Tag Archives: ECB

The Fed kept the interest rate unchanged at 1,75 – 2% while Switzerland have negative interest rate at -0,75

Federal Reserve Board Chairman Jerome Powell announced on Wednesday that it kept the benchmark interest rate unchanged. The statement comes after a two-day meeting of the FOMC, which decides on monetary policy.

Powell said the job market would remain strong and inflation would stay around the 2 percent target for “several years.” This is great for the U.S because it gives the Fed some tools to use if the trouble are coming back. But what about the rest of the world? Are they healthy?

The picture is different in Switzerland. The Swiss National Bank kept its benchmark three-month Libor at -0,75 percent on June 21st, 2018. Interest rate in Switzerland reached an all time low of -0,75 percent in January of 2015, and it`s still at the same low-level. But they are not alone.

Denmark followed Switzerland in 2015 and dropped the interest rate to -0,75 only a month after them. The Danish central bank follows the path set by the ECB and the key rate will be raised or lowered when the ECB changes the refinance rate.

The Danish central bank`s main policy aim to hold the euro`s exchange rate within 2,25 percent either above or below 7,46038 kroner in an effort to keep inflation low and provide stability for exporter. Now the Danish rate is -0,65.

Sweden joined the negative interest club, and the central bank of Sweden held its benchmark interest rate at -0,5 percent on July 3rd, as widely expected, saying monetary policy needs to continue to be expansionary for inflation to remain close to target despite strong economic activity.

Japan is the last country in the world to have negative interest rate. They reached an all time low of -0,1 percent in July this year. The BOJ vowed to keep rate extremely low for extended period of time and opted for flexible bond buying at its July 2018 meeting.

In addition, Japan`s policymakers left its key short-term interest rate unchanged at -0,1 percent and kept its 10-year government bond yield target around 0 percent.

In other words; you are lending your money to governments and you are paying them interest for that, which mean it`s cheaper to put your money under your mattress. But that strategy can be very risky.

The goal is to make people spend money rather than pay a fee to keep it safe. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest. This is how you make growth.

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand, which leads to prices falling even further. This again will lead to a slowdown in production and output which means higher unemployment.

Negative interest rates can be considered a last-ditch effort to boost economic growth, which means when all else has proved ineffective and may have failed. 21 countries like Spain, Italy, Greece, France, Finland and Malta to name a few, are holding its interest rate at 0,00. The Euro zone is joining the club.

In 2014, the ECB instituted a negative interest rate that only applied to bank deposits intended to prevent the Euro zone from falling into a deflationary spiral.

The ECB held its benchmark refinancing rate at 0 percent on July 26th and reiterated that the monthly pace of the net asset purchase will be reduced to €15 billion from September to December 2018, and will then end.

The ECB expect the interest rate to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to 2 percent over the medium term.

The risk surrounding the euro area growth outlook can still be assessed as broadly balanced. Uncertainties related to global factors, notably the threat of protectionism, remain prominent.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

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The European Union rose “only” 0,4 percent in Q1 of 2018

Last week I talked about America`s fantastic growth of 4,1 percent on quarter in Q2 of 2018, and this is only the beginning. It is no doubt; President Trump must be doing something right. But, what about the European Union?

GDP in the European Union rose «only» 0,4 percent on quarter in the first three months of 2018. Not much to write home about. But the growth have never been above 1 percent since the financial crisis in 2008.

The European Union reached an all time high of 1,30 percent in 1999 and that is right before the tech bubble burst. Since then it has been a dead fish, reaching an all time low of -2,60 percent in the first quarter of 2009.

At the same time we can see that the unemployment rate reached a record low of 6,80 percent in February of 2008, and that`s right before the financial crisis. It reached an all time high of 11 percent in February 2013, but in May this year it fall down to 7 percent again.

This isn`t good enough if we are living in a capitalistic world.

The European Union in Brussels are nothing more than unelected bureaucrats. Draghi and the ECB have, just like Japan and the U.S «printed» a lot of money, and will continue to do so. If they can`t turn around the ship, they need to consider a strong cheerleader.

European Commission President Jean-Claude Juncker had a meeting with President Trump last week. They were talking about trade, free trade and tariffs. Mr Trump`s goal is to make better deals so both the U.S and the EU can take more profit and prosper.

I think that the EU should be glad for that and they need to hurry up. The U.S is the world`s third biggest exporter, yet exports account «only» for 13 percent on GDP. Exports in the U.S reached an all time high of 215328 USD million in May this year, which is pretty impressive.

The EU has 28 member states and the biggest among them all is Germany (21 percent of total GDP), the United Kingdom (15 percent), and France (15 percent).

Exports of goods and services account for 46 percent of GDP while imports account for 42 percent, adding 4 percent of total GDP. But this is about to change. If the UK contribute with 15 percent of the total GDP in the EU, then what will happen to their growth after Brexit?

That being said; nor is the UK a success story. The British economy grew by 0,1 percent in the first three months of 2018 and well below 0,4 percent in the previous period. It is the lowest growth rate since a 0,1 percent contraction in Q4 2012.

The largest contribution to growth in the UK was from household spending at 0,2 percentage points. From the production side, the service industries made the largest contribution to GDP growth, followed by production.

Agriculture, the smallest component within the output approach of GDP made no contribution to growth to one decimal place, while construction deducted from GDP growth. The service industries increased by 0,3 percent.

Positive growth was recorded within all sub-sectors of the services industries; distribution, hotels and restaurants (0,1 percent vs -0,1 percent).

President Trump have repeatedly said that the EU have treated the US very bad. I have written many articles about that long before Mr Trump`s inauguration. The European Commission has fined Google €4,34 billion for breaching EU antitrust rules this month.

In May 2009, Intel was imposed with a 1,06 billion euro fined for abusing its market dominance on central processing units. Microsoft has been in trouble with the Commission on several occasions. In 2004, the Commission ruled that Microsoft had abused its market dominance.

In 208, the Commission fined Microsoft nearly 900 million euros for charging «unreasonable» royalty fees. In 2013, another fine of 561 million euros was imposed on Microsoft. This time for failing to comply with the Commission`s ruling that it had to allow users to more easily choose a prefered web browser.

The European Commission fined Facebook for 110 million euros in May this year in relation to its takeover of WhatsApp. Facebook acquired the messaging service in 2014 for $19 billion, but provided the Commission with misleading information about the acquisition.

In August 2016, the Commission ruled that tech giant Apple had received illegal tax benefits from Ireland worth up to 13 billion euros. Ireland was ordered to recover the unpaid tax from Apple, plus interest.

As early as 1966, British Politician Tony Benn said that «Communism run by commissars from Moscow did not work, and nor will capitalism run by commissioners in Brussels. Both deny people their right to develop in their own way.»

Now, under President Donald Trump, big companies like Apple are moving home to the United States with billions of dollars. Apple alone, are bringing in $230 billion. They will build new plants and a magnificent campus.

They will spend their money wisely and the money will be in the U.S. All this is possible because of Trump`s tax cuts and reforms. This is how you make growth.

 

 

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Banks are in focus this week and ECB could change its forward guidance

The FED is expected to increase the short-term interest rate by 25 basis points this week. If the FED does not raise rates at he March FOMC meeting, it will be a big surprise for many investors. Two things to look for is unemployment and inflation.

The FED is not the only one to have a look at the rates this month. BOJ and ECB is also looking at the rate. All this is headed for an exiting week.

 

 

The U.S unemployment rate fell to 4,7 percent last month which is in line with market expectations. Labor force participation rate increased by 0,1 percentage point to 63 percent, and the number of unemployment persons was almost unchanged at 7,5 million.

Inflation rate is at near 5-year high of 2,5 percent, which is the highest since March of 2012. The inflation rate accelerated for the sixth consecutive month, mainly boosted by gasoline prices. Energy prices jumped 10,8 percent YoY and food prices declined 0,2 percent.

 

 

Watch out for inflation in February 2017 on Wednesday 15 at 12:30 PM. forecast is 2,5%.

Mario Draghi and ECB discussed whether rates can rise before QE ends. A big surprise for many analysts. Why are they doing that? The fact is that they are not satisfied with negative interest rates. This negative rates is squeezing banks’ profit margins because they are not matching the cost, and that will make if difficult for banks to lend to households and companies.

BNP Paribas has predicted the deposit rate will be increased this September, and QE is intended to run until at least the end of 2017. Some people said at least mid-2018. Anyway; analysts will scrutinize the ECB statement on Thursday to look for any changes.

BOJ will have an Interest rate decision on Thursday 16th at 03:00 AM. Forecast is -0,1 percent, which is the same as its January 2017 meeting. In January, policymakers also decided to maintain its 10-years government bond yield target around zero percent.

Economic growth forecast is 1,5 percent for 2017 fiscal year from an earlier projection of a 1,3 percent growth.

Banks are in focus this week and ECB could change its forward guidance.

 

trump100_b

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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The balance sheet assets of the six major central banks is up about 240%

All the worlds central banks are printing money like never before, and this is for the first time in history. The balance sheet assets of the six major central banks have just hit a new all-time record high of $17,3 trillion. Thats up from $4,987 trillion in May 2006.

People`s Bank of China (PBOC) has the largest balance sheet with total assets of $5,0 trillion, followed by the Federal Reserve with $4,4 trillion.

 

 

balancesheet

 

The SNB is at the bottom of the chart above, but it has the largest balance sheet as a percentage of GDP, with it currently up to 88,4% of GDP vs. 20% of GDP in May 2006.

The BoJ`s balance sheet is equal to 70% of GDP vs. 25% of GDP in May 2006.

The PBOC`s balance sheet is equal to 53% of GDP vs. 56% of GDP in May 2006

The Fed`s balance sheet is equal to 25% of GDP vs 6% of GDP in May 2006

The ECB`s balance sheet is equal to 25% of GDP vs. 13% of GDP in May 2006

The BoE`s balance sheet is equal to 22% of GDP vs. 6% of GDP in May 2006

The total assets of the world`s six major central banks is equal to 36% of their combined GDP, a new all-time record high vs. Only 14% of their combined GDP in May 2006, and well above the nine median of 26%!

Trumps goal is massive growth, and IMF in January raised its economic growth forecasts to 2,3% in 2017 and 2,5% in 2018, thanks to Donald Trumps plans to cut taxes and boost infrastructure spending. The World Bank will follow IMF with similar forecasts.

Trump`s bold plan is to create 25 million new American jobs in the next decade, which means it will only take 2% annual growth of the workforce to hit that target. Data shows us that 25 million jobs have never been created in a 10 year timeframe.

A 2% growth rate over 10 year will generate 25 million jobs, which means if the economic growth rate hits 2,5% it would take about 8 years. If the growth rate goes up to 3% per year it will take about 6 years. If the rate goes higher, Trump can reach his goal during his first period as a President.

I do not agree with Trump`s immigrant policy, but there is a drawback here; If Trump want to reach his goal, he need immigrants, because the number of people who are working dropped 3,7% over the past 10 years, and some of the reasons for that is the baby boomers demographic shift.

Janet Yellen also said she consider to hike the rates because the economy is improving. The Fed want to proceed with «normalizing» monetary policy, which means they want to have room to ease in case of a future shock.

President Donald Trump can help them to solve their fiscal policy by cutting tax rates and spend more money on infrastructure. At the same time, he need to keep the lid on federal spending. Will Donald Trump succeed? Betting against him have so far been a bad decision.

 

trump100_b

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Britain OUT of the European Union

The day today is historic. The British people voted for a BREXIT! The pound plummeted and Prime minister David Cameron resigns. The British people backed “Brexit” and leave by 52%.

What a day!

The pound plummeted 7 percent  on its worst day on record. Thats nearly twice as much as the big drop on 1992s Black Wednesday when the currency dropped 4,1 percent.

 

brex

 

But what`s wrong with a weaker pound? A lower pound will help the British exporters which means exporters will be more competitive and sell more not only to european countries but to the rest of the world.

On the other side, prices can start to increase and it will be more expensive for the British people, and that will be a challenge for BOE`s inflation target.

Britain is still in Europe and will always be, but Brexit means they are out of the European Union system. That`s something different.

Prime Minister David Cameron will step down in October, and what the new Prime Minister must do is to negotiate with EU and other european countries and cooperate in EEA (European Free Trade Assosiation).

They are still a country in Europe but what they want is their own sovereignty and more control over their own currency.

Just take a look at Greece. After joining EU they have been in a very difficult situation, and they can’t print their own currency because of the Euro, so only that is making it difficult for them.

This is still early on stage one but you can already see that the pound have turned up again, and that`s how it will be. The turmoil will continue.

I think that BOE have a lot of things to do right now. They will do everything they can to keep the market in balance. This will also spread to the FED and ECB.

For all I know BOE have already added liquidity to the markets and Draghi and ECB will probably follow.

June 23 will be our independence day, Farage said.

JUNE 23, 2016, WILL NEVER BE FORGOTTEN!

 

BRIT

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

 

 

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