company is right back at it in time for the holidays, with several pieces of advice for its legions of serf employees through its ”McResource” website. Three of the more insulting pieces of wisdom include:

“Sing away stress: Singing along to your favorite songs can lower your blood pressure.”

 

“Break it up: Breaking food into pieces often results in eating less and still feeling full.”

I saved the best for last…

“Quit complaining: Stress hormone levels rise by 15% after ten minutes of complaining.”

Are you “lovin’ it” yet? Video below:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vepBRCRGeKo/story01.htm Tyler Durden

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

Back in July, we highlighted a ridiculous and insulting campaign that McDonalds ran with Visa in which the company tried to help its impoverished employees plan a budget. The only thing the campaign did was embarrass the company by proving that you can’t survive working there.

Well the company is right back at it in time for the holidays, with several pieces of advice for its legions of serf employees through its ”McResource” website. Three of the more insulting pieces of wisdom include:

“Sing away stress: Singing along to your favorite songs can lower your blood pressure.”

 

“Break it up: Breaking food into pieces often results in eating less and still feeling full.”

I saved the best for last…

“Quit complaining: Stress hormone levels rise by 15% after ten minutes of complaining.”

Are you “lovin’ it” yet? Video below:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vepBRCRGeKo/story01.htm Tyler Durden

While the FOMC Minutes due out in less than an hour is what everyone is looking forward to, the big surprise announcement of the day was the repeat of a rumor released initially 6 months ago, namely that the ECB is considering negative deposit rates – a concept we first speculated about back in June of 2012. Alas, just like last time, the latest incarnation of the NIRP rumor appears to be merely more hot air (and certainly will be exposed as such once the non-compliant mostly German ECB members hit the tape). One person who says not to hold your breath for an ECB negative rate, is Citi’s Valentin Marino, who says not only is a negative deposit rate unlikely before the results of the AQR and stress tests as it would accelerate bank deleveraging, but that it “could worsen the pervasive credit crunch and add to the growth headwinds and deflation risks in in the currency block. It would erode investors’ confidence in Eurozone’s financial institutions and accentuate their relative underperformance.” 

Which of course makes sense: just like in the summer of 2011 when the ECB was leaking rumors left and right just to gauge which would have the highest market impact and be the most sticky (a plan subsequently adopted by Japan in late 2012 and early2013), this is just a “market test” by the ECB to see how much credibility its jawboning still has with the market, and how much of an impact it could derive should it truly go down this unprecedented path (which by the way would incinerate the European money market and crush short-dated funding).

But for now, following today’s 100 pip drop in the EURUSD, it appears to have saved European corporations for at least one more day (recall earlier today we reported just how crushed European corporate profits have been as a result of the soaring Euro). Tomorrow is another day.

Finally, there is another issue: should the ECB overshoot and send the Euro plunging, then that scary spectre of the summer of 2012, redenomination risk, would promptly arise again, setting off a chain reaction that would necessitate the “use” of that non-existant ECB deus ex machina, the OMT – something absolutely nobody in the ECB would be willing to risk, especially not with the German constitutional court decision still pending.

Full note from Citi:

EUR and the ECB – this time may mean business

 

Recent media reports indicated that the ECB is considering introducing negative rates of 0.1% on banks’ excess cash. The measure remains highly controversial ahead of the Eurozone banks’ AQR and stress tests. The headlines do highlight the resolve of the Governing Council to respond to persistent disinflation on the back currency appreciation. This should keep EUR under pressure going into the December policy meeting.

 

EUR came under selling pressure following media reports that the ECB is deliberating negative rates of -0.1%on the banks excess cash. If confirmed the policy should be seen as very negative for EUR with investors effectively being paid to spend EUR cash. Weaker EUR could help stimulate Eurozone exports and growth.

 

The above being said, we suspect that the measure remains highly controversial given concerns about the impact of the measure on banks’ profitability and willingness to lend. The amount of excess liquidity in the Eurozone is EUR174bn at present which implies losses of more than EUR170mn (Figure 1). 

 

A potential penalty could lead to accelerated deleveraging by Eurozone banks ahead of the Asset Quality Review (AQR) and stress tests next year. The measure could worsen the pervasive credit crunch and add to the growth headwinds and deflation risks in in the currency block. It would erode investors’ confidence in Eurozone’s financial institutions and accentuate their relative underperformance. All that could reflect badly on EUR (Figure 2).

 

We think that the ECB may want to wait for the outcome of AQR and the stress tests for the Eurozone banks before considering the negative deposit rate measure. Going into the December meeting the Governing Council may consider some of the options below. All that should keep the cyclical headwinds for EUR firmly in place:

1/ LTRO – the Governing Council could indicate it is working on a long-term refinancing program that will help anchor rate expectations, alleviate any liquidity pressures in the Eurozone banking sector ahead of AQR and stress tests and avoid renewed funding tensions in the periphery. So far the Governing Council has been rather vague about any new long-term liquidity measures so that the timing of the announcement could come as a dovish surprise and could weigh on euro.

 

2/ QE – Indications that the Governing Council is looking into more aggressive policy options like QE and negative deposit rates. Recent comments by ECB’s chief economist Peter Praet signaled that such measures could be considered. Media reports over the summer seemed to suggest that the ECB may be looking into buying GDP-weighted amounts of Eurozone bonds potentially in the same way it purchased bonds under the SMP program. Indications by President Draghi that QE is among the options considered alongside LTRO could be perceived as quite dovish and send EUR lower.

 

3/ A refi or depo rate cut or indications that the ECB deliberated more cuts of refi or deposit rate. If the experience of the FOMC or the SNB is anything to go by, the Governing council may opt to introduce a band for the refi rate between zero and 25bp. Negative deposit rates seem less likely to us for the time being. The ECB may want to wait for the outcome of AQR and the stress tests for the Eurozone banks before considering the measure. Signals that more rate cuts are coming could also keep cyclical headwinds in place for the euro.

 

4/ FX market intervention – with the EUR TWI index close to multi-year highs some clients were discussing the possibility of unilateral or concerted intervention in the euro. The ECB engaged in concerted interventions in the FX markets to arrest the sharp EUR depreciation in 2000. The actions came on the back of decisions by Eurozone finance and economy ministers. An FX intervention seems less likely at present given that the G20 countries have agreed to refrain from actions that could target exchange rates. What is more, G20 central banks have agreed to pursue domestic goals (fighting disinflation) by using domestic instruments (no Forex). We suspect that it would take excessive EUR appreciation in combination with severe escalation in market volatility for FX interventions to be considered.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UEa0DR3C_I0/story01.htm Tyler Durden

While the FOMC Minutes due out in less than an hour is what everyone is looking forward to, the big surprise announcement of the day was the repeat of a rumor released initially 6 months ago, namely that the ECB is considering negative deposit rates – a concept we first speculated about back in June of 2012. Alas, just like last time, the latest incarnation of the NIRP rumor appears to be merely more hot air (and certainly will be exposed as such once the non-compliant mostly German ECB members hit the tape). One person who says not to hold your breath for an ECB negative rate, is Citi’s Valentin Marino, who says not only is a negative deposit rate unlikely before the results of the AQR and stress tests as it would accelerate bank deleveraging, but that it “could worsen the pervasive credit crunch and add to the growth headwinds and deflation risks in in the currency block. It would erode investors’ confidence in Eurozone’s financial institutions and accentuate their relative underperformance.” 

Which of course makes sense: just like in the summer of 2011 when the ECB was leaking rumors left and right just to gauge which would have the highest market impact and be the most sticky (a plan subsequently adopted by Japan in late 2012 and early2013), this is just a “market test” by the ECB to see how much credibility its jawboning still has with the market, and how much of an impact it could derive should it truly go down this unprecedented path (which by the way would incinerate the European money market and crush short-dated funding).

But for now, following today’s 100 pip drop in the EURUSD, it appears to have saved European corporations for at least one more day (recall earlier today we reported just how crushed European corporate profits have been as a result of the soaring Euro). Tomorrow is another day.

Finally, there is another issue: should the ECB overshoot and send the Euro plunging, then that scary spectre of the summer of 2012, redenomination risk, would promptly arise again, setting off a chain reaction that would necessitate the “use” of that non-existant ECB deus ex machina, the OMT – something absolutely nobody in the ECB would be willing to risk, especially not with the German constitutional court decision still pending.

Full note from Citi:

EUR and the ECB – this time may mean business

 

Recent media reports indicated that the ECB is considering introducing negative rates of 0.1% on banks’ excess cash. The measure remains highly controversial ahead of the Eurozone banks’ AQR and stress tests. The headlines do highlight the resolve of the Governing Council to respond to persistent disinflation on the back currency appreciation. This should keep EUR under pressure going into the December policy meeting.

 

EUR came under selling pressure following media reports that the ECB is deliberating negative rates of -0.1%on the banks excess cash. If confirmed the policy should be seen as very negative for EUR with investors effectively being paid to spend EUR cash. Weaker EUR could help stimulate Eurozone exports and growth.

 

The above being said, we suspect that the measure remains highly controversial given concerns about the impact of the measure on banks’ profitability and willingness to lend. The amount of excess liquidity in the Eurozone is EUR174bn at present which implies losses of more than EUR170mn (Figure 1). 

 

A potential penalty could lead to accelerated deleveraging by Eurozone banks ahead of the Asset Quality Review (AQR) and stress tests next year. The measure could worsen the pervasive credit crunch and add to the growth headwinds and deflation risks in in the currency block. It would erode investors’ confidence in Eurozone’s financial institutions and accentuate their relative underperformance. All that could reflect badly on EUR (Figure 2).

 

We think that the ECB may want to wait for the outcome of AQR and the stress tests for the Eurozone banks before considering the negative deposit rate measure. Going into the December meeting the Governing Council may consider some of the options below. All that should keep the cyclical headwinds for EUR firmly in place:

1/ LTRO – the Governing Council could indicate it is working on a long-term refinancing program that will help anchor rate expectations, alleviate any liquidity pressures in the Eurozone banking sector ahead of AQR and stress tests and avoid renewed funding tensions in the periphery. So far the Governing Council has been rather vague about any new long-term liquidity measures so that the timing of the announcement could come as a dovish surprise and could weigh on euro.

 

2/ QE – Indications that the Governing Council is looking into more aggressive policy options like QE and negative deposit rates. Recent comments by ECB’s chief economist Peter Praet signaled that such measures could be considered. Media reports over the summer seemed to suggest that the ECB may be looking into buying GDP-weighted amounts of Eurozone bonds potentially in the same way it purchased bonds under the SMP program. Indications by President Draghi that QE is among the options considered alongside LTRO could be perceived as quite dovish and send EUR lower.

 

3/ A refi or depo rate cut or indications that the ECB deliberated more cuts of refi or deposit rate. If the experience of the FOMC or the SNB is anything to go by, the Governing council may opt to introduce a band for the refi rate between zero and 25bp. Negative deposit rates seem less likely to us for the time being. The ECB may want to wait for the outcome of AQR and the stress tests for the Eurozone banks before considering the measure. Signals that more rate cuts are coming could also keep cyclical headwinds in place for the euro.

 

4/ FX market intervention – with the EUR TWI index close to multi-year highs some clients were discussing the possibility of unilateral or concerted intervention in the euro. The ECB engaged in concerted interventions in the FX markets to arrest the sharp EUR depreciation in 2000. The actions came on the back of decisions by Eurozone finance and economy ministers. An FX intervention seems less likely at present given that the G20 countries have agreed to refrain from actions that could target exchange rates. What is more, G20 central banks have agreed to pursue domestic goals (fighting disinflation) by using domestic instruments (no Forex). We suspect that it would take excessive EUR appreciation in combination with severe escalation in market volatility for FX interventions to be considered.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UEa0DR3C_I0/story01.htm Tyler Durden