INTEREST RATES

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The euro goes negative

NEW YORK | By Dickson Buchanan Jr. via Truman Factor | The European Central Bank’s (ECB) decision to charge a negative interest on overnight deposits is not going to lead to a higher targeted inflation rate, despite ECB President Mario Draghi’s insistence that it will. Like all cases of central planning, this decision will have unintended and costly consequences – some of which are already starting to play out. 


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Draghi will have to do more than lowering interest rates

MADRID | By The Corner | Head of economic analysis at Link Securities Juan José F. Figares explains that if the ECB only reduces interest rates (i.e. intervention and deposit rates), stock markets will plummet since investors’ expectations will not be fulfilled.  Should the central bank activate a new conditioned LTRO and open the door to a new asset purchase program, he adds that markets will react neutrally first and then, they will become positive. Note that the Eurozone’s GPD grew only by 0.2% in the 1Q14, according to the Eurostat.


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European Hunger Games: The Threat of Importing Deflation From Emerging Markets

By David Denton via The Richter Scale | For anyone who was growing up in the 1970s there is a short list of things that one has to be concerned about:  The music of The Bay City Rollers, the instant pudding – “angel delight”, playing rugby against the Welsh and inflation. Although the oil price shocks affected all industrialised economies inflation had a particularly severe impact on the UK, we quickly became known as the sick man of Europe.


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Interest rate moves are out of sync with inflation, what next?

LONDON | By Michael Gavin at Barclays | The 2013 sell-off in interest rates in the global currency areas has been driven entirely by perceptions that economic activity is on course to continue its recovery; inflationary pressures have been conspicuous only for their absence in all major currency areas except Japan, where the (still limited) pressure is welcome. This likely explains why equity markets in the advanced economies were so resilient to the backup in US and global rates and why the brunt of the 2013 bond sell-off was borne largely by the long end of the curve.


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How to call fear of bubbles? Paranoia maybe?

MADRID | By Luis Arroyo | The shadow of deflation looming over the euro zone economy have seemingly gone away on Friday. The statistical office Eurostat anticipated an estimated 0.9% yearly inflation rate, two percentual points under last October registers. However, being afraid of deflation is not a nonsense because next banking recapitalisation points that credit is to tighten.


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Central banks’ tightening: Learning to live without $33 trillion

WASHINGTON | By Pablo Pardo | The party is about to end. It is a party that has lasted six years. According to Bank of America/Merrill Lynch, during that time, the approximately 173 central banks that exist worldwide have lowered interest rates 520 times and pumped in approximately $33 trillion into the world through different mechanisms, some of them extremely unconventional.



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Talking about interest rates

While emerging countries moderate interest rates to keep their currencies favouring exports and economic activity, the euro is appreciating. Does it makes sense?


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Chinese interest rates: it’s about politics

LONDON | The People's Bank of China eased the cost of credit with a 25-basic point cut on the benchmark interest rates, unlike its counter-parties in Europe. The Chinese central bank set the 1-year lending rate at 6.31 percent from 6.56 percent, and issued new conditions under which retail banks are allowed to offer loans, now with a 20 percent discount instead of the previous official 10 percent. Is the…


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The underwater America

NEW YORK | One of the current most visited exhibits at the Museum of Modern Art in New York is not dedicated to pop-art nor surrealistic sculpture but to mortgages. Foreclosed calls the home ownership American dream into question and shows how the suburban development has been not only environmentally aggressive in some states but financially unsound. “Many of the low-income people who bought at the height of the bubble…