Guest post by Norman MogilWhen the Federal Reserve's Open Market Committee (FOMC) meets in the coming week, there will be pressure from various quarters to raise the federal funds rate. The clue to her thinking lies in the analysis of the "neutral rate of interest.
Guest post by Marcello MinennaWith the awaited decision of August 4, even the Bank of England has put aside any delay and has steered towards an aggressive expansionary monetary policy to contrast the recessionary pressures due to the Brexit shock on market expectations. Apart from the expected interest rate cut of 25 basis points, different unconventional measures stand out: a 6-months resumption of the government bonds (Gilts) buying programme for a monthly amount of $ 60 billion, to be combined in synergy with the purchase of £ 10 billion of corporate bonds in 18 months.The intervention in the corporate debt markets remains one of the most incisive tools in the hands of the central banks in order to induce a reduction in the funding costs of the non-financial sector and bypass the credit crunch due to a distressed banking system.
Guest post by Norman MogilJust as governments are cutting back on issuing new debt, the corporate sector has taken up the role of being the largest source of new debt in the United States. On the other hand, the corporate bond market has been on a bit of a tear in recent years .That segment of the debt market now outpaces all other debt issuers.
Guest post by Norman MogilWhen two of the biggest US pension funds reported very disappointing financial results this month, it became apparent that the pension industry needs a reality check. For the past fiscal year the California Public Employees’ Retirement System earned a merger return of 0.6 percent on its investments; the California State Teachers' Retirement System did only marginal better, clocking an investment return of 1.4 percent.
Guest post by Norman MogilEver since the 2008 financial crisis, there has been a persistent shortage of high-quality government debt. Without enough Treasury bonds to go around, investors “reach for yield” by buying apparently safe securities from the private sector ...if such behavior becomes widespread, it can create systemic risks that tip the financial system into crisis.
Initially, the surge in negative nominal rates in Europe and Japan rattled many investors in both the fixed income and equities markets. This blog examines both these developments to help the reader understand the signals coming out of the bond markets around the world.Nominal and Real Rates of InterestFor more than a year, short to medium term rates of interest in many countries have landed in negative territory.
Guest post by $hane ObataUnconventional Policies and Their Effects on Financial Markets _________________________________________________________________________Sign up for our daily newsletter called the Daily Shot. Emails are NEVER sold or otherwise shared with anyone._________________________________________________________________________SoberLook.comwww.SoberLook.com
Guest post by Norman MogilWith the release of Canadian banks’ second-quarter results, investors are beginning to measure the impact of the oil price collapse on the domestic financial industry. Where the banks face the biggest challenge is with their loans to the energy and commodity sectors in Canada and the United States.Provisions for Loan Losses (PCL).
Friday's US payrolls report, which to a large extent represents a latent effect of the US dollar rally over the past couple of years, was dismal. US manufacturing jobs growth has worsened again on a year-over-year basis.6.
Guest post by Norman MogilBusiness Investment “depends on the prospective yield of capital, and not merely on its current yield” , John Maynard KeynesOne of the many puzzles of the recovery since the 2008 crisis has been the corporate sector’s reluctance to add to a nation’s capital stock. Investment in new plant and equipment along with the construction of new productive facilities has lagged behind the experience of previous recoveries.
Guest post by Marcello MinennaNet balances in the Eurozone continue to widen as capital flows from the periphery to Germany and other core countries. Even the same ECB is explicitly warning not to infer bold assumptions from analysis of these data since simplistic explanations could lead to wrong conclusions.Some academic research on the importance of Target2 balances has progressed considerably from the seminal but disputed work of Sinn (2012).
Guest post by Norman MogilWhen appearing before their political masters, central bankers, invariably, urge them to adopt an expansionary fiscal policy. Ben Bernanke, and now his successor, Janet Yellen have pleaded with Congress to adopt a more simulative fiscal policy.
Guest post by Norman MogilWhen the central banks of three European countries and the European Central Bank (ECB) itself introduced negative interest rates (NIR) in mid -2014, many considered it be a temporary measure, a new experiment in monetary policy. But when the Bank of Japan did the same in January 2016 and when the ECB pushed rates further into negative territory in March 2016, the international investment world stood up and took notice.
Canada will now use fiscal deficits to re-invigorate its limping economy. While the political analysts argue as to which election promises were kept and which were broken, the principle issue in the budget concerns the role of deficits in generating economic well-being.Deficit financing has been used in Canada several times over the past four decades, as successive governments contended with economic downturns (Chart 1).
Finally, given that the domestic market is quite mature, if not saturated, the majors are looking at markets internationally, especially in Asia.The Canadian Housing MarketIf you live in Toronto or Vancouver, you cannot help but be confronted constantly by conversations about the hot housing market. The reasons behind this two-city housing market were examined previously.
We've had a number of questions regarding the growth and the risks surrounding China's Wealth Management Products (WMPs). Here is an overview in a Q&A format.Q: What are the reasons for the continuing demand and proliferation of WMPs in China?1.
Guest post by Norman MogilCanadians generally take pride that their banks have been able to weather the 2008 storm well and continue to exhibit solid performance . In this blog we will look at what will influence the performance of the Canadian banks in the near term.For the benefit of our American readers, we should point out there are significant differences between the Canadian and US banking systems.
One or more rate hikes by the Federal Reserve in 2016 remains a real possibility. "Source: @auaurelijaHowever a number of researches have suggested that with a relatively stable core inflation in the United States, oil prices would need to collapse to levels that are neither consistent with today's forward curve nor sustainable.
One subsector, in particular, the investment or securities industry has been hardest hit of late.. However, within the investment community, independent investment houses have taken quite a beating.
Guest post by Marcello MinennaIn January 2016, global foreign reserves (FX) continued their decline after an absolute peak in June 2014, declining significantly in distressed emerging countries and some notable oil-producing economies (see Figure 1).Figure 1. A central bank’s monetary policy stance is often captured better by changes in their overall balance sheet that comprehend both FX reserve movements than other conventional monetary policy actions, e.g.