Morgan Stanley | Despite the fastest tightening cycle in recent history, US macro has shown signs of strength, leading many investors to perceive the lack of a slowdown as a sign that the economy has been less affected by monetary policy than initially expected. In this sense, E. Z. acknowledges that activity has generally held up well, but under the surface, the impact of higher rates is undeniable. Although factors…
On Monday we once again had statements from ECB council members after last week’s appearances following last week’s meeting. There are few novelties, except for the reaffirmation of similar broad movements for March. According to Committee member Robert Holzmann, inflation must be actively combatted until the citizens of the Eurozone feel that price stability is part of their daily lives. Holzmann did make an interesting point in explaining that the…
Bankinter| From the minutes of the Fed’s meeting of December 13th and 14th: There was no explicit mention of the possibility of an interest rate cut in 2023; rather they argue that they believe it is appropriate to keep interest rates at elevated levels for an extended period of time, although they retain the flexibility to react as appropriate to the data at any given time. The Committee expresses concern…
Fernando González Urbaneja | The relationship between bond and share prices is well known; when bond yields fall, shares are likely to rise. And the opposite is true, the lower the bond yield, the higher the share price. This is the general thesis that admits exceptions and variants. Bond prices are closely linked to the interest rate determined by central banks as well as the risk premium applied to each…
By Kevin Flanagan, (Head of Fixed Income Strategy, WisdomTree) / This year has got off to an unusual start in the financial markets. Typically, the focus would be on the Federal Reserve (Fed) and/or economic developments, but unfortunately the coronavirus has taken centre stage. I thought it would be useful to offer some insights from a bond market perspective, using the SARS (Severe Acute Respiratory Syndrome) outbreak of November 2002 to July 2003 as a comparative event.____¨
Magdalene Teo, Fixed Income Research Asia, Eric Mak, Equity Research Analyst Asia, Julius Baer │China has opted for interest rate reform (to be more market-oriented) instead of announcing a benchmark rate cut, so liquidity flow is more targeted to the segments that need it.
JP Marin-Arrese │Any seasoned central banker knows by heart that words rather than measures better serve monetary policy. The material effect any move delivers doesn’t match the impact on expectations and market sentiment an authoritative message conveys.
José Ramón Díez Guijarro (Bankia Estudios) | In recent years there has been a debate in academic circles about the limits of monetary policy, once the barrier of negative interest rates has been crossed. With the additional problem that not even in Japan, where the natural interest rate has spent practically two decades in negative territory, has the central bank dared to dive deep into the zone of below zero interest rates, even though the economy has been stuck in a deflationary stagnation which has given birth to new economic jargon (japanisation) to refer to this type of economic process. The doubt is whether the Bank of Spain got is wrong by not using monetary policy more intensively or got it right be assessing the risks of traveling in this unknown territory as greater than the possible benefits.
Miguel Navascués | For some months we have been looking with concern at the spread of interest rates of US 10 minus 2 year bonds as an indicator of an ever closer recession. Indeed, this indicator has been moving towards zero, and if it goes negative – which seems to be the trend- it would signal the threshold of a recession. But I don’t think it is such a precise indicator.
There’s an idea circulating amongst the central banks or, more accurately, amongst pressure groups in the central banks. The crux of this idea is: “the central banks should normalise interest rates”.