Friday January 12, 2018 - 15:17:52 GMT
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Central Banks Abandoning Overly Easy Monetary Policies And Upset Market Status Quo
John M. Bland, MBA, co-founder, Global-View.com
ECB Quantitative Easing Bombshell The ECB recently started to publish the Minutes of their policy meetings three weeks afterwards, and up until the latest week they have ben inconsequential. That changed on Thursday when it was reported that the central bank could consider shift in policy guidance from early 2018. The comments suggested that the ECB discussed moving further away from excessive monetary support for the economy more quickly that generally assumed. Many feel the ECB has been overstaying its support of the Eurozone economy. In response to this hint, benchmark German bund yields rose and the EUR strengthened. Central banks generally have been moving in the direction of normalizing monetary policies, but the ECB has been viewed as a laggard on this score.
Word that German coalition talks had made a breakthrough early Friday also have given the EUR a lift as a stable, even temporary, German government would generally be seen as a positive for the Eurozone.
Japan Surprises the Markets With An Easing of Quantitative Easing With the outlook for the Japanese economy starting to improve, the Bank of Japan Tuesday announced a modest reduction in its asset purchases of JPY10bln in the 10-to-25 year maturity range to JPY 190bn. I have to admit that this was only a token change, it was the first such move in this direction and it sent a signal to the financial markets that the status quo in Japan is in the process of a basic change. Our weekly Commitment of Traders Report Analysis has shown consistently that the financial markets have been running very large short JPY positions and these will have to be unwound. As a result, the JPY strengthened sharply in the mid-week period against the “majors”, such as the USD, EUR, GBP and others. An unwind of these positions will take an extended period of time, and keep in mind that Tokyo seems never to favor a stronger currency.
Comment By A China Source Roils U.S. Bonds As the U.S. economy has improved, long term interest rates in the U.S. have finally have started to respond. My article focused last week on how yield on the 2-yr note has been catching up to a tightening Fed over the last three months after falling behind the speed of the Fed tightening. With 2-yr yields rising fairly sharply, it was just a matter of time until the 10-yr would follow suit.
On Wednesday, wire service headlines appeared saying that "China Officials Are Said to View Treasuries as Less Attractive", " CHINA OFFICIALS SAID TO RECOMMEND SLOWING OR HALTING TSY BUYING", and " CHINA OFFICIALS SAID TO EYE U.S. DEBT SUPPLY, TRADE TENSIONS." Given that as of October 2017 that China is a holder USD 1.2 tn in foreign exchange reserves, any actions to adjust the make-up of their bond holdings could have far-reaching impacts on global financial markets. I suspect that these comments might have been a preemptive pushback on an upcoming trade offensive by President Trump. On Thursday, we saw the inevitable Chinese denial of the Bloomberg story. While I did not doubt for a minute that the quotes were accurate, by denying the statements the government can say we never said that, a clear message has been sent to President Trump on trade.
Amazing Trader EVENT RISK Calendar:
Mon 15 Jan 2018
00:00 US- Holiday
Tue 16 Jan 2018
09:00 GB- CPI
20:00 US- Beige Book
Wed 17 Jan 2018
00:30 AU- Employment
02:00 CN- GDP
10:00 EZ- final HICP
14:15 US- Industrial Production
15:00 CA- Bank of Canada Decision
Thu 17 Jan 2018
13:30 US- Weekly Jobless
13:30 US- Housing Starts/Permits
16:00 US- EIA Crude
Fri 18 Jan 2018
09:30 GB- Retail Sales
15:00 US- University of Michigan (prelim) Survey
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
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