Okay. Negative interest rates have now gone fully mainstream in the UK thanks to this week’s testimony by Bank of England deputy governor Paul Tucker.
Even the Daily Mail is writing about it.
But a number of major misunderstandings are popping up as a result. So let us try to clear some of them up. Read more
Live markets commentary from FT.com
Convexity in Vix futures || Deflating shadow credit in China || BoE deputy on NGDP || Italian election aftermath || JPMorgan job cuts || New US defence secretary || Online gambling approved in New Jersey || Visa & Samsung agree on mobile payments || Markets cautious but more stable Read more
It’s Charlie Bean, the Bank of England’s deputy governor for monetary policy, on nominal income targets. An old wine in a new bottle apparently, even if it is edging closer to the establishment.
Some excerpts (with our emphasis):
The question is: would outcomes have been materially better under an alternative framework, such as a nominal income target?
First, a reminder of the degree to which China’s growth has been increasingly fuelled by credit over the past few years:
The chart above doesn’t quite show it, but non-bank credit growth outpaced bank loans last year. The rise of China’s shadow banking scene has happened very rapidly — much of the growth only happened since 2009. Read more
Elsewhere on Wednesday,
- A perfectly fair and reasonable way to rank central bankers.
- Draining excess reserves and the Fed’s exit strategy.
- Who’s going to move on China’s aluminium stockpiles? Read more
Asia ex-Japan stocks higher after Bernanke comments; yen strengthens || Capital problems could affect Co-op’s Lloyds deal || Kuroda probably in, Iwata possibly not || BP says all Macondo players to blame || Hong Kong grows at fastest rate in a year || Barclays loses confidentiality bid on US energy trading dispute || Martin Wolf on austerity’s sad record Read more
Before we comment about the strange behaviour of the Vix this week, we’d like to engage in a bit of a thought experiment.
There are two hypothetical scenarios that we’d like you to consider.
The first relates to the rampant nationalisation of everything:
What happens to market prices and volatility in an economy where government intervention becomes de rigeur every time prices misbehave?
Some thoughts from Beppe Grillo (really):
I’m here on the settee at home. They’ve made me lie down. They don’t want me to have any upsets. They’ve covered me up with one of those checkered rugs. Outside there are the floodlights beaming in through the bathroom window. I don’t know what they want to see. This adventure that we’re having is fantastic…
Throwing around the negative interest rates idea has become very trendy all of a sudden with Draghi, Praet and Constancio weighing in and, we’d argue, using the threat to substitute for policy impotence.
So, was Bank of England deputy governor Paul Tucker doing the same thing on Tuesday morning in front of a Parliamentary committee? Using a jedi-trick to talk down sterling perchance? It’s not a phrase you use lightly and it seems unlikely he would have whacked it out completely unintended. But it has to be said, if he was going Jedi here, the effect didn’t last all that long. Read more
This is a cracking *cough* little note from Bank of America Merrill Lynch on soaring gasoline crack spreads… which are being driven by a spate of refinery closures which, as it turns out, are specifically impacting the New York Harbour market, known as PADD I, beyond all others.
This has generally resulted in a divergence in regional prices across the United States (mostly to the disadvantage of East Coast drivers).
As BofAML notes:
Despite being the middle of the winter, US RBOB gasoline crack spreads to Brent crude oil have soared by an astonishing $16/bbl in the past month (Chart 2).
With the freedom to publicise at a low cost at will, what place is there for the subset of writers and editors doing this for a living? Andrew Betts, director at FT Labs, opined in a recent TEDx talk that if media organisations are to weather the changing habits of consumers of news and analysis, technological innovations must occur. Read more
The political picture in Italy is looking deeply uncertain. We all know that.
But what’s possibly more interesting is the scale of the market reaction to that uncertainty. Read more
Alternate working title: Opec-cartel style
We’ve already heard from Oleg Deripaska on the matter. And we’ve started to see the consequences hit Rio Tinto and BHP Billiton. But the latest “we must rein in supply” Opec-cartel style talk, actually emanates from Glencore CEO Ivan Glasenberg.
Bloomberg has the story ( hat tip to Reuters’ John Kemp) and it offers few cracking paragraphs to say the least: Read more
Live markets commentary from FT.com
China to tighten shadow banking rules || US seeks maximum fine in BP spill trial || Osborne weighs impact of banks’ bad loans || US senators press EU on Iran sanctions || Rio Tinto warned of possible rating cut || Scientists claim 72 is the new 30 || Yahoo bans working from home || Markets update: Italian impasse rekindles eurozone jitters Read more
In terms of providing certainty, it’s hard to see how the Italian election outcome could have been worse.
Elsewhere on Tuesday,
- A major lack of Vix convergence.
- Elon Musk mentions the hyperloop again.
- Gasoline’s danger zone. Read more
Italian election spooks markets || Asian stocks fall || Goldman said to be cutting jobs || Big BP trial opens || Rio Tinto warned on rating || Sinopec gets Chesapeake assets cheap || China’s debt bomb || Yahoo CEO bans remote working Read more
ROUND-UP
Doesn’t it feel like 2011? The S&P 500 had its worst day since November (closing down 1.8 per cent at 1,487.89), Morgan Stanley shares fell 6.57 per cent, and the euro lost 1.7 per cent against the yen. The 10-year Treasury yield dropped to 1.86 per cent, a one-month low (Reuters, Bloomberg). Read more
Update (Feb 26) – It turns out that we failed to be clear on something pretty important here… rendering our headline ironically pretty apt. Maybe you really can’t believe Belize’s disavowal of ratable payment on its bonds.
OK, so here’s the section on pari passu language in the new bonds’ Offering Memorandum: Read more
Dear everyone, this article is based on a questionable premise: that the dollar is about to head off on another bull run. We know this may not happen. Thanks, us. Read more
No sooner had Italian stocks soared and bonds tightened (sic) on early exit polls suggesting Pier Luigi Bersani’s centre-left Democratic party might have secured victory in both the lower and upper houses of the Parlamento Italiano, than…
So Nassim Taleb had a go at TED the other week. Over “skin in the game”.
(There’s also a paper. On skin in the game. Not on TED.) Read more
Live markets commentary from FT.com
New president elected in Cyprus, now onto the bank bailout || New BoJ governor || China flash PMI || To the polls in Italy, with a low turnout || The UK’s downgrade hits pound || RBS to float Citizens || Revisiting the budget sequester || Markets update Read more
That’s the considered opinion of Julian D. A. Wiseman (most recently head of UK rates strategy at Société Générale but writing on his personal blog here) on the Monday after Moody’s cut its credit rating for the UK from Aaa to Aa1, taking the Bank of England down with it. For those keeping count, that makes it a downgrade that was neither surprising, nor informative nor, in itself, damaging (as Martin Wolf put it)… but more to the point it was just plain silly. Read more
The flash HSBC/Markit China PMI number for February: 50.4. That’s a four-month low and quite a drop from 52.3 of January. Yet, as HSBC’s Hongbin Qu reminds us, it’s also the fourth consecutive month of expansion above 50 — the level which demarcates between above-trend and sub-trend growth.
So, what to make of it? Well firstly, Chinese New Year happened in February and, yes, you probably need to treat January and February data with caution because this holiday a) can fall in either month, and b) is huge. Read more
This Monday edition of rising Japanese equities/weak yen is brought to you by Haruhiko Kuroda, president of the Asian Development Bank and according to various media reports, the likely nominee for Bank of Japan governor.
Kuroda reportedly said early this month he was quite happy at the ADB and had nearly four years to serve of his third term. But to that we say: Mark Carney! Read more
Older entries
1'This downgrade is nonsense!'
2Tucker goes Jedi (ish)
3Italian post-election misery
4Stable Italy shocker hopes dashed!
5Beppe Grillo at market's close
Show more6The burning of Rome spreads
7Hey, spendy miners, operate Glencore style
8A powerful convexity in short-term Vix futures
9On negative interest rates and hoarding
10Food for thought on digital news consumption
Show fewer