Monetary Policy

  • Some believe the divergent theme ended last year.

    Consequences of Divergent Monetary Policies

    The key fundamental fact that is shaping the investment climate was underscored last week.  The ECB announced that it will begin its accelerated asset purchases on March 9.  The following day the US reported a sufficiently robust employment report to reinvigorate expectations that the Federal Reserve will raise rates before the end of the summer.  

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  • Investor's will have to look elsewhere for insight into Eurozone monetary policy

    As Expected, the ECB's Draghi Provided Little Insight

    ECB's Draghi failed to provide much fresh insight into implementation of its asset purchase program.  The details will be posted on the ECB's web site later.  

    The more important information comes from the ECB's new forecasts.  CPI this year is now expected to be zero, which implies more price pressures beginning later this year.  CPI next year has been tweaked higher to 1.5% and 1.8% in 2017.  The 2017 forecast has been introduced for the first time, and suggests the ECB's mandate will be achieved by the end of that year.  

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  • Yellen's comments weigh on the dollar and support global bond markets.

    Fallout from Yellen's Comments to the Senate Continue

    The dovish take to Fed Chair Yellen's testimony yesterday has continued to weigh on the dollar and support global bond markets.  Equities are mixed with the major markets lower while emerging markets have rallied.  The MSCI Emerging Market equity index is up about 0.8% to reach its highest level since early last December.  

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  • Market reaction to Yellen's comments was swift, if not too much.

    Market Participants Overreact to Fed Chair Yellen's Testimony

    Bond yields and the dollar fell.  Emerging markets and equities performed well.  The main cause appears to be Yellen's testimony to the Senate.  

    Yet this seems to be an exaggerated response.  Going over Yellen's prepared remarks and answers to questions from the Senators, our basis understanding has not changed:  The Federal Reserve's monetary policy and forward guidance continues to evolve and prepare investors, including those foreign sovereigns and companies that borrowed dollars, for an eventual rate hike.  

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  • The dollar is more bid than offer ahead of Yellen.

    Anxiously Awaiting Yellen

    Amid relatively light news, the US dollar is bid.  The euro is back to the lower end of its range, straddling the $1.1300 area.  The dollar is at an eight-day best against the yen near JPY119.50.  Falling commodity prices, a soft New Zealand inflation expectations survey, and the prospects for additional easing by the Reserve Bank of Australia (March 3) and the Bank of Canada (March 4), are weighing on the dollar-bloc. 

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  • Maybe the only ECB meeting record surprise was corporate bond consideration.

    The ECB Meeting Record Mostly Met Expectations

    Minutes after the German finance ministry rejected Greece's offer, the ECB released its first record of its recent meeting.  The only item that rises to the level of a surprise might be that the ECB considered buying corporate bonds.   

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  • The ECB tries to become more transparent.

    Will the ECB's First Meeting Record Prove Purposeful?

    Tomorrow is an important day for the ECB.  Yes, it does appear a Greek compromise is getting closer as the brink draws nearer.  Yes, the ECB is preparing to launch its new and more aggressive asset purchase program, just as the Eurozone real sector data and financial data are improving.  

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  • U.S. data gets mixed in with the ECB decision on Greece and SNB fallout.

    The ECB's Decision and U.S. Jobs...Meanwhile, at the SNB

    The ECB's decision yesterday to no longer accept Greek government bonds or state-guaranteed paper, but approving Emergency Lending Assistance (ELA) by the national central bank remains a key talking point today. The timing of the decision, following the meeting between new Greek Finance Minister Varoufakis and Draghi but before Varoufakis met with German Finance Minister Schaeuble is particularly intriguing. 

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