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Hello from Hong Kong. Three central banks to watch this week
Bank of Japan monetary policy decision on Tuesday March 15,
Bank of England on Thursday March 17, followed by FOMC later
that day. Nothing expected from BOJ and BOE; an article in The
Nikkei said markets are beginning to pin their hopes for Japan's
economic recovery on ambitious government outlays as the
central bank's monetary easing runs low on fuel (page 20).
Almost everyone sees Fed Res putting rate hikes on hold this
month.
Post-ECB and Draghits Bazooka, there are lots of news articles
from the weekend. FT said currency forecasters are pulling back
on 2016 expectations of a weaker Euro following its whipsaw
move. ECB staff projections in December forecast the 2016
exchange rate to reach $1.09, but have now pushed this out to
$1.11 (page 6). In Bloomberg (page 7), the Euro-bears are now
counting on Fed Res to deliver where ECB failed. Options prices
show traders are paying the lowest premium since Feb. 10 to
protect against a Euro slump. Hedge funds and other large
speculators are also starting to capitulate, shaving bets against
the currency to the least since June 2014 late last month. The
prospect of tighter monetary policy in the US holds out a kernel
of hope for Euro bears. Futures contracts show a 51% likelihood
of a rate increase by June, from 2% probability a month ago.
From Barrons Online, forgive the repetition, but this will be
another confab to watch what they say instead of what they do.
Vice Chairman Stanley Fischer, opined that four rate hikes in
2016 were in the ballpark, the consensus view has softened to
perhaps two increases this year from the current funds rate
target of 0.25% to 0.5% (page 9). CIBCs Avery Shenfeld said
hawks like Fischer still expect to carry on with further hikes
over the course of 2016. Doves like Brainard want to see a lot
more evidence of wage inflation and even tighter labour
markets before moving again.
http://research.cibcwm.com/economic_public/download/mar1
1_16.pdf
Three European central bankers opposed to Draghit. We all
know the first one. Bundesbank President Jens Weidmann was
particularly opposed to the decision. The other two are
Governing Council Board Members Dutch central banker Klaas
Knot and Germanys Sabine Lautenschlaeger. Not surprising,
Buba has publicly opposed recent ECB policy moves, including
the launch of its quantitative-easing program a year ago and its
expansion in December. It views government-bond purchases as
a risky policy tool that could inflate asset bubbles and reduce
the pressure on highly indebted governments to reform. Two
Germans have resigned from the ECBs governing council since
2011 amid disputes over bond purchases, including former Bunba
President Axel Weber (page 6).
We are hearing it again former BOE Governor Mervyn King tells
Daily Mail on Sunday, in his most explosive comments for
Europe's biggest economy, saying Germany's dominance has been
one of the more damaging consequences of the single currency
project (page 8).
NIRP is here to stay. Five of the worlds major monetary
authorities have resorted to sub-zero rates. Negative interest
rates - widely seen as a central bank ploy to depreciate their
currencies - have been called a "dangerous experiment" due to
their adverse impact on the profitability of retail banks. At the
last G20, BOE Governor Carney has said central bank action to
stimulate domestic activity with negative rates was a "zero sum
game" for the world. What will Kuroda do on coming Tuesday
March 17? Barrons Online said little is expected, especially
given how its adoption of NIRP in late January largely backfired
by sending the Yen sharply higher (page 10). The febrile market
environment means the Fed is set to hold fire on another hike at
its March policy meeting on Wednesday. Investors are now
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
Focus on China
China to Maintain Prudent Monetary Policy,
Says PBOC Governor Zhou
Taken from the WSJ Saturday, 12 March 2016
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
Bundesbank
Package
Opposed
Latest
ECB
Stimulus
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
The ECB goes deeper into negative rates while the Federal
Reserve is likely to hold off for now. One radical option:
Drop money from the helicopter.
Pity the poor central bankers of the world. Theyre having a
harder time than ever pushing out torrents of money into
the worlds economies.
First they reduced interest rates to zero. Then they bought
boatloads of bonds with money they conjured up
electronically and shovelled out the door. But still, they had
to get even more creative by cutting interest rates below
the previously presumed lower boundary of zero.
Negative interest rates turned the world upside down,
with depositors and bond investors paying for the
privilege of investing their money and borrowers, in some
cases, being paid for borrowing.
There have been more radical schemes put forth, notably
helicopter drops of cash, to use the metaphor originated
by economist Milton Friedman and repeated by former
Federal Reserve Chairman Ben Bernanke. Government
borrowing to cover a deficit resulting from a tax cut or
spending scheme that was funded by central-bank money
printing would be the equivalent to Friedmans metaphorical
cash drop, Bernanke explained back in 2002, earning him the
nickname Helicopter Ben.
One might presume that getting central bankers to run their
printing presses would be as easy for them as falling off a
log. But Jeff deGraaf, who heads Renaissance Macro
Research, last week, noted that the year-over-year
expansion of global central-bank liquidity (from the Fed,
the European Central Bank, the Bank of Japan, the assets
of the Peoples Bank of China, and Chinas currency
reserves, plus assets of sovereign-wealth funds) has
turned negative. Thats a far cry from the double-digit
annual growth rate seen as recently as late 2013, when
the Fed began its taper of bond buying. Lo and behold,
the year-over-year change in the Standard & Poors 500
index turned negative.
But fear not. A new way to get money from the central
banks into the hands of the people was invented by an
unlikely source.
Actually, they did it the old-fashioned way: They stole it. It
seems that computer hackers purporting to be the central
bank of Bangladesh were able to transfer some $101 million
from the New York Fed, according to various press reports. A
$20 million batch went to a bank in Sri Lanka, which didnt
disburse it, according to a Sri Lankan central-bank
spokesperson quoted by the Financial Times. The other $81
million was transmitted to accounts at a Philippine bank,
where authorities were working with Bangladesh and had
frozen the accounts. Not surprisingly, the Bangladeshis want
their money back, but the New York Fed insisted it hadnt
been hacked and followed protocol in making the transfers.
If the dough isnt recovered, the central banks might console
themselves that the money probably will be spent and
provide real monetary stimuluspossibly getting more bang
for the 100 million bucks than their more usual policy
operations aimed at boosting asset prices and in turn
spurring spending and investing.
When you think about it, negative interest rates are a bit
like a bank robbery in reverse. You give a borrower money
for some period of time, and you get less back for your
trouble. The idea is that youd rather get something for your
money, so youll look for some investment with a positive
return. Anyway, thats how its supposed to work, but so far
the results have been mixed.
The problem is that banks in countries with negative
rates, such as the euro zone, Switzerland, Japan,
Denmark, and Sweden, cant bring themselves to charge
depositors to hold their money. In other words, theyre not
like airlines, at least not yet. So, the banks eat the
negative rates on some of their balances at the central
bank. Meanwhile, the gravitational pull from negative rates
results in lower bond yields and loan-interest fees, squeezing
the banks profits.
Last week, the ECB came up with a new twist on NIRP, which
is the acronym popular in central-banking circles for
negative interest-rate policy. So while Mario Draghis crew
last week said it will lower the rate the ECB charged banks
by 10 basis points (0.1 percentage point), to minus 40 basis
points, they came up with a new twist. The ECB would
provide banks with long-term cash, free of charge but
with a twist: The central bank would pay the banks 40
basis points if they actually made loans with the money.
In addition, the ECB also upped its monthly bond purchases
to 80 billion euros ($89 billion) from 60 billion currently.
And the central bank will start buying corporate bonds from
European nonfinancial corporations with investment-grade
credit ratings.
All of these novel moves left markets flummoxed on
Thursday when Super Mario announced his latest moves. The
bazookato use former U.S. Treasury Secretary Hank
Paulsons term for powerful policy toolsfirst rallied the
markets but then backfired, to use the metaphor uttered
throughout the market.
The euro plunged and bourses rallied on the prospect of
more cheap money driving profits of euro-zone corporations.
But those moves snapped back, and more, after Draghi
almost offhandedly indicated that rates were unlikely to be
pushed still lower, and the euro popped and stocks tanked.
After further review, on Friday, markets reconsidered the
novel ECB moves to spur more credit in the private sector
via the lending facility and corporate-bond purchases. On
the latter score, there may be unintended beneficiaries.
Before the ECB schemes were announced, Berkshire
Hathaway (tickers: BRKA, BRKB) sold 2.75 billion of euro-
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These days, not only isnt the incumbent not running for reelection, but rarely has there been such a free-for-all for the
White House. At least the remaining GOP contenders called a
halt to their childish behavior and negativity in Thursdays
debate. That said, markets should expect the worst from the
political sphere and hope for the best from the central
banks.
(Full article click - Barron's)
---
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
worth about 1.6 trillion, but the portion that meets the ECB
criteria for purchase is just 550 billion.
Details are still to be worked out, but the ECB plan raises
numerous issues. With debt prices set to tumble as the ECB
buys what it can, it makes sense for European companies to
raise debt at close-to-zero interest rates and use the
proceeds to buy back their stocks or pay higher dividends,
suggests Bill Blain, strategist at Mint Partners. Perhaps its
time to buy the shares of European investment-grade
corporates, he says.
STOCKPICKERS ARE TAKING THEIR TIME evaluating the ECB
moves and their effect on the markets. Brian Hennessey,
the portfolio manager of Alpines Dynamic Dividend fund,
says future gains wont be across the board, so stock
selection is important. Hes looking for defensive growth
companies with good cash-generation in niche markets.
Among his picks is ISS (ISS.Denmark), which provides facility
services such as cleaning, catering, security, and property
management. The Danish company is not a very exciting
story, says Hennessey, but it is delivering organic growth of
2% to 4% annually, improving margins, and reducing debt. Its
shares, which closed in Copenhagen on Friday at 249.50
Danish kroner ($37.33)giving it a market value of about
$6.93 billionhave climbed 55% since its initial public
offering in March 2014.
But at 15 times estimated 2017 earnings and a ratio of
enterprise value/earnings before interest, tax, depreciation,
and amortization of 10, ISS trades at a discount to peers like
Compass Group (CPG.UK), which has a 2017 price/earnings
ratio of 19 and a EV/Ebitda multiple of 12. Hennessey
believes that the stock could rerate and shareholders could
see higher returns. ISS currently offers a 3% dividend yield.
Neuberger Bermans Segal sees opportunities in the healthcare and industrial sectors due to factors like recurring
revenues and lower volatility. Among his holdings are SAP
(SAP.Germany) and Linde (LIN.Germany).
(Full article click - Barron's)
European News
Germans to
Exchange
seal
deal
for
London
Stock
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
EDF could scrap its plan to build the 18bn Hinkley Point
nuclear plant in the UK if the company fails to receive
further funding from the French government, its chief
executive has revealed.
Jean-Bernard Lvy wrote to staff explaining that he was in
talks to obtain commitments from the state to help
secure our financial position as the financial situation is
tense. He added that he would not engage in the [Hinkley
Point] project before these conditions are met.
The French government, which holds an 85pc stake in EDF,
could purchase a stake in the Hinkley Point project or take
part in a company fundraising, according to the Financial
Times, which first reported news of the letter.
Hinkley, the UKs first new nuclear plant in a generation, is
scheduled to start generating 7pc of the countrys electricity
in 2025 but the scheme has been mired in controversy.
Despite generous subsidies, unions in France have raised
concerns over the cost of the project, which was meant to
be completed in 2017 but has been repeatedly delayed.
Earlier this week the European Commission approved a
partnership between EDF and China General Nuclear to build
Hinkley and two other nuclear plants in the UK, reducing the
French firms financial burden.
EDF finance director Thomas Piquemal resigned earlier this
week over the firms plan to push ahead with Hinkley, but Mr
Levy added in his letter that he still expects Hinkley to be
profitable, with a return of 9pc over 60 years.
A final investment decision from EDF is due as soon as April.
(Full article click - Telegraph)
---
Norways $830bn oil fund has severed ties with Pimco, the
bond house, and BTG Pactual, the Brazilian bank, as part
of an overhaul of how the worlds largest sovereign wealth
fund is run.
The oil fund, which is considered one of the worlds most
prestigious investors and which has become a prized client
for big asset management companies, has invested with
Pimco since at least 2013.
The sovereign fund pulled its money from the Californian
bond house last year after widespread investor fears took
hold about underperformance at some of Pimcos largest
fixed income funds and the acrimonious departure of its
founder, Bill Gross, in late 2014.
The divestment is a further blow for the Newport Beachbased asset manager, which suffered 125bn of outflows
from investors last year. The level of money from external
clients fell 6 per cent last year, to 987bn. Pimco declined to
comment on the oil funds departure.
The withdrawal could prompt other sovereign funds to
reassess whether to hold money with Pimco.
Amin Rajan, chief executive of Create Research, the asset
management consultancy, said: Losing a mandate from an
iconic investor like the Norwegian oil fund is like losing the
main feather in your cap. It will raise many eyebrows among
other sovereign wealth funds.
The sovereign fund also dropped BTG Pactual during the
course of last year. The bank suffered heavy redemptions
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
News Americas
Protectionism a big threat to global economy,
says Larry Fink
Taken from the FT Saturday, 12 March 2016
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
Irwin Stelzer
American Account: We now know the elections
loser free trade
Taken from the Sunday Times 13 March 2016
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
News Asia
Hong Kong hits back after Moodys downgrades
long-term debt outlook to negative over
strong mainland ties
Taken from the SCMP Saturday, 12 March 2016
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.