Category: Markets

What was Switzerland’s currency cap?

  • Up until 15 Jan 2015, Switzerland maintained a currency ceiling against the euro (in place since 2011).
  • This would stop the Swiss franc from appreciating too much.
  • In times of strong franc demand, the Swiss central bank would let the franc appreciate to a point, and then stop the appreciation, by selling as many francs as the market wanted (and thereby accumulating foreign currency reserves).

Which countries have used QE recently?

  • US (2009, 2011, 2013 - ended 2014).
  • UK (2009, 2012, 2013), Japan (2009, 2011, 2013).
  • Europe (starting now - Jan 2015 - would have started earlier but resistance from Germany).

Why is Germany sceptical of QE?

  • Merkel believes QE eases fiscal pressure on spendthrift member states (i.e. no need to be vigilant on Fiscal Policy (budget) because Monetary Policy (QE) available).
  • Also believes it will ease pressure on same member countries to embark on tough economic reforms.
  • Believes it is "back-door fiscal union" (i.e. countries with weak budgets get helped by those with strong ones).

Global market trends right now?

  • Equites down off lower global growth outlook.
  • Industrial metals (like copper) lower for same reason.
  • Government bonds doing better as receding inflation fears and less likelihood of higher US interest rates soon.

What are Republicans doing to the Dodd-Frank financial reform act?

  • Dodd-Frank being chipped away at by Republicans.
  • Being done through legislative action in the House of Representatives.
  • Republicans not mentioning it much in public statements, because Wall Street still viewed with suspicion.

What is the Dodd-Frank financial reform act?

  • Legislation adopted in the wake of the 2008 financial crisis, primarily aimed at curtailing excessive risk-taking by big banks.
  • Key rule = "Volker Rule" that prevents banks from speculating with their own money (proprietary trading).
  • Seen as central legislative achievement of Obama's first term.

Why has the price of copper dropped so much?

  • Lowest level in 5 and a half years.
  • Copper used in construction and electronics.
  • Seen as a barometer of economic growth, and with global growth slow and expected to worsen, speculative and fundamental demand for copper has dropped.

Why are global bond prices rising (yields falling)?

  • Inflation is bad for bonds, i.e. it erodes the "fixed income" return of bonds.
  • But global inflation is falling (due to cheap oil and slow global growth).
  • Hence more demand for bonds, hence bond prices fall.

Why is Africa seeing growth despite commodity price falls?

  • Overall improved governance & broad-based economic reforms.
  • Economies diversifying away from commodity exports & into manufacturing + services (especially tourism).
  • Telecoms, finance, transport & infrastructure = best growth sectors.

Expectations re Greek election on 25 Jan?

  • Alexis Tsipras (head of coalition of left of centre political parties) expected to win, possibly ushering in a radical economic program.
  • He proposes undoing recently-imposed austerity measures, restructuring external debt and totally changing the banking sector, but might just be electoral hot air.
  • Investors concerned that he will force a Greek default (on its debts) and exit from the euro (Grexit).
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