FILE PHOTO: A Wall St. street sign is seen near the New York Stock Exchange (NYSE) in New York City, U.S., March 7, 2019. REUTERS/Brendan McDermid
March 19, 2019
NEW YORK (Reuters) – Investors remained bullish on longer-dated U.S. Treasuries for a sixth consecutive week on worries about a slowing economy and expectations inflation will stay muted despite a tight domestic labor market, a J.P. Morgan survey showed on Tuesday.
The margin of investors who said they were “long,” or holding more Treasuries than their portfolio benchmarks, over those who said they were “short,” or holding fewer Treasuries than their benchmarks, increased to nine percentage points from 7 points the prior week, according to the survey.
Three weeks ago, the gap between longs and shorts rose to 11 percentage points, the highest since September 2016.
The survey results come the same day Fed policymakers begin a two-day meeting at which they are expected to leave interest rates unchanged.Twenty-eight percent of the investors surveyed said on Monday for a third straight week they were long on U.S. government bonds, the J.P. Morgan survey showed.
The share of investors who said they were short Treasuries fell to 19 percent from 21 percent a week ago.
The percentage of investors who said they were “neutral,” or holding Treasuries equal to their portfolio benchmarks, edged up to 53 percent from 51 percent the week before, J.P. Morgan said.
Positions among active clients, which include market makers and hedge funds, showed no bearish bets on longer-dated Treasuries. Active net longs rose to 30 percent, the highest since May 2018, while the share of these clients who said they were neutral increased to 70 percent from 60 percent.
In early Tuesday trading, the yield on the benchmark 10-year Treasury was 2.6267 percent, up from 2.6050 percent a week ago.
(GRAPHIC: Investors positions in longer-dated U.S. Treasuries – https://tmsnrt.rs/2V9OjHR)
(Reporting by Richard Leong; Editing by Steve Orlofsky)
FILE PHOTO: The Reserve Bank of India (RBI) Governor Urjit Patel pauses during a news conference after a monetary policy review in Mumbai, India, December 5, 2018. REUTERS/Francis Mascarenhas
March 19, 2019
By Suvashree Choudhury
MUMBAI (Reuters) – Economists raised concerns over a sharp slowdown in Indian economy and pitched for a monetary policy boost to support growth at a meeting with the nation’s central bank chief on Tuesday, according to three participants.
Reserve Bank of India Governor Shaktikanta Das met more than a dozen economists to get their views on the economy ahead of the Monetary Policy Committee (MPC) decision due on April 4.
Most economists expect the six-member MPC to cut the repo rate by 25 basis points for the second time in a row next month to 6.00 percent, a level last seen in August 2017.
While the economists did not specify the extent of rate cut that the RBI could consider, one of them called for a 50-basis- point reduction, one of the participants said.
“Most of the participants said that monetary policy needs to do the heavy lifting to boost growth as there was no space for fiscal expansion,” another participant said.
The meeting under Das, who took charge in December, was in sharp contrast to the previous ones under former governor Urjit Patel, who was slightly reclusive and preferred to meet a small group of 5-6 economists. Das’ style has, however, been more open and communicative.
India’s economy expanded by 6.6 percent during October-December, its slowest pace in five quarters, on weak consumer demand and investments, dealing a major blow to Prime Minister Narendra Modi as he seeks a second term in office at a general election that kicks off next month.
Slowing growth has hit the federal government’s tax collections, constraining its ability to substantially boost spending ahead of elections.
However, neither Das nor any RBI official from the monetary policy department gave any indication of their thoughts or views, as is typical in such big-group meetings.
Economists and strategists spoke of several issues including drought, liquidity management, exchange rate, inflation, growth, bank credit growth, real interest rates and monetary policy transmission.
“The meeting went on for two-and-a-half hours as there were many participants,” said another economist who attended the meeting.
“But they didn’t say a single word on these topics.”
The RBI did not respond to an email seeking comment on the meeting with economists.
Some economists pointed out that food inflation could begin inching up after September if monsoon rains were not sufficient, but was unlikely to push retail inflation past the RBI’s 4 percent target.
Consumer inflation was at 2.57 percent on-year in February as food prices continued to fall for a fifth straight month.
The economists also raised concerns over a slowdown in global growth that has hurt India’s exports. India’s outbound shipments grew 2.4 percent annually in February, slower than 3.7 percent in January.
“Overall, the view was that the downside risks to growth have increased since the last policy while inflation risks have remained muted,” said a third participant.
“Not many of us clearly specified how much rate cut we wanted, but we presented the facts to make it clear to RBI that there was a need for a big boost to the economy.”
(Reporting by Suvashree Choudhury; Editing by Shreejay Sinha)
FILE PHOTO: The Swiss National Bank (SNB) is pictured next to the Swiss Federal Palace (Bundeshaus) in Bern, Switzerland December 7, 2018. Picture taken December 7, 2018. REUTERS/Denis Balibouse
March 19, 2019
ZURICH (Reuters) – The Swiss National Bank will leave its ultra-loose policy alone on Thursday, said all the economists polled by Reuters, and most don’t expect any change until at least 2021.
All 32 economists polled by Reuters expect SNB Chairman Thomas Jordan to maintain the bank’s negative interest rates and readiness to intervene in currency markets to restrain the safe-haven Swiss franc.
They expect the SNB to keep its target range for the London Interbank Offered Rate (LIBOR) locked at -1.25 to -0.25 percent, the same level since it ditched its minimum exchange rate of 1.20 Swiss francs to the euro four years ago.
None of the respondents expect any change until the end of this year, especially in view of the European Central Bank’s slowing of its own policy normalization. Most forecast it will come in 2021 at the earliest.
“We do not expect the SNB to change interest rates before the end of 2020. In fact, if we are correct in our assessment that the ECB will be forced to re-start QE next year, upward pressure on the franc – and SNB concerns about deflation – are likely to intensify into 2020,” said Jack Allen at Capital Economics.
“This means the SNB may have to delve into its toolbox to ease policy next year,” Allen said. He thinks the SNB might take rates even further into negative territory if necessary.
There was also no disagreement about the negative interest rate the SNB charges on sight deposits. All the economists expect -0.75 percent to be maintained this week.
All but one expected the bank to retain its description of the franc as “highly valued”. That one expected it will be described as “significantly overvalued”. The franc has gained 3 percent against the euro in the last 12 months to trade around 1.1360.
A strong franc weighs on Switzerland’s export-reliant economy and also adds deflationary pressure. The SNB is expected to cut its 2019 inflation forecast on Thursday from its current view of 1 percent.
The SNB will have to wait at least until the ECB starts its monetary policy tightening — now delayed to 2020 at the earliest — before it begins its own path to normalization, analysts said.
“Pressure on the SNB is mounting from two sides: on the one hand, the financial industry and pension funds are increasingly coming under pressure, which puts pressure on the SNB to end the negative interest rate phase as early as possible,” said Alessandro Bee at UBS.
“On the other hand, the weakness in European growth and the various political risks lead to a higher risk of a Swiss franc appreciation. The SNB is between a rock and a hard place.”
(Reporting by John Revill, polling by Manjul Paul and Richa Rebello, editing by Larry King)
FILE PHOTO: A security guard walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2019. REUTERS/Issei Kato
March 19, 2019
By Leika Kihara
FUKUOKA, Japan (Reuters) – Japan’s ultra-loose monetary policy is making it tough for commercial banks to earn profits out of lending, a problem that cannot be fixed through bank mergers, the influential chairman of a major regional bank in southern Japan said.
Isao Kubota, chairman of Nishi-Nippon City Bank and once a finance ministry colleague of Bank of Japan Governor Haruhiko Kuroda, praised the BOJ chief’s massive stimulus program for correcting a damaging yen spike and revitalizing the economy.
But Kubota said the length of the stimulus program is causing some problems, including hurting financial institutions’ profits for years due to low interest rates.
Extraordinary monetary steps, such as Kuroda’s massive asset-buying program and negative interest rates, could be useful and effective as “short-term, emergency” measures, Kubota told Reuters on Monday.
“But the longer the policy continues, the worse the side effects become,” he said. “We are in the sixth year of this policy and, I think intuitively, the accumulation of the side-effects might be enormous.”
Many Japanese regional banks are grappling with diminishing returns from traditional lending as years of ultra-low rates hurt their bottom line and a dwindling population triggers an exodus of companies to bigger cities.
While Japan’s banking lobbies have complained about the pain from the BOJ’s policies, financial regulators have urged regional banks to cut costs and find new ways to make money.
Some BOJ officials have said mergers could be among options for regional banks to beat a deteriorating business environment.
But Kubota argued that simply prodding regional banks to merge won’t solve a bigger problem created by the BOJ’s yield curve control (YCC) policy, which caps long-term rates at zero.
“Regardless of whether (the BOJ) intends to do so or not, they are squeezing the profits of commercial banks,” Kubota said of YCC’s impact on bank profits.
“The other side of the coin is that, this kind of phenomenon is never resolved through, for example, mergers of banks. By nature, because of this policy, banks as a whole are made unprofitable.”
Under YCC, the BOJ now pledges to guide short-term rates at minus 0.1 percent and the 10-year bond yield around zero percent. The policy has made it tough for banks to profit from traditional business of borrowing short-term funds and lending them at higher yields.
“We want an early stoppage to this kind of policy. That we can say. But we can’t say what the authorities should do,” Kubota said, when asked whether commercial banks would be better off if the BOJ abandoned negative rates. “They have powers, authorities. They also have responsibilities for the outcome of their policy.”
Despite the mounting challenges to achieving 2 percent inflation, Kuroda won’t abandon his target, said Kubota, who thinks he sees the governor’s way of thinking “very well” as former colleagues.
Both studied under prominent economists at Oxford University as graduate students dispatched from Japan’s Ministry of Finance.
“He’s confident and he’s a good politician,” Kubota said of the BOJ governor. “Even if he thinks something is dubious, he would never say so, so long as there is a need for the policy.”
(Additional reporting by Takahiko Wada; Editing by Richard Borsuk)
As the economic contagion of the global financial crisis was spreading from country to country in 2007, it was frequently noted that the mainstream economics profession seemed to be just as much in the dark about the true causes of the crisis as were the general public.
In place of anything incisive and theoretically grounded, most people were forced to make do with vague hand-waving and metaphors to explain the crash, with one particularly well-worn bromide sticking out in my own memory as almost the defining phrase of the crisis: “When America sneezes, the whole world gets sick.”
However applicable that apophthegm may have been to the 2007/8 crisis, it was certainly the phrase which came to mind recently when news broke that, following the U.S. Federal Reserve’s dovish turn last month, central banks across the developing world have followed suit by shifting back toward lower interest rates.
An aggregate of interest rate moves across 37 developing economies showed that, over the course of February, the number of central banks in that group which had cut interest rates was greater by three than the number which had raised interest rates. This compares with a net rate rise in January, with one more central bank having raised rates than cut them in that group. Indeed, this aggregate of 37 developing economies had not shown any net fall in interest rates throughout the previous nine months leading up to the end of January 2019, with interest rate hikes having either equaled or exceeded interest rate cuts for the duration of that period.
An Easy-Money Trend
The trend began on 1st February — just two days after Fed chairman Jerome Powell announced that “the case for raising rates has weakened” — when Azerbaijan’s central bank cut its refinancing rate by 50 basis points, bringing it down to 9.25%. This move was followed shortly afterwards by the Reserve Bank of India, which unexpectedly cut its key interest rate by 25 basis points on February 6th. One of the biggest interest rate cuts of the month followed on the 14th, with a surprise move by the Egyptian central bank, which cut its deposit rate to 15.75%, and its lending rate to 16.75%, a decline of 1% in both cases. Then on February 20th, the Bank of Jamaica cut its key rate by 25 basis points, down to 1.5%. Two days later, the Central Bank of Paraguay made a similar 25 basis point cut to its policy rate, bringing it down to 5%. And rounding out the month, the National Bank of the Kyrgyz Republic cut its own policy rate to 4.50%, down from 4.75%, on February 26th.
What has prompted this widespread shift toward looser monetary policy in the developing world? While the rationales may differ from country to country in some of their specific details, one prevailing theme has appeared time and again throughout the various justifications for these shifts toward lower rates: fear of deflation.
After having strengthened consistently throughout most of 2018, the US dollar first stumbled and then noticeably fell between mid-December and mid-January, and has largely been flatlining since. As the equal and opposite reaction to this weakening of the dollar over the past few months, the currencies of many of these developing economies have correspondingly strengthened in terms of dollars. This has threatened to drop certain measures of inflation in those countries below their central banks’ inflation targets, which, in the mind of the mainstream economist, brings with it the threat of unemployment and economic slowdown. Couple this with the various uncertainties and potential shocks currently manifesting on the global economic stage, such as the Chinese economic slowdown and the uncertainty surrounding Brexit, and you have a situation in which cutting interest rates would seem to be, to the mainstream economist, the textbook response. After all, what harm could possibly come from central bank inflationism and artificially low interest rates?
The Price of Low Interest Rates
The advocates of Austrian Economics may find themselves increasingly occupied with the task of answering that question, over the coming months. After having maintained near-zero interest rates for most of the past decade, the past two years have seen the world’s central banks gradually start the process of normalizing rates again in response to the sluggish recovery. However, as the Austrian Business Cycle Theory of Ludwig von Mises demonstrates, that period of unsustainably low interest rates will not have been without costs. Such low interest rates will have induced investors into risky, long-term projects, which will no longer maintain the illusion of profitability once rates rise back to their natural, long-term levels. The relative upswing in the global economy over the past few years will be put under increasing pressure by the rising cost of borrowing, pressure which it will likely not be able to withstand, given the unsound foundation of unsustainably low interest rates on which that upswing has been built.
Examining the movement of interest rates over the previous two business cycles in, for example, the United States, seems to reveal a familiar pattern. As the economy was recovering from the previous bust and entering the next boom, the Fed took this as its cue to raise interest rates back up to non-crisis levels. Just as the Austrian Business Cycle Theory would lead us to expect however, these rising rates shook the foundations of the unsustainable booms created by the previous periods of lower interest rates, causing the economy to stutter. The Fed then reacted to this weakening of the boom by first halting and then reversing its interest rate rises, with the recessions of 2001 and 2008 both having followed shortly after such reversals. With central banks around the world currently signalling a likely softening of their previous plans for rate hikes, it may well be that we have begun entering into the final stages of of this familiar cycle once again.
Policies pushed by far-leftist Democrats will literally end the national sovereignty of the USA.
FILE PHOTO: Vice-President of the European Central Bank Luis de Guindos speaks during an event marking Latvia’s five years with the Euro in Riga, Latvia January 7, 2019. REUTERS/Ints Kalnins
March 18, 2019
FRANKFURT (Reuters) – Inflation and growth in the euro zone are continuing to slow this year but they are set to rebound further down the road, the European Central Bank’s vice-president said on Monday.
“Supportive factors continue to be in place that will lift inflation above this year’s muted levels in the more medium term,” Luis de Guindos said in Madrid, largely repeating ECB President Mario Draghi’s comments from earlier this month.
(Reporting By Francesco Canepa)
FILE PHOTO: A general view is seen of the London skyline from Canary Wharf in London, Britain, October 19, 2016. REUTERS/Hannah McKay
March 18, 2019
By William Schomberg
LONDON (Reuters) – Britain will launch a new set of early warning indicators aimed at spotting the next big economic downturn more quickly, based on the volume of road traffic, businesses’ value-added tax returns and how long ships spend in port.
The Office for National Statistics has been under pressure to use more of the digital data created by businesses and consumers which other statistics agencies are streaming into their measurements of the economy.
The Bank of England is likely to pay attention too, as it is trying to improve its understanding of early signals coming from Britain’s economy as it navigates Brexit.
“Policymakers and analysts demand faster insight into the state of the UK economy in order to make informed, timely decisions on matters such as the setting of interest rates,” said Louisa Nolan, the ONS’s lead data scientist.
The ONS said its new indicators would be launched in April and in many cases they would be available a month earlier than gross domestic product data, the main measure of how fast an economy is growing or shrinking.
The ONS cautioned against using the new indicators as predictors of GDP but said they would be able to identify large changes to economic activity.
A new VAT index, which will show whether businesses are seeing more or less turnover, would have spotted the first quarter of the 2008-09 recession in Britain five months before it showed up official estimates, although GDP figures have been improved since then, the ONS said.
There was a “surprisingly good correlation” between the ONS’s shipping indicators and imports, while traffic counts for heavy goods vehicles in England were consistent with at least some economic events, such as the financial crisis.
The traffic flows numbers might also help to measure how much Britain’s economy can grow without creating excessive inflation pressure, the ONS said.
(Reporting by William Schomberg, editing by David Milliken)