Tag Archives: QE

Eurozone investor morale improves in September, inspired by Mario Draghi

Mario Draghi started a new round of QE. Again. Last time, he said he had a bazooka, but that bazooka was obviously not powerful enough. He have also previously said that he will do everything he can to boost the market again. In addition to his QE program, he also lowered the deposit interest rate.

You can borrow money in your bank and your bank will pay you money for that. Isn`t that funny? Did someone say something about «free lunch?» You cannot find cheaper money at moment and that will make people borrow more money. The strategy is to boost the economy and create a level of optimism.

In the Euro Area, the ZEW Economic Sentiment Index measures the level of optimism that analysts have about the expected economic developments over the next six months. The optimism isn`t sky high, but it isn`t deeply low either.

The ZEW indicator rose by 21,2 points in September 2019. It was expectation of -32,2 in September but it came in at -22,4 this month. The servey covers up to 350 financial and economic analysts and 47,4 percent of the surveyed analysts expected no changes in economic activity and 15,1 percent expected it to improve while 37,5 percent predicted a deterioration in economic condition.

The index reached an all time low of -63,70 in July of 2008. (-100 means all analysts expect the economy to deteriorate). Right before the dot-com-bubble in January of 2000, the index reached an all time high of 89,90.

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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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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Very important week

Next week will be exiting. The earnings season is at the end and investors focus now will be on a flood of data coming in. It all starts on monday March 14 were the Bank of Japan will announce its policies.

Bank of Japan Gov. Haruhiko Kuroda is in a special situation. Just like ECBs Mario Draghi, he talked about his «bazooka» and said he wanted to do whatever it takes to get Japans economy back on track to a stable growth.

debt

The answer so far is negative interest rate, and they started charging commercial banks 0,1% interest on some reserves last month. That lowered the borrowing cost, but on the other hand, it made some confusion about the effects on Japan`s savers.

Haruhiko Kuroda has been called to parliament for questioning many times and more than any other central bank chief during the same period. Japanese 10-year Government Bonds traded at -0,20% for the first time in history and dropped farther into negative territory.

Negative rate is also seen in Sweden, Denmark and Switzerland. Sweden`s goal is to raise the inflation. The goal in Denmark and Switzerland is to prevent the currency to raise too much.

Negative rates can be the new normal because none of them turn this situation into a strong economic growth. So, What about America?

All eyes will be on Federal Reserve Chair Janet Yellen and the Federal Open Market Committee (FOMC). The FOMC meeting will kick off on Tuesday 15, and the Fed`s interest rate decision is the highlight on Wednesday 16, with the 2 p.m ET announcement followed by a 2,30 press conference with Fed Chair Janet Yellen.

According to Wall Street Journal`s Jon Hilsenrath who is the mouthpiece of the Fed, the central bank will hold off raising rates this month, but will leave the door open for a hike in April or June this year.

U.S Consumer prices went up 1,4% YoY in January of 2016, and the inflation rate accelerated for the fourth straight month which is very impressive. CPI for February 2016 is scheduled to be released on Wednesday 16.

The European Central Bank (ECB) followed BOJ, and increased QE by 20 billion euros per month on thursday. Not only that. They also lowered interest rates, which is an unexpectedly strong move. The ECB increased its monthly bond buying from 60 to 80 billion euros and drove commercial deposit rates from -0,30% to -0,40% and cut a main refinance rate from 0,05% to 0,00%.

As you may know, many people are very angry. Not only in Europe, but also in America. The middle class is wiped out and businessman Donald Trump knows that. He doesn`t like what he see and want to do something about it; Make America great again.

The battle for the White House continues, and next week`s Ohio and Florida primaries would give Donald Trump the knockout blow necessary to capture the GOP nomination. Anti-Trump groups are spending millions of dollar on TV ads to attack him. Is that enough to stop him? If not, it will be a short way left to the White House.

Very important week.

 

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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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Money for nothing

Hot dog is a product and you can buy it on the street. But it has a price. What if the price is $10? Or what about $5? What if I say $1? Does it sound better if I say I will pay you for every hot dog you buy? Anyway, that`s a great deal for you, and so is it for the money. It`s a product you can buy.

I can lend you some money, but what is the rate of interest? What if I say 10%? That`s a great deal for me. How about zero? Or even better, what if you can lend money from me, and at the end of the loan I pay you interest, just like a negative rate of interest. Is it fair?

Stack of $100 bills

Sorry buddy, but I`m not stupid. Of course I won`t pay you for a hot dog or money. I don`t know someone who will either. Do you know someone who would lend money for nothing? Or worse; who will lend money and get back less than the loan amount? No one I know.

People in Europe are looking for deals like this right now.

ECB`s QE is meant to reinvigorate Europe`s lethargic economies and prevent deflation. They started a bond-buying program on monday and investors knew that. They were positioned.

Germany issued 5-year bonds two weeks ago with negative interest rate, and they are not alone. Germany are joining a growing club of other countries in Europe who have done exactly the same. It may sound stupid, but investors do this because they want to make quick profit from it.

Investors was smart enough to think that ECB would buy German government bonds when they started the QE program on monday. But there is one problem; Germany runs a nearly balanced budget.

It means that they don`t issue many net new bonds. It might sell new bonds to replace those that mature, but investors already own those bonds. ECB came into the market as a new buyer and there weren`t any net new bonds.

The key question is this; price.

This is why investors was loading up before ECB`s bond-buying program. When Germany issued 5-year bonds, investors loaded up and waited for ECB to buy with both hands. The ECB must pay whatever price the market will bear to buy bonds. So what is the price?

Institutional buyers have been front-running the ECB program, and many of them have no intention of holding the bonds to maturity so the negative interest rate was of little consequence. As ECB work to devalue the euro, investors are repositioning themselves in stronger currencies, like the Swiss franc.

Since they want exposure to the stronger currency, they`re willing to pay negative interest rate on Swiss bonds.

Germany can afford to charge negative interest rates because of demand for their bonds from the ECB and the German Central Bank (the Bundesbank).

Non-euro countries like Switzerland are charging negative rates because they don`t want the hot money flowing into their currency. This is spilling over into the equity markets.

Private companies like Apple have started cashing in on the good, low and negative-interest rate deal for borrowers.

Apple have issued bonds in currencies like the Swiss franc because their cost of capital is so much cheaper than it would be in U.S dollars.

Apple issued bonds maturing in nine years at 0,375 percent interest and bonds maturing in 15 years at 0,75 percent.

Apple saved itself roughly 1,75 percent per year in interest by issuing bonds denominated in Swiss francs. 10-year U.S Treasury bonds yield is about 2,03 percent and 20-year bonds yield is 2,33 percent.

That`s not the whole story. Apple will use the money it raised to buy back shares and that will reduce the outstanding numbers of shares. With growing revenue and earnings, it can drive the stock price higher.

There is a risk in here, but in Apple`s case I don`t think they will struggle with this bet. They sold less than $1 billion in bonds, and has about $175 billion in cash stashed around the world, and the U.S dollar will remain strong.

Apple is a great example of how QE programs can drive interest rates lower and push the stock prices higher. Central banks are driving the markets.


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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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What`s up with Euro, Dollar and Gold?

Gold is still in a bearish market and the precious metal is declining and hit a 3,5 month low today. At the same time we can see a strong rally in the U.S dollar, hitting a twelve years high. Gold is trading at $1,147,70.

The U.S dollar is soaring and the Euro is plummeting. When the U.S dollar hits a new twelve years high, the Euro hits a twelve-year low. Some analysts are betting that the euro can sink to the same level as the U.S dollar.

Stack of $100 bills

The euro started to fall sharply last summer when the ECB president Mario Draghi laid the groundwork for QE, but the euro has fallen even sharper since the €60 billion-a-month bond-buying programme started on monday this week.

The U.S dollar started the rally at the same time last summer, boosted by strong hints from the Fed that it could start to raise interest rates later this year. EUR/USD is trading at $1,0545 on Wednesday, and that is below $1,06 for the first time since April 2003.

Mario Draghi said cheaper borrowing costs for some eurozone countries suggested that QE – which tends to drive up the value of bonds, and thus depress their yields (which moves in the opposite direction), was already having an effect.

Some analysts have questioned whether the ECB will be able to find sufficient bonds to buy to hit its monthly target. German 10-year bond yields hit a record low of 0,2% on Wednesday. Other Eurozone countries bond yields are also at or near record lows.

The German bond yields at record lows is mainly due to safe-heaven demand from investors, while the other European country bond yields falling is due to the ECB`s plans to buy sovereign bonds as part of its QE of it monetary policy.

A strong dollar is good for the U.S consumers. They can buy cheap things from Europe and Asia, and at the same they have low gas prices. It sounds like party to me. One dollar now buys almost 16 pesos.

The Turkish lira, the Mexican peso, hit an all-time low to the dollar. The Indonesia rupiah hit a 17-year low of 13,1 to the dollar. The Norwegian krone hit a 13-year low and the Brazilian real just hit a 10-year low to the dollar.

The broad Dollar Index (DXY) has now wopped by 23 percent since last summer. That`s the most aggressive rise in more than 34 years! Some of the indicators is more overbought now than at any point in modern history.

DXY 25 yr

(Picture: DXY Index)

As you can see from the chart in RSI, it is overbought. More than we were at the depths of the 2008 credit crisis. That crises caused an immense flight to safety rally in the buck, along with the biggest rally in U.S Treasury prices ever. DXY`s previous close is 99,68.

The dollar rally is now broadly pressuring emerging markets, hurting commodity prices, and undermining the profits of multinational U.S corporations. As the dollar increase, commodities and emerging markets cry.

The problem is that the dollar rally is getting out of control!

 


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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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