After years of rate cutting and bond-buying central bank policies are now being questioned by financial markets. The euro and yen, targeted casualties of these policies, shot up with a vengeance. Especially the major move in JPY suggests investors are getting doubtful.
The 'power' of central banks! #JPY at highest since November '14, #EUR above 1.15, highest since August. https://t.co/aNBG9XBwKK
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jeroen blokland (@jsblokland) May 03, 2016
The 'power' of central banks! #JPY at highest since November '14, #EUR above 1.15, highest since August. https://t.co/aNBG9XBwKK
—jeroen blokland (@jsblokland) May 03, 2016
And rightly so. Central banks’ only goal, getting inflation to target, is no where in sight. This week the European Commission, again, lowered its Eurozone inflation forecast. For this year we get 0.2%. That’s the wrong order of these two digits, Mr. Draghi!
#CPI forecast cut (again) by @EU_Commission. 0.2% #inflation expected for 2016, 1.4% for 2017. https://t.co/vqy2p7gXfQ
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jeroen blokland (@jsblokland) May 03, 2016
#CPI forecast cut (again) by @EU_Commission. 0.2% #inflation expected for 2016, 1.4% for 2017. https://t.co/vqy2p7gXfQ
—jeroen blokland (@jsblokland) May 03, 2016
Even the Swiss could be losing it. The UBS Real Estate Bubble Index, a linear function of Swiss monetary policy, dropped in Q1. It’s pretty rare for this index to go down.
Chart! The @UBS Swiss Real Estate Bubble Index falls for the 1st time in 2 years! A drop has become pretty rare. #QE https://t.co/KNxwn03tRj
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jeroen blokland (@jsblokland) May 04, 2016
Chart! The @UBS Swiss Real Estate Bubble Index falls for the 1st time in 2 years! A drop has become pretty rare. #QE https://t.co/KNxwn03tRj
—jeroen blokland (@jsblokland) May 04, 2016
Perhaps the ECB has more luck in keeping interest rates low. Austerity and even more bond-buying mean that Eurozone government bonds will become scarce this year.
Bonds are getting scarce this year! Could keep yields from rising. Great chat by @business https://t.co/HW4ndGYPFA
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jeroen blokland (@jsblokland) May 02, 2016
Bonds are getting scarce this year! Could keep yields from rising. Great chat by @business https://t.co/HW4ndGYPFA
—jeroen blokland (@jsblokland) May 02, 2016
Even the Fed seems to have lost the courage to hike rates. Investors remain outspoken. No more hikes this year.
Market on #Fed: June 'NO HIKE', July 'NO HIKE', September 'PROBABLY NO HIKE', November 'PROBABLY NO HIKE'. https://t.co/OAJP3J4ly4
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jeroen blokland (@jsblokland) May 03, 2016
Market on #Fed: June 'NO HIKE', July 'NO HIKE', September 'PROBABLY NO HIKE', November 'PROBABLY NO HIKE'. https://t.co/OAJP3J4ly4
—jeroen blokland (@jsblokland) May 03, 2016
Other central banks have started to ease again. The Reserve Bank of Australia unexpectedly lowered the overnight cash rate. The reason? Lowflation, of course. The depreciation of the AUD, is a pretty convenient side-effect.
The age of central bank monetary easing continues... via @MktOutperform https://t.co/6mzcA0nZxl
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jeroen blokland (@jsblokland) May 04, 2016
The age of central bank monetary easing continues... via @MktOutperform https://t.co/6mzcA0nZxl
—jeroen blokland (@jsblokland) May 04, 2016
If you are looking for inflation, you have to go to more exotic places to find it. Venezuela being the best example, as hyperinflation is killing off the economy. But Kazakhstan is also doing ‘great’ with an inflation level of 16.3%.
Looking for #inflation? #Kazakhstan is the place to be. Inflation hits 16.3%(!) after massive currency drop in 2015. https://t.co/DLWGUjphec
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jeroen blokland (@jsblokland) May 03, 2016
Looking for #inflation? #Kazakhstan is the place to be. Inflation hits 16.3%(!) after massive currency drop in 2015. https://t.co/DLWGUjphec
—jeroen blokland (@jsblokland) May 03, 2016
Did I mention Venezuela? Right, this country has been in ‘paper default’ for quite some time now. Implied default rate of 99%.
To investors, #Venezuela has been bankrupt for quite some time. CDS spread > 5000! https://t.co/Do9HdAsQyq
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jeroen blokland (@jsblokland) May 04, 2016
To investors, #Venezuela has been bankrupt for quite some time. CDS spread > 5000! https://t.co/Do9HdAsQyq
—jeroen blokland (@jsblokland) May 04, 2016
Implied default rates are intriguing statistics and reveal some interesting investor views. For example, China, the world’s second-biggest economy has an 5-year implied default rate of 11%. That odd is not easily overlooked.
Implied 5-year #default probabilities! US 2%, China 11%, Portugal 20%, Brazil 26%, Greece 63%, Venezuela 99% https://t.co/nMxlRpIlL8
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jeroen blokland (@jsblokland) May 06, 2016
Implied 5-year #default probabilities! US 2%, China 11%, Portugal 20%, Brazil 26%, Greece 63%, Venezuela 99% https://t.co/nMxlRpIlL8
—jeroen blokland (@jsblokland) May 06, 2016
China default worries are, of course, related to China’s ever growing debt pile. Hence, my short blog this week showing 13 graphs on the China debt issue.
13 charts on #China's #debt issue! How convenient...
jeroenbloklandblog.com/2016/05/04/13-… https://t.co/zx3hmn8fa6
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jeroen blokland (@jsblokland) May 04, 2016
13 charts on #China's #debt issue! How convenient... jeroenbloklandblog.com/2016/05/04/13-… https://t.co/zx3hmn8fa6
—jeroen blokland (@jsblokland) May 04, 2016
Over to the US. After disappointing ADP numbers, nonfarm payrolls at 160K also lagged expectations (200K). In addition, the unemployment rate failed to dip below 5%. If Yellen was looking for a way out of a rate hike in June, she has now found it.
BREAKING Change in #nonfarmpayrolls +160K in April, below expectations.
No #Fed hike in June. https://t.co/wUI7FDULym
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jeroen blokland (@jsblokland) May 06, 2016
BREAKING Change in #nonfarmpayrolls +160K in April, below expectations. No #Fed hike in June. https://t.co/wUI7FDULym
—jeroen blokland (@jsblokland) May 06, 2016
Fortunately, the ISM Non-manufacturing index unexpectedly rose to a healthy 55.7. As mentioned before the US likely experienced a manufacturing recession, which is different from a general economic recession.
#ISM Non-Manufacturing rises to 55.7. The gap with ISM Manufacturing grows older and remains large! https://t.co/KhV3leVKlf
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jeroen blokland (@jsblokland) May 04, 2016
#ISM Non-Manufacturing rises to 55.7. The gap with ISM Manufacturing grows older and remains large! https://t.co/KhV3leVKlf
—jeroen blokland (@jsblokland) May 04, 2016
Goldman Sachs this week made a prediction that property prices in Hong Kong could drop up to 20%. When it comes to asset prices inflation central banks around the world probably did a ‘good’ job, and the graph below ‘proves’ that.
Why @GoldmanSachs expects #HongKong property prices to fall by 20% in one chart! bloomberg.com/news/articles/… https://t.co/rVDWdRYGqK
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jeroen blokland (@jsblokland) May 05, 2016
Why @GoldmanSachs expects #HongKong property prices to fall by 20% in one chart! bloomberg.com/news/articles/… https://t.co/rVDWdRYGqK
—jeroen blokland (@jsblokland) May 05, 2016
Meanwhile the rally in emerging assets continues, although things got a little nasty towards the end of the week. But still, for emerging currencies and debt, this rally is (or was) the best in years.
EM currencies and EM debt are having the best run in years. FX up 10%, debt 20% since the low in January! https://t.co/xRk27CFP4A
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jeroen blokland (@jsblokland) May 02, 2016
EM currencies and EM debt are having the best run in years. FX up 10%, debt 20% since the low in January! https://t.co/xRk27CFP4A
—jeroen blokland (@jsblokland) May 02, 2016
Finally, oil is up, but oil production is not down. Rigs have fallen of a cliff, shale companies go bust every week, but the real damage to production has yet to show up in the charts. I guess it will come, but so far oil production around the globe has been pretty resilient.
That massive drop in rig count has hardly impacted US production, so far. #oil https://t.co/2IzqqJX7u7
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jeroen blokland (@jsblokland) May 02, 2016
That massive drop in rig count has hardly impacted US production, so far. #oil https://t.co/2IzqqJX7u7
—jeroen blokland (@jsblokland) May 02, 2016