Category: Markets

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).

Impact so far of slower China growth?


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.

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$.

Property prices in Spain – ¿Por qué the fuss?

  • House prices in Spain are rising healthily again due to economic growth and better credit availability.
  • It's a big deal because the 2008 collapse in Spain's housing market triggered the country's economic & financial crisis.
  • Good news + seems like Spain will be one of Europe's best performing economies this year.

Why has Brazil’s currency fallen so much?

  • Currently at an 11 year low against US$ - bad time for emerging market currencies (weak commodity prices and resurgent US$) but domestic issues in Brazil playing substantial role in sell-off.
  • Economy doing badly and fiscal tightening needed, but domestic hostility to austerity.
  • Concerns that increasing political uncertainty will undermine president Rousseff's reform program.

How’s the euro doing against the dollar?

  • Terribly - currently at an 11-year low.
  • US economy strong, european economy weak.
  • US interest rates expected to rise mid-year-ish while europe's will remain zero and negative.

What is the “greater transparency for the Fed” debate?

  • Republicans want greater transparency and allege that Fed's interest rate decisions have become politicised.
  • Republicans also want rates to be set by mechanical rules, not opinions.
  • Fed Chairman Janet Yellen (Democrat) wants system to stay "as is"

Expectations re US interest rates?

  • Monetary policy has been accommodative (i.e. low and even zero interest rates) for a while - but economy now showing consistent signs of strengthening.
  • Fed stating now that this consistent growth is likely to start pushing up inflation to their 2% target.
  • Translates as Fed preparing markets for possible rate rises soon.

Greek debt battle so far?

  • Greece does not have an actual plan for exiting the euro - this weakens their negotiating position markedly.
  • Also, depositors extremely nervous, and Greek banking system will collapse if their negotiating stance is not modified.
  • Hence Greek strategy has thusfar failed to challenge German economic orthodoxy.
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