Category: Markets

China interest rates down?

  • Interest rates being cut as central bank tries to boost growth (3rd cut in 6 months).
  • Rates expected to continue lower this year.
  • Growth slowing as China economy makes inevitable move from export-led smokestack industries to domestic-demand-led (consumption & services).
3439

Structural shift in global economic system?

  • After WW2, US established Bretton Woods Institutions (IMF & World Bank) - by doing so it underwrote, and hence set the tone for the global economic system (post Cold War known as "Washington Consensus").
  • Over the last few years, due to pressures from the right, the US refused to give developing countries a bigger say in these institutions.
  • China has therefore set up rival institutions, and recently managed to get US allies to join - represents comprehensive failure of US strategy & tactics of global economic policy.
3298

Macrosnap of the big one?

  • The biggest single structural issue in global financial markets for 2015 is the timing of the US Fed rate rise - a fundamental driver of where the global savings that swish around the planet are parked.
  • As the US is poised to tighten monetary policy (interest rates up) and most other major countries are loosening or neutral, the US$ has soared.
  • The health of the US job market is the key determinant of timing - 1Q15 was looking strong so markets expected rate rise in June, but recent job market numbers weaker - for dinner party kudos, fine to suggest it will happen between June and Aug :)
3262

Macrosnap of Sweden’s central bank’s krona strategy and how they are protecting their currency from getting too strong?

  • Central Bank worried about currency getting too strong (as euro weakens and investors seek higher returns).
  • So have made (by announcement) policy interest rates more negative (i.e. depositors need to PAY to have their money in banks) hence making krona less attractive for foreign investors.
  • Central bank also expanding its bond buying program (QE), i.e. aggressively buying krona-denominated bonds from the market (this results in a flood of krona into the market, hence if anyone wants to own krona, there are plenty available - this is an effective form of currency intervention, but without the Central Bank actually having to be active in the FX market).
3049

Impact so far of slower China growth?

3026

Is a strong dollar good for the US?

  • Having a strong currency (US$ near parity with euro) is nice for the ego - looks good, feels good, but in reality it's a complicated mixed-blessing.
  • Structural (permanent-ish) currency shifts can cause problematic imbalances (e.g. if US$ stays strong, US exporters will suffer, US companies with big foreign earnings will suffer, and US trade deficit will balloon).
  • Also makes US monetary policy decisions harder, i.e. US growing nicely now so Fed should raise interest rates soon, but if they raise rates, dollar will strengthen further.
2875

Why is euro at 12 year low vs dollar?

  • Europe growth slow and US growth solid.
  • Europe pushing interest rates lower (QE) and US interest rates expected higher.
  • Investors (pension funds, insurance companies and speculators) put their money where yields (interest rates) are higher, so they're moving from euro to US$.
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