Fed tightening deepens monetary policy rifts worldwide

2017 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Oil Prices ◽  
Inflation Expectations ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Political Risks ◽  
Bank Of England

Subject US tightening continued this month despite lower inflation expectations. Significance Monetary policy rifts have deepened since the decision by the Federal Reserve (Fed) on June 14 to raise interest rates for the second time this year despite inflation easing and oil prices falling below 45 dollars per barrel. Growing discord between central banks and bond markets has spread to the Bank of England (BoE), where three of the eight committee members disagreed with the June 15 decision to keep rates on hold despite inflation spiking to its highest since June 2013. The ECB and the Bank of Japan (BoJ) are also under pressure to set out plans to wind down their quantitative easing (QE) programmes. Impacts ‘Reflation trading’ continues to unwind; the world stock of negative-yielding government bonds has surged to nearly 10 trillion dollars. US equity markets are hovering near records despite a plethora of vulnerabilities, including lower oil prices and rising political risks. Emerging markets (EM) inflows continue to surge, but higher US rates may force EMs to raise rates before they are ready, hitting activity. The divergence between rising US rates and ultra-loose ECB and BoJ policy will cushion the dollar, protecting it from rising US risks.

ECB's QE will buoy EM bond markets

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Developing Economies ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Central Banks ◽  
Capital Inflows ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Content Type ◽  
Large Current

Subject Opposite forces are shaping investor sentiment towards EM assets. Significance Investor sentiment towards emerging market (EM) assets is being shaped by the conflicting forces of a strong dollar and the launch of a sovereign quantitative easing (QE) programme by the ECB. While the latter is likely to encourage investment into higher-yielding assets, such as EM debt, the former will keep the currencies of developing economies under strain, particularly those most sensitive to a rise in US interest rates due to heavier reliance on capital inflows to finance large current account deficits, such as Turkey and South Africa. Impacts EM bonds will benefit from ECB-related inflows, while the strength of the dollar will keep local currencies under strain. Higher-yielding EMs will benefit the most from the ECB's bond-buying scheme since they provide the greatest scope for 'carry trades'. The collapse in oil prices is forcing EM central banks to turn increasingly dovish, putting further strain on local currencies.

Japan will stay the course on monetary easing

2018 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Central Banks ◽  
Quantitative Easing ◽  
Content Type ◽  
Bank Of Japan ◽  
Target Date ◽  
Low Levels ◽  
Global Economic Growth ◽  
First Time

Subject Monetary policy in Japan. Significance The monetary policy board of the Bank of Japan (BoJ) at its last meeting abandoned its prediction of when the nation will reach its 2% inflation target, the first time it has omitted a target date since Governor Haruhiko Kuroda introduced his policy of radical monetary easing five years ago. Impacts Japan’s interest rates will remain at historically low levels for at least two more years. The yen will remain relatively weak as other countries’ central banks end their quantitative easing programmes. A weak currency plus widespread global economic growth will create strong demand for Japanese exports.

Central Europe's lower yields may dampen bond outflows

2018 ◽  
Keyword(s):  
Czech Republic ◽  
Emerging Market ◽  
Oil Prices ◽  
High Yield ◽  
Corporate Debt ◽  
Bond Markets ◽  
Quantitative Easing ◽  
The Czech Republic ◽  
Content Type ◽  
Financial Conditions

Subject QE’s influence on Central Europe’s bond markets. Significance Hawkish signals from the ECB are adding to recent strains on global bond markets, causing German ten-year Bund yields to shoot up to their highest levels since July. The sell-off is contributing to sharp outflows from Central Europe’s local debt markets, already under pressure as monetary tightening starts in the region; the Czech Republic, which has raised rates twice since August, is suffering the largest withdrawals. However, the absence of large inflows since the ECB started quantitative easing (QE) in 2015 could help mitigate the fallout from its end. Impacts As OPEC members reaffirm their commitment to production cuts, oil prices are shooting up to their highest level in nearly three years. Sales of speculative-grade US corporate debt have had their strongest New Year since 2014, a sign of enduring demand for high-yield bonds. The three-year low in the dollar index will help keep financial conditions loose and buoy up emerging market currencies.

Bond markets worry about higher rates under Trump

2016 ◽  
Keyword(s):  
Emerging Market ◽  
Inflation Expectations ◽  
Bond Markets ◽  
Fiscal Stimulus ◽  
Government Bonds ◽  
Risky Assets ◽  
Content Type ◽  
Growth Prospects ◽  
Severe Deterioration ◽  
Stimulus Package

Significance Equity markets have risen in anticipation of a fiscal stimulus package which would boost growth prospects. In contrast, demand and prices for government bonds, which were already under strain due to rising inflation expectations, have fallen due to fears of aggressive interest rate tightening to combat a debt-fuelled inflation surge. A sustained bond sell-off -- particularly one accompanied by a sharp rise in inflation -- could lead to a severe deterioration in sentiment towards 'risky assets'. Impacts Investors will see Trump's victory as a shift from ultra-loose monetary policy towards a greater reliance on fiscal stimulus. Stock market enthusiasm for tax and spending ideas could evaporate if these plans are not implemented or do not boost growth as expected. Copper had its best week for five years as Trump's stimulus plans are expected to boost demand and prices for industrial metals. The rouble was less affected by the election than other major emerging market currencies on hopes that US-Russian relations will improve.

ECB monetary review could boost policy flexibility

2020 ◽  
Keyword(s):  
Climate Change ◽  
Monetary Policy ◽  
Interest Rates ◽  
Board Members ◽  
Quantitative Easing ◽  
Executive Board ◽  
Governing Council ◽  
Content Type ◽  
Political Skills ◽  
Tackle Climate Change

Subject ECB monetary review. Significance The new ECB president wants to extend the bank’s remit to include addressing climate change, but disagreements are mounting over the traditional mission, monetary policy. Christine Lagarde headed her first monetary policy meeting on December 12 and, as expected, stuck to Mario Draghi’s policy path. However, the divisions between Governing Council members who support the ultra-loose stance and those who oppose quantitative easing (QE) and lower interest rates will deepen. Impacts New Executive Board members include Isabel Schnabel and a replacement for Benoit Coeure; they will influence the way the board leans. Lagarde has little banking expertise but will use her political skills to encourage governments to expand fiscal policy. Lagarde wants the ECB to tackle climate change but this is technically challenging and will be opposed in the Governing Council. The ECB's chief economist and the directors general for economics and monetary policy will have more sway under Lagarde.

The quantitative easing effect on the stock market of the USA, the UK and Japan

2016 ◽  
Vol 43 (6) ◽  
pp. 1006-1021 ◽  
Author(s):  
Luiz Lima ◽  
Claudio Foffano Vasconcelos ◽  
Jose Simão ◽  
Helder Ferreira de Mendonça
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Stock Markets ◽  
Positive Impact ◽  
Central Banks ◽  
Quantitative Easing ◽  
Subprime Crisis ◽  
Content Type ◽  
The Usa ◽  
The Uk

Purpose The purpose of this paper is to analyze if the unconventional monetary policy, known as quantitative easing (QE) practiced by central banks in the USA, the UK, and Japan was effective to increase the market share after subprime crisis. Design/methodology/approach In order to analyze the effect of the QE on the stock markets of the USA, the UK, and Japan, the authors use an ARDL model to find the long-run relationship among the variables. Findings The findings denote that the QE implemented by the central banks in the USA, Japan, and the UK had a positive impact on their stock markets. Originality/value The results of the paper give some new insights about the conduction of monetary policy when the interest rates are close to zero.

Japanese monetary policy puts finance first

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Japanese Economy ◽  
Inflation Expectations ◽  
Government Bond ◽  
Import Prices ◽  
Content Type ◽  
Negative Interest Rates ◽  
Bank Of Japan ◽  
Fine Tune

Subject Monetary policy in Japan. Significance After reviewing a comprehensive assessment of the Japanese economy, the Bank of Japan (BoJ) ended its meeting on September 21 with decisions to fine-tune monetary policy, disappointing observers who expected a deeper dive into negative interest rates or amplification of the current course of government bond purchases. Impacts Major changes to interest rates or exchange rates are unlikely. Shares of banks and other financial institutions will benefit. Backward-looking inflation expectations should turn positive as months of fairly stable import prices work their way through overall prices.

Adoption of yield-curve control could aid US recovery

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
Balance Sheet ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Forward Guidance ◽  
Reserve Bank ◽  
The Us

Subject Yield-curve control. Significance The US Federal Reserve (Fed) is contemplating yield-curve control (YCC), a policy pursued by the Bank of Japan (BoJ) and Reserve Bank of Australia (RBA) alongside quantitative easing (QE) and forward guidance. A central bank does this by capping the yields on government bonds of a chosen maturity through unlimited bond purchases. This supports the economy by reducing borrowing costs for financial institutions, households and businesses. Impacts By providing transparency over a central bank’s actions, YCC would be likely to reduce the volatility of long-term interest rates. YCC adds to the Fed balance sheet; the Fed will need a credible exit strategy to cut market volatility and the risk of Fed capital losses. A sharp uptick in inflation may put upward pressure on long-term yields, necessitating higher Fed purchases to maintain its targeted peg.

Fed hike raises risk of a politics-led market downturn

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Mutual Funds ◽  
Emerging Market ◽  
Oil Prices ◽  
Economic Data ◽  
Crude Oil Price ◽  
Content Type ◽  
Political Risks ◽  
Expected Inflation ◽  
Equity Mutual Funds

Significance The probability of a rise in interest rates has shot up to around 90%, from 40% at the end of February, on stronger-than-expected inflation and economic activity. In the euro-area, the surge in headline inflation to 2% in February and a series of robust purchasing managers’ index (PMI) surveys are putting pressure on the ECB to begin debating an exit from quantitative easing (QE). The stronger economic data is outweighing mounting political risks, particularly the uncertainty surrounding the outcome of France’s presidential election. Impacts Emerging market (EM) assets are benefiting from global reflation, with EM bond and equity mutual funds enjoying strong inflows in 2017. Oil prices are under strain again owing to renewed supply concerns, with the Brent crude oil price dropping to around 51 dollars per barrel. The dollar index has risen since end-January in response to stronger US economic data and further upside is likely. Higher US rates, a strong dollar and lower oil prices increase risks in EMs heavily reliant on dollar-denominated debt.

Czech koruna may avoid Swiss-style turmoil

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Oil Prices ◽  
Central Banks ◽  
Oil Price ◽  
Bond Markets ◽  
Price Rise ◽  
Content Type ◽  
Downward Pressure ◽  
National Bank

Subject The central bank's plans to lift its three-year cap on koruna/euro appreciation. Significance Mounting speculation that the Swiss-inspired currency floor might be scrapped early has led to upward pressure on the currency, buoying demand for shorter-dated Czech local bonds and forcing the Czech National Bank (CNB) to intervene more aggressively to weaken the koruna. While inflation rose to 0.6% in August, there are fears that removing the cap could lead to excessive appreciation of the koruna, putting downward pressure on growth and inflation. Impacts Concerns about ECB monetary policy efficacy, and possible early scaling-back of QE, are making Europe's bond markets increasingly jittery. Oil prices have risen past the psychologically important 50 dollars/barrel level, improving the outlook for inflation. Provided the oil price rise is sustained, this will ease pressure on central banks to loosen monetary policy further. The German economy's slowdown, due to a dearth of investment, is a drag on smaller CEE export-led economies such as Hungary and Slovakia.

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