Tag Archives: inflation

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Just A Minute!

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary what’s happening in the markets today:

Main Trading Events Of The Day: ECB President Draghi Speaks @ 15.30; BOE Gov Carney Speaks & Inflation Report @10.30 GMT

Earnings Reports: N/A

WHAT WE’RE WATCHING TODAY

Stocks Rise Along With Gold On Yellen’s Comments

U.S. stocks surged with the Dow Jones Industrial Average rising triple digits and the Nasdaq Composite turning positive for the year, as Federal Reserve Chair Janet Yellen reassured Wall Street that the Fed would continue the central bank’s policy of providing monetary stimulus to bolster the economy and expected “a great deal of continuity” with the monetary policies of her predecessor, Ben Bernanke. The House voted to suspend the nation’s borrowing limit until March 2015, without any policy conditions. This was a positive move for the markets because previous debates on U.S. government spending have weighed on global markets in the past, in particular, the budget impasse late last year that resulted in a government shutdown. Asian markets also moved higher after Yellen suggested that there would be no major change in the central bank’s policy, while stronger-than-expected trade data pushed Hong Kong higher. Gold bullion also gained again in trading today following Yellen’s testimony. The Fed is now buying $65 billion in bonds each month to stimulate the economy, down $20 billion from its 2013 pace. Many gold bugs predict inflation will follow the central bank’s accumulation of a $4.1 trillion balance sheet.

ECB’s Draghi Speaks; Will Deflation Be On The Agenda?

ECB President Draghi will deliver the keynote address at a conference in Brussels today. Euro-zone industrial output fell a seasonally adjusted 0.3 percent in December compared with a gain of 1.8 percent in the previous month. All eyes will be on Mario Draghi and any indications about economic measures that the ECB is likely to impose in order to beat deflation. The ECB may soon have to roll out the heavy artillery, in the form of an asset purchase program similar to those in the U.S., U.K. and Japan to fight the specter of deflation. Despite substantial progress over the past year, the euro-area economy remains vulnerable. Spare capacity and weak growth, along with relative price cuts by countries trying to restore competitiveness, is putting severe downward pressure on inflation. Bank of England Governor Mark Carney also releases an inflation report today where he will seek to cement investor expectations that the next increase in interest rates is some time away when he presents an updated version of his forward-guidance policy. Yields suggest Carney has convinced traders that there is enough slack in the economy to maintain the benchmark rate at a record 0.5 percent this year.

Super Mario to the Rescue?

Will Apple’s Sapphire-Screen iPhone Be Here Soon?

The latest rumours surfacing about Apple’s plans to manufacture sapphire are the most credible foundation yet for speculation that the iPhone will one day soon boast the most scratch-resistant screen on the planet. It’s not yet clear if the next-generation iPhone would get such a sapphire screen, or if the world will have to wait until 2015, presumably for an “iPhone 6s” model. Some are even claiming that it will be the iWatch that will be the first Apple device to be equipped with the scratch-resistant material. If the latest sapphire tech rumour is true, Apple’s exclusive manufacturing partner, GT Advanced Technologies, is gearing up its Arizona manufacturing facility with enough furnaces to forge as many as 200 million iPhone displays. The price of sapphire will inevitably result in driving up the retail price tag of the iPhone. A price increase could be detrimental to Apple as the iPhone already has a premium price tag. One to watch!

apple-sapphire

That sums up today’s highlights! Keep checking in for all the latest trading news via Facebook, Twitter & Google+. We hope you have a profitable day on the markets!

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Kuroda

Kuroda’s Policies Send Japanese Investors Overseas

Japanese investors have been leaving their home markets preferring to send their money overseas in an attempt to battle their country’s unprecedented quantitative easing. In fact, the volume of bonds marked in dollars and euros bought by Japanese investors swelled to a four-month high in November.

A net 1.48 trillion yen ($14.3 billion) worth of dollar bonds and 972.9 billion yen of euro bonds were purchased by fund managers from Japan, which makes it the largest purchase among currencies that the Ministry of Finance data has tracked. Australian-dollar bond purchases have also increased for a second consecutive month that ended 11 months of sales.

Overall last year, the yen depreciated 17 percent, the most in a single year since 1979, as reported by Bloomberg Correlation Weighted Indexes that monitor 10 major currencies. Japanese central bank governor Haruhiko Kuroda effected the currencies decline through the implementation of policies that suppressed local yields by reviving inflation, and thus also prompting Japanese investors to look for higher returns in overseas assets. December and January saw a stalling of buying with 513 billion yen in bond sales taking place over five weeks, though the weekly data has as yet to be broken up by country.

At its meeting last month, the BOJ vouched to expand the country’s monetary base from 60 trillion yen per year to 70 trillion yen. As a measure against deflation, policy makers double monthly bond purchases to over 7 trillion yen last April.

According to a report by the Ministry of Finance, the deficit of the nation’s current account increased to 592.8 billion yen in November, the greatest gap ever recorded in data that reach back to 1985.

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SterlingPound

British Pound and Home Prices Continue Rising

Homes in the U.K. have become more expensive than they have been in a decade showed a report yesterday, as the sterling pound climbed to its highest levels in over two years against the dollar.

The British currency failed to gain only against one of its 16 major peers and economists anticipate that data will show an increased industrial output for October, which would make it the second month of expansion, as well as a smaller trade deficit. The signs are positive for the country’s economy, but Bank of England Governor Mark Carney noted in his speeech in New York yesterday that the recovery will need to be sustained for longer before it can cope with higher interest rates.

Responding to questions following his talk at the Economic Club of New York, Gov. Carny said that his policy of guiding the Bank of England forward has been “effective” in keeping short-term interest rates low and boosting the economy.

A Bloomberg News survey has showed that industrial production in the U.K. rose 0.4 percent after gaining 0.9 percent in September. Other Bloomberg surveys of analysts showed that manufacturing production increased 0.4 percent in October and the trade deficit fell to 9.2 billion pounds from 9.8 billion pounds in September.

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5420256059_8319d17015_o

What could a future of “easy money” do to the world economy?

What would happen if interest rates worldwide dropped even lower and stay down for many years to come? What if much more bond-buying lies ahead? Yes, the Federal Reserve plans to reduce its bond-buying, leading us to the assumption that we are finally on the way towards tighter monetary policy after years of unprecedented stimulus efforts. But what if this is just a diversion?

Many of the world’s policymakers have hinted at this lately, and if they are right, we should expect even bigger gains in stock markets and higher gold prices, as well as international currency tensions, not to mention rising real estate prices in selective city centres. There may even be potential political repercussions for those excluded from this hypothetical jackpot. Last month saw perpetuating policies that have left the interest rates of developed countries near zero while inflating central-bank balance sheets. Now, people are suggesting that policy “normalisation” is too far in the future to even contemplate.

Should the Fed lower the unemployment rate target? Chairman Bernanke has hinted that the Fed could incorporate this revision into its “forward guidance” policy, saying that rates could stay near zero “well after” the jobless rate fell below 6.5%. At an International Monetary Fund event Lawrence Summers, the former Treasury Secretary, argued that the U.S. economy is trapped by “secular stagnation,” which has left the natural rate of interest far below zero. In other words, he was saying that we need even more aggressive policies to get around the “zero bound” floor on the Fed’s target interest rate.

But what does all this imply for future policy? As Bernanke and Summers discussed in an exchange after his speech, fiscal policy would be the ideal solution. That could include an immediate burst of targeted spending on infrastructure projects and an end to blanket austerity measures in the U.S. and Europe, while also reducing long-term government commitments on health care and social security.

But the current political climate prevents such sensible solutions in many countries. Instead, central banks may be driven to larger rounds of bond-buying and maybe even a deliberate strategy to create inflation by adopting nominal GDP targets. A continuous easy monetary policy may deepen the divisions within and between economies; the gap will widen between the few who benefit from financial market advances and the many who don’t. Despite the irrefutable weakness in consumer-price inflation that is provoking all these discussions, asset inflation is a real problem that is not that easy to get rid of. The ever-widening global wealth gap cannot so easily be separated from easy-money policies. If political solutions are purely localised and fail to address the extensive, global imbalances that are generating the stagnation we’ve been experiencing, the real problem will never get resolved.

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Euro down the drain

Euro Down the Drain

The euro fell to the lowest lever in a fortnight against the dollar and the yen as signs of economic weakness in the euro region incited speculation the European Central Bank will cut interest rates.

As data forecast to show that manufacturing decreased in France, one of the eurozone’s largest economies, the euro extended its biggest drop in more that a year against the USD as data showed yesterday that manufacturing expanded in the U.S. Reports yesterday indicated a slowing inflation in the euro region as unemployment reached record-high levels.

The euro dropped 0.3 percent to $1.3548 this morning after reaching $1.3540, its weakest point since 17th October. Yesterday the currency sank 1.11 percent, the most since June 2012. The 17-country currency slipped 0.7 percent to 132.73 yen after touching 132.61, the lowest since 11th October.

The European Union’s statistics office reported yesterday that the euro area’s annual consumer-price declined to 0.7 percent last month, the least since November 2009, from 1.1 percent in September.
Other data showed yesterday that unemployment in the eurozone reached a record 12.2 percent in September.

The European Central Bank said there’s a “subdued outlook” for price growth in the region, and October marks the ninth consecutive month the rate has remained below the 2 percent ceiling. The next meeting of European policy makers will take place on 7th November.

Forecasts published yesterday anticipate the ECB will cut its refinancing rate to 0.25 percent in December from the currennt 0.5 percent. The below-than-forecast CPI numbers have raised concerned over the outlook for inflation in the region and the ECV’s response.

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million dollars

Central Bankers Gone Wild?

The ripple effect of the 16-day U.S. government shutdown that made headlines around the world earlier this month has now started to make waves across the planet, showing the real weight of the dollar in the global economic pool.

Earlier this week the Bank of Canada spoke about the need of future interest-rate increase, avoiding the language it used in earlier decision concerning ‘gradual normalisation’, while the central banks of Norway, Sweden, and the Philippines decided yesterday to postpone raising their interest rates further into the future as well. The announcements bolster the Federal Reserves’ plan to delay the withdrawal of its stimulus plan until well into next year. But it is not just the big players who join the movement: from Hungary to Chile, emerging markets around the world have cut interest rates in the past two months.

With inflation and job growth in the industrial world stubbornly refusing to climb to higher levels and a weakening in developing nations, policy makers continue their path of monetary easing in an attempt to jolt global growth from its stagnant position. If recent economic history has taught us anything, however, it is that stimulus creates asset bubbles that play havoc on the markets when they finally burst. And the current bubble has already been inflated by drastic home-price increases across the globe and the MCSI World Index of developed-world stock markets dangerously inching towards its highest level since 2007.

Some economists warn that the current conditions of central bankers pumping liquidity into the markets and promising to keep interest rates down are not normal. Yet, such has been the environment for five years now, as monetary authorities have sought to protect global economy from deflation and have turned to quantitative easing as a means to expedite its recovery. But to what cost?

The financial rewards have so far been limited. The International Monetary Fund this month has clipped its projections for global economic growth from 3.1 to 2.9 percent for 2013, and from 3.8 to 3.6 percent for 2014. It also expects most central banks across wealthy nations to favour lower inflation rates which already fall below the 2 percent average.

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