Policy Error (s)
Ian Reynolds
Bank FX currency & prop trader. Limit Up ! traders newsletter. Co-Founder Feasly, property development feasibility in The Cloud
A week of high drama starting with the Nikkei down the most ever in a session -13%. All risk assets cratered as the Yen carry trade got unwound - stops getting run and leveraged accounts had margin calls.?
Only when the Bank of Japan said they wouldn't raise rates further while the market was unstable, did the selling pressure ease. And Yen weakened off again.
Specifically, BoJ Deputy Governor Uchida noted that, due to “financial and capital markets at home and abroad being extremely volatile,” he believes the central bank “needs to maintain monetary easing … for the time being.”
Having hiked rates to support the currency then backing down as they crashed their own stock market, the BoJ is now in an impossible situation, entirely of it's own making.
A whopping great 30 year policy error.
And the markets are now in full control.
Breaking
In Focus
Japan
Such was the chaos that the
And it spread to the bond markets
And not one, but two, almost-failed bond auctions in the US,
US Economy
In a week light in economic releases, jobless claims tempered fears of a hard landing.
But behind the scenes, credit card debt continues to surge, companies are laying off staff (Intel and Dell this week), and bankruptcies abound, for example SunPower Corporation, one of America’s largest solar companies, has filed bankruptcy this week.
And beneath the surface, in the the plumbing of the US financial system, more QE is on the way.
Meanwhile this week Treasury started the $30Bln monthly bond buyback program, adding permanent liquidity.
Very weak Treasury auctions got a lot of attention but as 10 year yields dropped to 3.65 during the stock market gyrations it's easy to understand that looks very expensive to investors, especially with 35 trillion dollars of US Gov debt in the markets already, and lot more on it's way.
China
Diverging PPI and CPI indicators and equal imports and exports, tell us that the Chinese economy is going nowhere fast. The backstory is of Chinese manufacturers struggling to survive as US consumers tighten their belts.?
Tales of Chinese products stockpiled at ports (EVs in particular) acts as a benchmark.
In The Background
CRE / Banks / CLOs
Seems the destruction of capital in the office real estate sector is bottoming as new capital comes in at very cheap prices (comparatively). Governments are being more vocal at incentivising developers into repurposing office blocks into units. This won't fly as every developer will tell you but at least there is the willingness to start the ball rolling.
Equally the working from home bubble has well and truely broken and employers and employees want an office.
The below video is an excellent barometer of the US (and global economy).?
领英推荐
Bitcoin / US Election
The race for Bitcoin (not crypto) seems to be heating up. Trump making it a key part of his campaign has forced the Democrats into an anti Bitcoin stance although they are definitely downplaying it.
But suddenly Putin has legalised mining and rumours abound that China is going to make a big move as well.
Canada
2 month of job losses in Canada sets the tone although full-time employment completely offset the part-time losses.
Unemployment ticked lower as well, with wages a lot lower.?
Bank of Canada has the green light to keep cutting rates.
Europe
Some seeds of growth but the overall picture is of recession, with the consumer clearly in a defensive mood.
United Kingdom
This story is a red herring. Mervyn King make the UK Government assume liability for any losses due to money printing, before he did the printing. Taxpayer needs to pay the bill.
Australia
RBA holds
Australia's monetary and fiscal policies are going in opposite directions now and the press has really picked up on it.
Remember Liz Truss's ghost. This could end badly
What's Next ?
All eyes on US CPI and the Yen carry trade unwinds next week.
This Week's Important Economic Indicators [London time]