Expectations for coordinated action from the main central banks is growing. The Fed’s messages will be particularly decisive as “it is the only with real capacity to influence the market and the determination to take strong action”, explain experts at Bankinter. The upcoming central banks’ planned meetings are: March 12 (ECB), March 18, the Federal Reserve (FOMC Minutes), March 19, the Bank of Japan and March 26, The Bank of England.
Degussa | Wherever you look: Prices for consumer goods, real estate, stocks and bonds are on the rise. That means that the purchasing power of money is on the decline. For if, say, stock prices go up, your money unit can buy fewer stocks. What it also means is: While people holding assets, whose prices increase, become “richer”, people holding money get “poorer”
Caixabank Research | The experience of the Riksbank highlights the doubts over negative interest rates: despite a worsening economic outlook for Sweden, it raised the interest rate from –0.25% to 0% in December and abandoned its policy of negative rates.
Unigestión | Whether it is called QE or not, buying bills (swapping reserves for short-term bonds), injecting liquidity into the market place and growing the balance sheet affects risky assets. Market conditioning (the Pavlovian effect) since the GFC is that stock markets cannot go down when the Fed is growing the balance sheet. Additionally, the Fed’s extremely aggressive response to the repo blowout in September is another signal to markets that it has a very low tolerance for market fluctuations.
TwentyFour Asset Management’s CEO Mark Holman thinks central banks will move on rates any time soon, but where the first move comes from might be harder to call. They are sure it will not be the UK, thank goodness and also sure it won’t be the ECB. It won’t be the US in the near future either.
A retail central bank digital currency (“CBDC”) could be a major concern for European commercial banks. Recent central bank commentary suggests to Bank of America Global Researh that the likelihood of a CBDC being launched is increasing. This year, the ECB has published a position paper on a retail digital currency, and the BIS has announced a group of six central banks will study the topic. Analysts at BofA have three key concerns about this.
via The Conversation | After a pause of a few months, the world’s leading central banks are “printing” money again to try to bolster their economies. Commonly known as quantitative easing or QE, the European Central Bank (ECB) resumed its programme just before the turn of the year. The backdrop is lukewarm growth, a looming recession in Germany, and persistent fears of Japanese-style deflation.
Joachim Fels (PIMCO) | By cutting the deposit rate to -50 basis points, extending forward guidance, introducing a two-tiered system for excess reserves that mitigates the adverse impact of negative rates on bank profitability, and resuming open-ended net asset purchases of EUR 20 billion per month, the European Central Bank (ECB) recently provided clarity about its prospective monetary policy stance for the foreseeable future and thus well beyond the change in leadership from Mario Draghi to Christine Lagarde that takes place at the end of October.
Chris Iggo (AXA IM) | The market is trading like it believes the mid-cycle correction story rather than the impending recession narrative. Equity and credit markets are doing “ok” and rates have bottomed for now.
DWS | “First, do no harm.” That command may, or may not have been part of the Hippocratic Oath among medical practitioners since ancient times. Central bankers, however, appear increasingly keen to follow that maxim on both sides of the Atlantic. On Wednesday, the U.S. Federal Reserve (Fed) once again lowered key rates by “only” 25 basis points to a target corridor of 1.75%-2.00%. And once again, its reasons included subdued inflation as well as risks resulting from weaker global growth and various trade conflicts, justifying another insurance cut. In that sense at least, President Trump has seems to have influenced central-bank policy.