MARKETWATCH
"Europe manufacturing PMI signals deeper slowdown"
By Paul Hannon
Published: Mar 22, 2019 5:34 a.m. ET
The eurozone economy's weak streak is likely to have continued into the first quarter, with surveys of purchasing managers pointing to a further slowdown in activity during March after tentative signs of a rebound earlier in the year.
The prospect of continued weakness in the currency area is worrying news for the global economy, which faces a number of headwinds this year that are likely to slow growth, including an unresolved trade dispute between the U.S. and China.
As 2018 drew to a close, the eurozone's $13 trillion economy appeared at risk of a slide into recession, a fate that has already befallen Italy, its third-largest member.
Figures from January pointed to a slight rebound in growth, but surveys of purchasing managers--which have a good record of tracking economic growth--suggest that momentum faded in March.
The euro weakened against the U.S. dollar in response to the surveys, falling to a one-week low of $1.1289.
Data firm IHS Markit Friday said its composite Purchasing Managers Index--a measure of activity in the manufacturing and services sectors--fell to 51.3 in March from 51.9 in February, a larger fall than the dip to 51.8 expected by economists.
A reading above 50.0 points to an increase in activity.
IHS Markit said the PMI readings over the course of the first quarter point to growth that is in line with that recorded in the final three months of 2018, when gross domestic product rose at an annualized rate of 0.9%.
"Forward-looking indicators such as business optimism and backlogs of work suggest that growth could be even weaker in the second quarter," said Chris Williamson, IHS Markit's chief business economist.
Write to Paul Hannon at paul.hannon@wsj.com
https://www.marketwatch.com/story/europ ... 2019-03-22
THE EUROPEANS
Re: THE EUROPEANS
MARKETWATCH
"‘Currency war’ fears rise as Trump slams Draghi’s hint at more ECB stimulus"
By William Watts
Published: June 18, 2019 2:21 p.m. ET
President Donald Trump has never hesitated to criticize the U.S. Federal Reserve and the chairman he appointed, Jerome Powell, for, in Trump’s view, tightening monetary policy too aggressively.
Now, European Central Bank President Mario Draghi’s is on Trump’s bad side for signaling that more monetary stimulus might soon be on the way in the eurozone.
Trump’s hostile response on Twitter to Draghi’s signal that the ECB could move to loosen the spigots as early as next month is stoking fears that a potential U.S. trade war with its major trading partners could also be accompanied by a currency war, as policy makers work to cheapen their currencies in what’s often is described as a race to the bottom in an effort to enhance the appeal of their wares to foreign buyers.
Frederik Ducrozet
@fwred
Nightmare scenario: Fed and ECB engaging in a race to the bottom, with tariffs making things worse.
FT Economics
✔
@fteconomics
Trump hits out at ECB chief for pushing down the euro https://on.ft.com/2XUNMeJ
Draghi, speaking at a central-banking forum in Portugal, sent the euro tumbling early Tuesday and gave global equity markets a lift after making clear that the ECB was prepared to cut interest rates and could restart the bond buying program at the heart of its quantitative easing effort if needed to support the eurozone economy.
Trump soon complained, tweeting that Draghi’s remarks “immediately dropped the Euro against the Dollar, making it easier for them to compete against the USA."
"They have been getting away with this for years, along with China and others.”
Later, in a panel discussion, Draghi was asked to respond to Trump’s criticism.
“Our mandate is price stability...I just said a moment ago that we are ready to use all the instruments that are necessary to fulfil this mandate."
"And we don’t target the exchange rate,” Draghi said.
The annual inflation rate in the euro zone has remained stubbornly below the ECB’s medium-term target of near but just below 2%.
The euro was off 0.2% at $1.1195 versus the U.S. dollar in recent action, after sinking to a two-week low at $1.1181.
The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was up 0.1% at 97.657.
The index is up 1.5% so far this year and off 0.1% in June.
Analysts credited the initial Draghi comments for buoying global equities, with stocks adding to their advance after a subsequent, unrelated Trump tweet hailing plans for an “extended meeting” with President Xi Jinping of China at the Group of 20 meeting in Japan later this month.
Stocks were lifted, with the pan-European Stoxx 600 Europe index ending with a gain of 1.7%.
The S&P 500 rose 1.1% and the Dow Jones Industrial Average was up 374 points, or 1.4%, in mid-afternoon action.
Trump has long complained about the strength of the U.S. dollar and had hit out at the euro just last week, saying, via Twitter, that it and other currencies were “devalued against the dollar, putting the U.S. at a big disadvantage,” while also taking another swipe at the Fed.
Is the dollar overvalued against the euro?
According to a number of purchasing power parity models, the answer is yes, said Jane Foley, senior FX strategist at Rabobank, in a note.
But that isn’t difficult to explain, she said, in light of the nine interest rate increases implemented by the Fed between late 2015 and 2018.
The rise in U.S. interest rates relative to the eurozone, and other economies, made the dollar more attractive.
And in partial defense of the Fed, the Trump administration’s tax cuts briefly accelerated the U.S. expansion, putting pressure on the Fed to normalize rates more quickly.
Meanwhile, subdued global inflation pressures are potentially setting the stage for a currency conflict.
“Any economy that is suffering from a prolonged bout of undesirably low inflation is likely to favor a weak currency."
"If several economies find themselves in the same boat coincidentally, the prerequisite conditions for a currency war are set,” Foley said.
Fed watchers argued that U.S. monetary-policy makers would be taking much of a cue from the ECB or any other central bank.
And even with the Fed moving to easing mode, Foley said she was skeptical that would halt dollar strength versus other major currencies.
That’s because other global central banks besides the ECB are also leaning back toward easier policy.
Meanwhile, the dollar’s haven status, thanks to the liquidity of the greenback and the credibility of the U.S. government and legal system, means that much of the money flowing out of high-risk assets ended up in the dollar, she said.
“We see risk that EUR/USD could dip further during the summer before [moving] higher in 2020 as the Fed’s rate-cutting cycle progresses,” she said.
https://www.marketwatch.com/story/curre ... 2019-06-18
"‘Currency war’ fears rise as Trump slams Draghi’s hint at more ECB stimulus"
By William Watts
Published: June 18, 2019 2:21 p.m. ET
President Donald Trump has never hesitated to criticize the U.S. Federal Reserve and the chairman he appointed, Jerome Powell, for, in Trump’s view, tightening monetary policy too aggressively.
Now, European Central Bank President Mario Draghi’s is on Trump’s bad side for signaling that more monetary stimulus might soon be on the way in the eurozone.
Trump’s hostile response on Twitter to Draghi’s signal that the ECB could move to loosen the spigots as early as next month is stoking fears that a potential U.S. trade war with its major trading partners could also be accompanied by a currency war, as policy makers work to cheapen their currencies in what’s often is described as a race to the bottom in an effort to enhance the appeal of their wares to foreign buyers.
Frederik Ducrozet
@fwred
Nightmare scenario: Fed and ECB engaging in a race to the bottom, with tariffs making things worse.
FT Economics
✔
@fteconomics
Trump hits out at ECB chief for pushing down the euro https://on.ft.com/2XUNMeJ
Draghi, speaking at a central-banking forum in Portugal, sent the euro tumbling early Tuesday and gave global equity markets a lift after making clear that the ECB was prepared to cut interest rates and could restart the bond buying program at the heart of its quantitative easing effort if needed to support the eurozone economy.
Trump soon complained, tweeting that Draghi’s remarks “immediately dropped the Euro against the Dollar, making it easier for them to compete against the USA."
"They have been getting away with this for years, along with China and others.”
Later, in a panel discussion, Draghi was asked to respond to Trump’s criticism.
“Our mandate is price stability...I just said a moment ago that we are ready to use all the instruments that are necessary to fulfil this mandate."
"And we don’t target the exchange rate,” Draghi said.
The annual inflation rate in the euro zone has remained stubbornly below the ECB’s medium-term target of near but just below 2%.
The euro was off 0.2% at $1.1195 versus the U.S. dollar in recent action, after sinking to a two-week low at $1.1181.
The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was up 0.1% at 97.657.
The index is up 1.5% so far this year and off 0.1% in June.
Analysts credited the initial Draghi comments for buoying global equities, with stocks adding to their advance after a subsequent, unrelated Trump tweet hailing plans for an “extended meeting” with President Xi Jinping of China at the Group of 20 meeting in Japan later this month.
Stocks were lifted, with the pan-European Stoxx 600 Europe index ending with a gain of 1.7%.
The S&P 500 rose 1.1% and the Dow Jones Industrial Average was up 374 points, or 1.4%, in mid-afternoon action.
Trump has long complained about the strength of the U.S. dollar and had hit out at the euro just last week, saying, via Twitter, that it and other currencies were “devalued against the dollar, putting the U.S. at a big disadvantage,” while also taking another swipe at the Fed.
Is the dollar overvalued against the euro?
According to a number of purchasing power parity models, the answer is yes, said Jane Foley, senior FX strategist at Rabobank, in a note.
But that isn’t difficult to explain, she said, in light of the nine interest rate increases implemented by the Fed between late 2015 and 2018.
The rise in U.S. interest rates relative to the eurozone, and other economies, made the dollar more attractive.
And in partial defense of the Fed, the Trump administration’s tax cuts briefly accelerated the U.S. expansion, putting pressure on the Fed to normalize rates more quickly.
Meanwhile, subdued global inflation pressures are potentially setting the stage for a currency conflict.
“Any economy that is suffering from a prolonged bout of undesirably low inflation is likely to favor a weak currency."
"If several economies find themselves in the same boat coincidentally, the prerequisite conditions for a currency war are set,” Foley said.
Fed watchers argued that U.S. monetary-policy makers would be taking much of a cue from the ECB or any other central bank.
And even with the Fed moving to easing mode, Foley said she was skeptical that would halt dollar strength versus other major currencies.
That’s because other global central banks besides the ECB are also leaning back toward easier policy.
Meanwhile, the dollar’s haven status, thanks to the liquidity of the greenback and the credibility of the U.S. government and legal system, means that much of the money flowing out of high-risk assets ended up in the dollar, she said.
“We see risk that EUR/USD could dip further during the summer before [moving] higher in 2020 as the Fed’s rate-cutting cycle progresses,” she said.
https://www.marketwatch.com/story/curre ... 2019-06-18
Re: THE EUROPEANS
MARKETWATCH
"Euro drops, global equities rise as ECB's Draghi hints of more stimulus"
By Barbara Kollmeyer
Published: June 18, 2019 6:06 a.m. ET
The euro fell against the dollar on Tuesday, while European stocks and U.S. stock futures rose after European Central Bank President Mario Draghi indicated the bank is ready for more stimulus if the euro-area economy doesn't improve, at a conference in Portugal.
Draghi said the risk outlook for the European economy "remains tilted to the downside, and indicators for the coming quarters point to lingering softness," in prepared remarks for an ECB Forum in Sintra.
"In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required," he said.
The euro was last down 0.3% against the dollar to $1.182, while the Stoxx Europe 600 index rose 0.7% and Dow Jones Industrial Average futures gained 75 points, or 0.3%, to 26,208.
S&P 500 futures rose 8.95 points or 0.3%.
Gold prices gained $6.70, or 0.5%, to $1,349 an ounce.
https://www.marketwatch.com/story/euro- ... 2019-06-18
"Euro drops, global equities rise as ECB's Draghi hints of more stimulus"
By Barbara Kollmeyer
Published: June 18, 2019 6:06 a.m. ET
The euro fell against the dollar on Tuesday, while European stocks and U.S. stock futures rose after European Central Bank President Mario Draghi indicated the bank is ready for more stimulus if the euro-area economy doesn't improve, at a conference in Portugal.
Draghi said the risk outlook for the European economy "remains tilted to the downside, and indicators for the coming quarters point to lingering softness," in prepared remarks for an ECB Forum in Sintra.
"In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required," he said.
The euro was last down 0.3% against the dollar to $1.182, while the Stoxx Europe 600 index rose 0.7% and Dow Jones Industrial Average futures gained 75 points, or 0.3%, to 26,208.
S&P 500 futures rose 8.95 points or 0.3%.
Gold prices gained $6.70, or 0.5%, to $1,349 an ounce.
https://www.marketwatch.com/story/euro- ... 2019-06-18
Re: THE EUROPEANS
THE GUARDIAN
"'Hell is coming': week-long heatwave begins across Europe"
Jon Henley, Europe correspondent
24 JUNE 2019
Authorities have urged children and older people to stay indoors and issued severe health warnings against dehydration and heatstroke as an unprecedented week-long heatwave begins to advance across continental Europe.
Meteorologists said temperatures would reach or even exceed 40C from Spain to Switzerland as hot air was sucked up from the Sahara by the combination of a storm stalling over the Atlantic and high pressure over central Europe.
High humidity meant it would feel like 47C, experts warned.
“El infierno [hell] is coming,” tweeted the TV meteorologist Silvia Laplana in Spain, where the AEMET weather service forecast temperatures of 42C by Thursday in the Ebro, Tagus, Guadiana and Guadalquivir valleys and warned of an “extreme risk” of forest fires.
In France, officials in Paris set up “cool rooms” in municipal buildings, opened pools for late-night swimming and installed extra drinking fountains as temperatures in the capital reached 34C on Monday and were forecast to climb further later in the week.
“I’m worried about people who are downplaying this, who are continuing to exercise as usual or stay out in the sun,” the health minister, Agnès Buzyn, said.
“This affects all of us, nobody is a superman when it comes to dealing with the extreme heat we’re going to see on Thursday and Friday,” she told a press conference.
Emmanuel Demaël of Météo-France said the heatwave was unprecedented “because it’s hitting so early in June – we haven’t seen this since 1947.”
Record monthly and all-time highs were likely to be set in several parts of the country, Demaël predicted, and night-time temperatures were unlikely to fall below 20C.
School exams were postponed until next week, charities distributed water to homeless people and sales of fans quadrupled.
France’s deadliest recent heatwave was in August 2003, when almost 15,000 mainly elderly people died as hospitals were overwhelmed.
In Italy, “the most intense heatwave in a decade” was under way, with hospitals preparing to deal with a wave of heat-related illnesses and the health ministry suggesting army doctors may be needed to counter a shortage of medics.
Highs of 37C to 40C were forecast across the north and centre, including in Rome, Florence, Bologna, Milan and Turin, with several Italian cities expected to set new records for the highest ever June temperatures.
Authorities in Rome warned of the health risk from uncollected rubbish piled up on the capital’s streets, and eight tourists – including a Briton – were fined €450 (£403) each on Sunday for cooling off in the city’s fountains.
Sabine Krüger of the German state meteorological service, DWD, said the June record of 38.2C, set in Frankfurt in 1947, was likely to be beaten by the middle or end of this week, with 100 hours of sunshine forecast before Friday, temperatures in Frankfurt set to reach 39C or even 40C by Wednesday and Berlin predicted to swelter in 37C.
DWD on Monday warned citizens to take extra precaution in view of the extreme heat and high UV radiation over the coming days: “Avoid staying outdoors for long periods between 11am and 3pm,” it said, adding that sunblock, sunglasses and a sun hat were advisable even in the shade.
Animal protection groups also warned pet owners to avoid leaving dogs or cats in cars unattended.
The heatwave comes after storms and record rainfall caused major problems in parts of Bavaria this weekend, with the Munich fire brigade called out 50 times and flights into and out of Munich airport suspended on Saturday evening.
In Switzerland, MeteoSwiss issued a “severe danger” level four heat alert for several parts of the country, warning of temperatures in excess of 33C and reaching 37C or even 39C in some places from Tuesday until Thursday.
A number of all-time highs were likely to be recorded, it said.
Even Scandinavia looks unlikely to be spared, with parts of southern Denmark and Sweden predicted to reach 30C by Tuesday – and to feel more like a thoroughly un-Scandinavian 35C, the Danish broadcaster TV2 said.
Longer range weather forecasts show summer temperatures throughout July and August are expected to be higher than normal this year, rivalling those of 2018, which according to the European Environment Agency was one of the three warmest years on record on the continent.
Scientists have said last year’s heatwave, which led to increased mortality rates, a dramatic decline in crop yields, the shutdown of nuclear power plants and wildfires inside the Arctic Circle, was linked to the climate emergency.
Meteorologists warn that such heatwaves are likely to become more frequent even if countries succeed in their commitments to limit global temperature increases to 1.5C as part of the 2015 Paris climate accord.
The EU has pledged to cut carbon emissions to 40% below 1990 levels by 2030.
Additional reporting by Sam Jones, Angela Giuffrida and Philip Oltermann
http://www.msn.com/en-us/news/world/hel ... id=HPDHP17
"'Hell is coming': week-long heatwave begins across Europe"
Jon Henley, Europe correspondent
24 JUNE 2019
Authorities have urged children and older people to stay indoors and issued severe health warnings against dehydration and heatstroke as an unprecedented week-long heatwave begins to advance across continental Europe.
Meteorologists said temperatures would reach or even exceed 40C from Spain to Switzerland as hot air was sucked up from the Sahara by the combination of a storm stalling over the Atlantic and high pressure over central Europe.
High humidity meant it would feel like 47C, experts warned.
“El infierno [hell] is coming,” tweeted the TV meteorologist Silvia Laplana in Spain, where the AEMET weather service forecast temperatures of 42C by Thursday in the Ebro, Tagus, Guadiana and Guadalquivir valleys and warned of an “extreme risk” of forest fires.
In France, officials in Paris set up “cool rooms” in municipal buildings, opened pools for late-night swimming and installed extra drinking fountains as temperatures in the capital reached 34C on Monday and were forecast to climb further later in the week.
“I’m worried about people who are downplaying this, who are continuing to exercise as usual or stay out in the sun,” the health minister, Agnès Buzyn, said.
“This affects all of us, nobody is a superman when it comes to dealing with the extreme heat we’re going to see on Thursday and Friday,” she told a press conference.
Emmanuel Demaël of Météo-France said the heatwave was unprecedented “because it’s hitting so early in June – we haven’t seen this since 1947.”
Record monthly and all-time highs were likely to be set in several parts of the country, Demaël predicted, and night-time temperatures were unlikely to fall below 20C.
School exams were postponed until next week, charities distributed water to homeless people and sales of fans quadrupled.
France’s deadliest recent heatwave was in August 2003, when almost 15,000 mainly elderly people died as hospitals were overwhelmed.
In Italy, “the most intense heatwave in a decade” was under way, with hospitals preparing to deal with a wave of heat-related illnesses and the health ministry suggesting army doctors may be needed to counter a shortage of medics.
Highs of 37C to 40C were forecast across the north and centre, including in Rome, Florence, Bologna, Milan and Turin, with several Italian cities expected to set new records for the highest ever June temperatures.
Authorities in Rome warned of the health risk from uncollected rubbish piled up on the capital’s streets, and eight tourists – including a Briton – were fined €450 (£403) each on Sunday for cooling off in the city’s fountains.
Sabine Krüger of the German state meteorological service, DWD, said the June record of 38.2C, set in Frankfurt in 1947, was likely to be beaten by the middle or end of this week, with 100 hours of sunshine forecast before Friday, temperatures in Frankfurt set to reach 39C or even 40C by Wednesday and Berlin predicted to swelter in 37C.
DWD on Monday warned citizens to take extra precaution in view of the extreme heat and high UV radiation over the coming days: “Avoid staying outdoors for long periods between 11am and 3pm,” it said, adding that sunblock, sunglasses and a sun hat were advisable even in the shade.
Animal protection groups also warned pet owners to avoid leaving dogs or cats in cars unattended.
The heatwave comes after storms and record rainfall caused major problems in parts of Bavaria this weekend, with the Munich fire brigade called out 50 times and flights into and out of Munich airport suspended on Saturday evening.
In Switzerland, MeteoSwiss issued a “severe danger” level four heat alert for several parts of the country, warning of temperatures in excess of 33C and reaching 37C or even 39C in some places from Tuesday until Thursday.
A number of all-time highs were likely to be recorded, it said.
Even Scandinavia looks unlikely to be spared, with parts of southern Denmark and Sweden predicted to reach 30C by Tuesday – and to feel more like a thoroughly un-Scandinavian 35C, the Danish broadcaster TV2 said.
Longer range weather forecasts show summer temperatures throughout July and August are expected to be higher than normal this year, rivalling those of 2018, which according to the European Environment Agency was one of the three warmest years on record on the continent.
Scientists have said last year’s heatwave, which led to increased mortality rates, a dramatic decline in crop yields, the shutdown of nuclear power plants and wildfires inside the Arctic Circle, was linked to the climate emergency.
Meteorologists warn that such heatwaves are likely to become more frequent even if countries succeed in their commitments to limit global temperature increases to 1.5C as part of the 2015 Paris climate accord.
The EU has pledged to cut carbon emissions to 40% below 1990 levels by 2030.
Additional reporting by Sam Jones, Angela Giuffrida and Philip Oltermann
http://www.msn.com/en-us/news/world/hel ... id=HPDHP17
Re: THE EUROPEANS
MARKETWATCH
"German economy shrinks amid trade concerns, auto woes"
By Associated Press
Published: Aug 14, 2019 4:12 a.m. ET
FRANKFURT, Germany (AP) — The German economy shrank by 0.1% in the second quarter from the previous quarter as global trade conflicts and troubles in the auto industry weighed on Europe’s largest economy.
The state statistics agency Destatis said Wednesday that falling exports had held back output while demand from consumers and government spending at home had supported the economy.
In comparison to the same quarter a year ago, the economy grew 0.4%.
Germany’s economy is facing headwinds as its auto industry, a key employer and pillar of growth, faces challenges adjusting to tougher emissions standards in Europe and China and to technological change, while uncertainty over the terms of Britain’s planned exit from the EU has weighed on confidence.
British Prime Minister Boris Johnson has said his country will leave Oct. 31, with or without a divorce deal to smooth trade.
Analyst Carsten Brzeski at ING said that trade conflicts and the struggling automotive sector were key reasons why output had fallen.
“Increased uncertainty, rather than direct effects from trade conflicts, has dented sentiment and hence economic activity,” Brzeski wrote in an emailed research note.
U.S. President Donald Trump has imposed new tariffs on Chinese goods while seeking a broader trader agreement and has indicated he may impose import tariffs on autos that would hit European manufacturers.
Uncertainty over the outcome of those talks and what the future trading regime will look like among the US, China and Europe has weighed on business optimism, deterring business spending and investment.
That comes on top of structural change in the auto industry, where tightening emissions regulations in Europe and China and digital technologies are pushing automakers to make heavy investments in battery-powered cars and smartphone-based services, with uncertain payoff.
https://www.marketwatch.com/story/germa ... 2019-08-14
"German economy shrinks amid trade concerns, auto woes"
By Associated Press
Published: Aug 14, 2019 4:12 a.m. ET
FRANKFURT, Germany (AP) — The German economy shrank by 0.1% in the second quarter from the previous quarter as global trade conflicts and troubles in the auto industry weighed on Europe’s largest economy.
The state statistics agency Destatis said Wednesday that falling exports had held back output while demand from consumers and government spending at home had supported the economy.
In comparison to the same quarter a year ago, the economy grew 0.4%.
Germany’s economy is facing headwinds as its auto industry, a key employer and pillar of growth, faces challenges adjusting to tougher emissions standards in Europe and China and to technological change, while uncertainty over the terms of Britain’s planned exit from the EU has weighed on confidence.
British Prime Minister Boris Johnson has said his country will leave Oct. 31, with or without a divorce deal to smooth trade.
Analyst Carsten Brzeski at ING said that trade conflicts and the struggling automotive sector were key reasons why output had fallen.
“Increased uncertainty, rather than direct effects from trade conflicts, has dented sentiment and hence economic activity,” Brzeski wrote in an emailed research note.
U.S. President Donald Trump has imposed new tariffs on Chinese goods while seeking a broader trader agreement and has indicated he may impose import tariffs on autos that would hit European manufacturers.
Uncertainty over the outcome of those talks and what the future trading regime will look like among the US, China and Europe has weighed on business optimism, deterring business spending and investment.
That comes on top of structural change in the auto industry, where tightening emissions regulations in Europe and China and digital technologies are pushing automakers to make heavy investments in battery-powered cars and smartphone-based services, with uncertain payoff.
https://www.marketwatch.com/story/germa ... 2019-08-14
Re: THE EUROPEANS
THE ECB IS CRAPPING IN ITS PANTS AND PANICKING BECAUSE ITS MONETARY POLICY IS A FAILURE …
The Wall Street Journal
"ECB prepared to deliver ‘very strong’ stimulus package, policy maker says"
By Tom Fairless
Published: Aug 15, 2019 1:56 p.m. ET
HELSINKI—The European Central Bank will announce a package of stimulus measures at its next policy meeting in September that should exceed investors’ expectations, a top official at the central bank said.
Speaking in his offices in Finland’s capital on Thursday, Olli Rehn said the slowing global economy would see the ECB rolling out fresh stimulus measures that should include “substantial and sufficient” bond purchases as well as cuts to the bank’s key interest rate.
“It’s important that we come up with a significant and impactful policy package in September,” said Rehn, who sits on the ECB’s rate-setting committee as governor of Finland’s central bank.
“When you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker,” Rehn said.
https://www.marketwatch.com/story/ecb-p ... 2019-08-15
The Wall Street Journal
"ECB prepared to deliver ‘very strong’ stimulus package, policy maker says"
By Tom Fairless
Published: Aug 15, 2019 1:56 p.m. ET
HELSINKI—The European Central Bank will announce a package of stimulus measures at its next policy meeting in September that should exceed investors’ expectations, a top official at the central bank said.
Speaking in his offices in Finland’s capital on Thursday, Olli Rehn said the slowing global economy would see the ECB rolling out fresh stimulus measures that should include “substantial and sufficient” bond purchases as well as cuts to the bank’s key interest rate.
“It’s important that we come up with a significant and impactful policy package in September,” said Rehn, who sits on the ECB’s rate-setting committee as governor of Finland’s central bank.
“When you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker,” Rehn said.
https://www.marketwatch.com/story/ecb-p ... 2019-08-15
Re: THE EUROPEANS
MARKETWATCH
"Germany could spend $55 billion on stimulus should economy slow: report"
By Barbara Kollmeyer
Published: Aug 19, 2019 3:53 a.m. ET
The German government could come up with $55 billion (50 billion euros) in stimulus should the country's economy fall on hard times, German Finance Minister Olaf Scholz said in Berlin on Sunday, according to Bloomberg News.
German gross domestic product shrank 0.1% in the second quarter of the year, as the export-focused economy has faced difficulties related to global trade disputes.
Scholz's comments follow remarks last week by German Chancellor Angela Merkel who reportedly said she didn't see a need for stimulus right away, but the government would respond if needed.
The German DAX 30 index jumped 1% to 11,679.65 in early trading on Monday, led by banks.
https://www.marketwatch.com/story/germa ... 2019-08-19
"Germany could spend $55 billion on stimulus should economy slow: report"
By Barbara Kollmeyer
Published: Aug 19, 2019 3:53 a.m. ET
The German government could come up with $55 billion (50 billion euros) in stimulus should the country's economy fall on hard times, German Finance Minister Olaf Scholz said in Berlin on Sunday, according to Bloomberg News.
German gross domestic product shrank 0.1% in the second quarter of the year, as the export-focused economy has faced difficulties related to global trade disputes.
Scholz's comments follow remarks last week by German Chancellor Angela Merkel who reportedly said she didn't see a need for stimulus right away, but the government would respond if needed.
The German DAX 30 index jumped 1% to 11,679.65 in early trading on Monday, led by banks.
https://www.marketwatch.com/story/germa ... 2019-08-19
Re: THE EUROPEANS
THE WASHINGTON POST
"Mixed signals, reversals cloud second day of G-7 summit"
Damian Paletta, Josh Dawsey, Toluse Olorunnipa, Michael Birnbaum
25 AUGUST 2019
BIARRITZ, France —A summit of world leaders devolved into a confusing spectacle on Sunday when President Trump signaled regret for his trade war with China only to have the White House reverse his position hours later.
It was one of numerous surprises on a day when some officials had hoped for clarity or consensus.
Leaders continued squabbling about whether Russian President Vladimir Putin would attend a future meeting, and French officials surprised others by inviting Iran’s foreign minister to this seaside town, an unusual move of diplomatic jujitsu in the tightly scripted world of international summits.
Leaders who were hoping that global tensions over trade, North Korea and China might be eased on the second day of the Group of Seven summit were disappointed during a whiplash day of mixed signals.
Some European officials said they were beginning to fear that nearly any substantive coordinated work with the United States might be impossible in the Trump era.
Trump has so far done little to publicly inflame tensions with other leaders as he has during past summits, where he has lobbed insults or threatened to withdraw from international organizations.
But on this trip he has also done little to assuage concerns that the United States would continue to act unilaterally, particularly related to tariffs, regardless of the economic impact.
“From the moment we got here, we’ve been treated beautifully,” Trump said during a meeting with Japanese Prime Minister Shinzo Abe before going on to compliment the job being done by French President Emmanuel Macron as host of the summit.
“And I want to congratulate — and I have to say ‘thus far,’ because we’re probably halfway through."
"But thus far, this has been really a great G-7, and I want to congratulate France and your president because they have really done a great job.”
On Sunday morning, during a breakfast with British Prime Minister Boris Johnson, a reporter asked Trump if he had “second thoughts” about the recent escalation of his trade war with China.
Trump has tried to cut a trade deal with China for more than a year, but those efforts unraveled recently and both sides ratcheted up attacks last week.
Trump, for the first time, appeared to acknowledge regrets about the direction things had gone.
“Yeah, sure."
"Why not,” he said.
“Might as well."
"I have second thoughts about everything.”
His comments drew international headlines.
Several hours later, White House press secretary Stephanie Grisham tried to recast Trump’s comments, alleging they had been taken out of context.
“The president was asked if he had ‘any second thought on escalating the trade war with China.’"
"His answer has been greatly misinterpreted."
"President Trump responded in the affirmative — because he regrets not raising the tariffs higher,” she said in a statement.
Trump’s top economic adviser, Larry Kudlow, offered an even different characterization later, telling reporters that Trump had difficulty hearing the question.
It was the latest in a swing of reversals from the White House in the past week, over issues such as tax policy, attempting to purchase Greenland and — most notably — China.
Former treasury secretary Lawrence Summers, a veteran of the Clinton and Obama administrations, said the White House’s conflicting statements were just the latest in a string of mixed messages that had made it impossible for people to understand its agenda.
“Deeply misguided policy and strategy has been joined for some time by dubious negotiating tactics, with promises not kept and threats not carried out on a regular basis,” Summers said in an interview.
“We are at a new stage now with very erratic presidential behavior and frequent denials of obvious reality."
"I know of no U.S. historical precedent.”
The G-7 summit is an annual gathering of economic powers that is meant to draw leaders together so they can attempt to address global tensions.
But the summit has not had success bridging differences during the Trump administration.
At last year’s summit, held in Canada, Trump announced that he was withdrawing from a final agreement because he felt insulted by Canada’s prime minister, Justin Trudeau.
Also at that summit, Trump tossed two candies in the direction of German Chancellor Angela Merkel, telling her, “Don’t say I never give you anything.”
In the run-up to this summit, European officials signaled they planned to tiptoe around Trump and avoid confrontation.
At the Sunday breakfast, Johnson — seen as a key White House ally — was the first leader at the meeting to publicly — although gingerly — question Trump’s approach to the trade war with China, which some believe is affecting the global economy.
“Just to register the faint, sheeplike note of our view on the trade war,” the British prime minister said, “we’re in favor of trade peace on the whole."
"… We think that, on the whole, the U.K. has profited massively in the last 200 years from free trade.”
Later, it was Abe’s turn.
A reporter asked Trump if he was concerned about a recent North Korean missile launch.
“We’re in the world of missiles, folks, whether you like it or not,” Trump said, adding that he understands why Abe is unhappy with the testing.
Abe made clear that he views North Korea’s move as a serious breach of international expectations for the rogue nation.
“Our position is very clear: that the launch of short-range ballistic missiles by North Korea clearly violates the relevant U.N. Security Council resolutions,” he said.
The remarks from foreign leaders didn’t appear coordinated, but they did reflect a growing comfort in pushing back — however slightly — in person to a U.S. leader who likes to be feted and praised wherever he goes.
Even the positive news Trump tried to roll out had some confusing elements.
Trump told reporters that he had reached a trade deal with Japan that would be signed as soon as next month, but Abe said more work remained.
Still, the announcement drew cheers from U.S. farm groups, who believed Trump had opened up access to a big Asian market.
The summit was later jolted by an afternoon surprise — the arrival of Iranian Foreign Minister Mohammad Javad Zarif.
A number of White House officials were not aware that the French had invited the senior Iranian official, though it was unclear how much Trump had been briefed ahead of time.
Trump pulled the United States last year from the 2015 Iranian nuclear agreement, undermining an accord that European leaders feel is core to their security interests.
Macron has tried to broker new talks.
Asked if he was aware Zarif might fly into Biarritz on Sunday, Trump answered, “no comment.”
Treasury Secretary Steven Mnuchin later told reporters that the United States would be open to meeting with Iranian officials but didn’t speculate as to whether or when that would happen.
As the summit continued Sunday, Trump’s interest appeared to wane.
During an afternoon break, he posted items on Twitter that had little to do with the G-7.
He wished a happy birthday, for example, to celebrities Regis Philbin and Sean Connery.
He also quipped about his poll numbers and complained about his treatment by Fox News.
But all eyes have been on him over the past two days.
At a closed-door dinner Saturday night, leaders confronted Trump over his suggestion that Putin join next year’s installment of the summit, when it is in the United States, according to officials briefed on the discussions who agreed to describe them on the condition of anonymity.
The contentious exchange boiled down to whether leaders felt it was useful to have conversations purely among liberal democracies.
Trump didn’t put any special weight on the format, officials said.
Trump told reporters on Sunday that there had not been a consensus about what he should do regarding Putin next year, and he said that some unnamed world leaders wanted Putin to attend.
He did not offer names, but a European official said later that Japan was neutral on the proposal and that Italy also offered little objection.
A live microphone captured a private conversation Sunday between Johnson and Macron, and Johnson appeared to remark about a tense moment on Saturday evening, the night of the Putin debate.
“You did very well there last night."
"My God, that was a difficult one,” Johnson told Macron on Sunday ahead of one meeting, pumping his fist.
“Bien joué,” the British leader said, using the French phrase for “well played.”
The summit is set to conclude on Monday afternoon.
Trump will host next year’s G-7 in the United States, and he is leaving whether he will invite Putin as a cliffhanger.
“It’s certainly possible,” he said.
“We’ll see.”
damian.paletta@washpost.com
josh.dawsey@washpost.com
toluse.olorunnipa@washpost.com
michael.birnbaum@washpost.com
http://www.msn.com/en-us/news/world/tru ... P17#page=2
"Mixed signals, reversals cloud second day of G-7 summit"
Damian Paletta, Josh Dawsey, Toluse Olorunnipa, Michael Birnbaum
25 AUGUST 2019
BIARRITZ, France —A summit of world leaders devolved into a confusing spectacle on Sunday when President Trump signaled regret for his trade war with China only to have the White House reverse his position hours later.
It was one of numerous surprises on a day when some officials had hoped for clarity or consensus.
Leaders continued squabbling about whether Russian President Vladimir Putin would attend a future meeting, and French officials surprised others by inviting Iran’s foreign minister to this seaside town, an unusual move of diplomatic jujitsu in the tightly scripted world of international summits.
Leaders who were hoping that global tensions over trade, North Korea and China might be eased on the second day of the Group of Seven summit were disappointed during a whiplash day of mixed signals.
Some European officials said they were beginning to fear that nearly any substantive coordinated work with the United States might be impossible in the Trump era.
Trump has so far done little to publicly inflame tensions with other leaders as he has during past summits, where he has lobbed insults or threatened to withdraw from international organizations.
But on this trip he has also done little to assuage concerns that the United States would continue to act unilaterally, particularly related to tariffs, regardless of the economic impact.
“From the moment we got here, we’ve been treated beautifully,” Trump said during a meeting with Japanese Prime Minister Shinzo Abe before going on to compliment the job being done by French President Emmanuel Macron as host of the summit.
“And I want to congratulate — and I have to say ‘thus far,’ because we’re probably halfway through."
"But thus far, this has been really a great G-7, and I want to congratulate France and your president because they have really done a great job.”
On Sunday morning, during a breakfast with British Prime Minister Boris Johnson, a reporter asked Trump if he had “second thoughts” about the recent escalation of his trade war with China.
Trump has tried to cut a trade deal with China for more than a year, but those efforts unraveled recently and both sides ratcheted up attacks last week.
Trump, for the first time, appeared to acknowledge regrets about the direction things had gone.
“Yeah, sure."
"Why not,” he said.
“Might as well."
"I have second thoughts about everything.”
His comments drew international headlines.
Several hours later, White House press secretary Stephanie Grisham tried to recast Trump’s comments, alleging they had been taken out of context.
“The president was asked if he had ‘any second thought on escalating the trade war with China.’"
"His answer has been greatly misinterpreted."
"President Trump responded in the affirmative — because he regrets not raising the tariffs higher,” she said in a statement.
Trump’s top economic adviser, Larry Kudlow, offered an even different characterization later, telling reporters that Trump had difficulty hearing the question.
It was the latest in a swing of reversals from the White House in the past week, over issues such as tax policy, attempting to purchase Greenland and — most notably — China.
Former treasury secretary Lawrence Summers, a veteran of the Clinton and Obama administrations, said the White House’s conflicting statements were just the latest in a string of mixed messages that had made it impossible for people to understand its agenda.
“Deeply misguided policy and strategy has been joined for some time by dubious negotiating tactics, with promises not kept and threats not carried out on a regular basis,” Summers said in an interview.
“We are at a new stage now with very erratic presidential behavior and frequent denials of obvious reality."
"I know of no U.S. historical precedent.”
The G-7 summit is an annual gathering of economic powers that is meant to draw leaders together so they can attempt to address global tensions.
But the summit has not had success bridging differences during the Trump administration.
At last year’s summit, held in Canada, Trump announced that he was withdrawing from a final agreement because he felt insulted by Canada’s prime minister, Justin Trudeau.
Also at that summit, Trump tossed two candies in the direction of German Chancellor Angela Merkel, telling her, “Don’t say I never give you anything.”
In the run-up to this summit, European officials signaled they planned to tiptoe around Trump and avoid confrontation.
At the Sunday breakfast, Johnson — seen as a key White House ally — was the first leader at the meeting to publicly — although gingerly — question Trump’s approach to the trade war with China, which some believe is affecting the global economy.
“Just to register the faint, sheeplike note of our view on the trade war,” the British prime minister said, “we’re in favor of trade peace on the whole."
"… We think that, on the whole, the U.K. has profited massively in the last 200 years from free trade.”
Later, it was Abe’s turn.
A reporter asked Trump if he was concerned about a recent North Korean missile launch.
“We’re in the world of missiles, folks, whether you like it or not,” Trump said, adding that he understands why Abe is unhappy with the testing.
Abe made clear that he views North Korea’s move as a serious breach of international expectations for the rogue nation.
“Our position is very clear: that the launch of short-range ballistic missiles by North Korea clearly violates the relevant U.N. Security Council resolutions,” he said.
The remarks from foreign leaders didn’t appear coordinated, but they did reflect a growing comfort in pushing back — however slightly — in person to a U.S. leader who likes to be feted and praised wherever he goes.
Even the positive news Trump tried to roll out had some confusing elements.
Trump told reporters that he had reached a trade deal with Japan that would be signed as soon as next month, but Abe said more work remained.
Still, the announcement drew cheers from U.S. farm groups, who believed Trump had opened up access to a big Asian market.
The summit was later jolted by an afternoon surprise — the arrival of Iranian Foreign Minister Mohammad Javad Zarif.
A number of White House officials were not aware that the French had invited the senior Iranian official, though it was unclear how much Trump had been briefed ahead of time.
Trump pulled the United States last year from the 2015 Iranian nuclear agreement, undermining an accord that European leaders feel is core to their security interests.
Macron has tried to broker new talks.
Asked if he was aware Zarif might fly into Biarritz on Sunday, Trump answered, “no comment.”
Treasury Secretary Steven Mnuchin later told reporters that the United States would be open to meeting with Iranian officials but didn’t speculate as to whether or when that would happen.
As the summit continued Sunday, Trump’s interest appeared to wane.
During an afternoon break, he posted items on Twitter that had little to do with the G-7.
He wished a happy birthday, for example, to celebrities Regis Philbin and Sean Connery.
He also quipped about his poll numbers and complained about his treatment by Fox News.
But all eyes have been on him over the past two days.
At a closed-door dinner Saturday night, leaders confronted Trump over his suggestion that Putin join next year’s installment of the summit, when it is in the United States, according to officials briefed on the discussions who agreed to describe them on the condition of anonymity.
The contentious exchange boiled down to whether leaders felt it was useful to have conversations purely among liberal democracies.
Trump didn’t put any special weight on the format, officials said.
Trump told reporters on Sunday that there had not been a consensus about what he should do regarding Putin next year, and he said that some unnamed world leaders wanted Putin to attend.
He did not offer names, but a European official said later that Japan was neutral on the proposal and that Italy also offered little objection.
A live microphone captured a private conversation Sunday between Johnson and Macron, and Johnson appeared to remark about a tense moment on Saturday evening, the night of the Putin debate.
“You did very well there last night."
"My God, that was a difficult one,” Johnson told Macron on Sunday ahead of one meeting, pumping his fist.
“Bien joué,” the British leader said, using the French phrase for “well played.”
The summit is set to conclude on Monday afternoon.
Trump will host next year’s G-7 in the United States, and he is leaving whether he will invite Putin as a cliffhanger.
“It’s certainly possible,” he said.
“We’ll see.”
damian.paletta@washpost.com
josh.dawsey@washpost.com
toluse.olorunnipa@washpost.com
michael.birnbaum@washpost.com
http://www.msn.com/en-us/news/world/tru ... P17#page=2
Re: THE EUROPEANS
REUTERS
"Weaker exports hit German economy but budget surplus still high"
Michael Nienaber
August 27, 2019 / 2:23 AM
BERLIN (Reuters) - Germany’s economy contracted on weaker exports in the second quarter, detailed data showed on Tuesday, highlighting the Achilles heel of Europe’s largest economy due to escalating trade disputes and waning foreign demand.
The Federal Statistics Office confirmed a preliminary gross domestic product contraction of 0.1% quarter-on-quarter from April to June after a 0.4% expansion in the first three months of the year.
The outlook for the German economy is uncertain as sentiment indicators point to a bumpy road ahead and most economists expect another quarter of contraction which would be a technical recession.
Exports fell more strongly than imports in the second quarter which meant that net trade deducted 0.5 percentage points from overall economic expansion.
Construction investment was also a drag, falling 1.0% on the quarter.
Household spending, state expenditure and private-sector investment in machinery and equipment all increased, but they were not strong enough to counter the massive drag of net trade.
“The details of the growth components show that the contraction was almost exclusively driven by weak exports,” Carsten Brzeski from ING said, adding that the GDP figures showed that not everything was bad.
“Some relief from trade could easily lead to a rebound toward the end of the year."
"Fiscal stimulus could boost confidence and improve structural growth in the years ahead.”
Senior government officials have hinted that Berlin is mulling more fiscal stimulus linked to a comprehensive package of climate protection measures.
Some suggested the government could even take on new debt to finance those steps.
Despite the mixed performance of the economy in the first six months of the year, the German state managed to record a whopping budget surplus of 45.3 billion euros ($50.5 billion) from January to June, the data showed.
That represents a surplus of 2.7% of economic output.
The federal government recorded a surplus of 17.7 billion euros, the 16 federal states 12.7 billion euros, municipalities 7.1 billion euros and social security system 7.7 billion euros.
The Ifo business sentiment survey showed on Monday that business morale deteriorated more than expected in August to hit its lowest in nearly seven years, in a further sign that escalating trade disputes are pushing the German economy toward recession.
The calendar-adjusted yearly growth rate eased to 0.4% in the second quarter from 0.9% in the first, Tuesday’s data showed.
Reporting by Michael Nienaber; Editing by Madeline Chambers
https://www.reuters.com/article/us-germ ... SKCN1VH0GH
"Weaker exports hit German economy but budget surplus still high"
Michael Nienaber
August 27, 2019 / 2:23 AM
BERLIN (Reuters) - Germany’s economy contracted on weaker exports in the second quarter, detailed data showed on Tuesday, highlighting the Achilles heel of Europe’s largest economy due to escalating trade disputes and waning foreign demand.
The Federal Statistics Office confirmed a preliminary gross domestic product contraction of 0.1% quarter-on-quarter from April to June after a 0.4% expansion in the first three months of the year.
The outlook for the German economy is uncertain as sentiment indicators point to a bumpy road ahead and most economists expect another quarter of contraction which would be a technical recession.
Exports fell more strongly than imports in the second quarter which meant that net trade deducted 0.5 percentage points from overall economic expansion.
Construction investment was also a drag, falling 1.0% on the quarter.
Household spending, state expenditure and private-sector investment in machinery and equipment all increased, but they were not strong enough to counter the massive drag of net trade.
“The details of the growth components show that the contraction was almost exclusively driven by weak exports,” Carsten Brzeski from ING said, adding that the GDP figures showed that not everything was bad.
“Some relief from trade could easily lead to a rebound toward the end of the year."
"Fiscal stimulus could boost confidence and improve structural growth in the years ahead.”
Senior government officials have hinted that Berlin is mulling more fiscal stimulus linked to a comprehensive package of climate protection measures.
Some suggested the government could even take on new debt to finance those steps.
Despite the mixed performance of the economy in the first six months of the year, the German state managed to record a whopping budget surplus of 45.3 billion euros ($50.5 billion) from January to June, the data showed.
That represents a surplus of 2.7% of economic output.
The federal government recorded a surplus of 17.7 billion euros, the 16 federal states 12.7 billion euros, municipalities 7.1 billion euros and social security system 7.7 billion euros.
The Ifo business sentiment survey showed on Monday that business morale deteriorated more than expected in August to hit its lowest in nearly seven years, in a further sign that escalating trade disputes are pushing the German economy toward recession.
The calendar-adjusted yearly growth rate eased to 0.4% in the second quarter from 0.9% in the first, Tuesday’s data showed.
Reporting by Michael Nienaber; Editing by Madeline Chambers
https://www.reuters.com/article/us-germ ... SKCN1VH0GH
Re: THE EUROPEANS
MARKETWATCH
"The ECB’s challenge: Pushing rates further into negative territory without wrecking eurozone banks"
By William Watts
Published: Sept 10, 2019 5:00 a.m. ET
The European Central Bank is widely expected to push its deposit rate further into negative territory Thursday, but the move comes as investors, economists and policy makers worry that the move could take a further toll on the region’s battered banking sector.
After all, the negative rate means banks must pay for the privilege of parking excess reserves at the central bank.
The worry for policy makers is that a further hit to the banking sector’s profitability would add to worries over financial stability while also limiting the ability of banks to provide new loans to the real economy.
In other words, further rate cuts could become counterproductive, effectively serving to tighten financial conditions in the eurozone, noted analysts at Rabobank, in a note.
The Stoxx Europe 600/ex-U.K. Banks Index has rallied 6.8% in September but is down 2.6% for the year to date and is off 18.8% over the last 12 months.
That’s compared with a 14.3% year-to-date rise for the pan-European Stoxx 600 Europe Index, which is up 3.3% over the last 12 months.
The S&P 500 is up 18.7% year-to-date and 3.6% over the last year.
So with that in mind, the ECB is also expected to take steps aimed at easing the pain.
In particular, policy makers have indicated the ECB could introduce a tiered system of deposits, which would see only a portion of deposits subject to negative rates.
But such a system would be complicated and would carry risks of its own.
Here’s a quick guide to what is being discussed:
What is the deposit rate?
The ECB’s deposit rate stands at -0.4%.
That means banks that park reserves overnight pay a 0.4% annual rate for the privilege.
The ECB’s past stimulus measures and other accommodative policies have left the eurozone flooded with massive excess liquidity — or liquidity in excess of that needed to meet short-term obligations.
As noted by Luca Cazzulani, deputy head of fixed-income strategy at Milan-based UniCredit Bank, that excess liquidity has pushed money-market rates toward the deposit rate, making it the ECB’s effective policy rate.
For the ECB, the key question centers on the minimum amount of excess liquidity that is needed to keep money-market rates anchored to the deposit rate, Cazzulani said in a note earlier this month.
Having banks pay the deposit rate beyond that amount is unnecessary and painful.
What’s the ECB expected to do?
Economists look for the ECB to cut its deposit rate by 10 to 20 basis points.
The jury is out on whether the ECB will also move to launch another round of asset purchases.
A previous program of monthly bond buys came to an end in December.
Expectations for a combination of rate cuts and renewed asset-buying were dented in recent weeks as some ECB policy makers appeared to push back against indications from fellow officials that an aggressive program was on the cards for September.
What is tiering?
The ECB isn’t alone in pushing official interest rates into negative territory or in worrying about the effect that move has on the banking sector.
Central banks in Switzerland, Japan and elsewhere have adopted tiering systems of various designs.
Switzerland, for example, exempts bans from paying negative rates on up to 20 times the reserve requirement, while Japan uses a three-tiered program, in which only a fraction of reserves are charged negative rates, Cazzulani noted.
The ECB’s task is made more complicated by the region’s 19-nation banking system and the uneven distribution of excess liquidity across the eurozone, economists said, noting differences in ratios of total reserves/required reserves.
What are the ECB’s options?
Economists largely expect the ECB to adopt a two-tiered system.
The Rabobank analysts described two options: The central bank could introduce a new, lower deposit facility for “‘excess’ excess liquidity,” or it could introduce a “reserves allowance” that comes on top of existing required reserves, with the balance remunerated at the refinancing rate of 0%, the same as required reserves.
In the first option, the lower deposit rate would apply only to excess reserves above a certain threshold, while all excess reserves below the threshold would still be charged the current -0.4% rate.
The second option, in which a certain amount of reserves in addition to required reserves are charged at the 0% refinancing rate, may be more appealing, they said, as it would allow the ECB to cut rates further without any additional costs for the banking sector.
To make it work, however, the allowance would need to be quite large, the Rabobank economists said, estimating that with excess liquidity seen at around €1.8 trillion ($1.99 trillion), the ECB would need to create an allowance worth around €800 billion to fully offset another 40 basis points of deposit rate cuts.
What would it say about future policy?
A tiered system would also see the ECB push back against the idea that it’s ability to drive rates further into negative territory is constrained, but it won’t fully dispel worries about the region’s banking sector.
“If implemented, tiering may weaken the perception of a floor in policy rates, leaving the door open to pricing several rate cuts if necessary,” wrote Cazzulani.
“However, while tiering may address direct costs that negative rates have on banks, the ECB would still have to consider the indirect effects that progressively lower rates have on banks (namely a flat curve in a low yield environment).”
https://www.marketwatch.com/story/the-e ... 2019-09-10
"The ECB’s challenge: Pushing rates further into negative territory without wrecking eurozone banks"
By William Watts
Published: Sept 10, 2019 5:00 a.m. ET
The European Central Bank is widely expected to push its deposit rate further into negative territory Thursday, but the move comes as investors, economists and policy makers worry that the move could take a further toll on the region’s battered banking sector.
After all, the negative rate means banks must pay for the privilege of parking excess reserves at the central bank.
The worry for policy makers is that a further hit to the banking sector’s profitability would add to worries over financial stability while also limiting the ability of banks to provide new loans to the real economy.
In other words, further rate cuts could become counterproductive, effectively serving to tighten financial conditions in the eurozone, noted analysts at Rabobank, in a note.
The Stoxx Europe 600/ex-U.K. Banks Index has rallied 6.8% in September but is down 2.6% for the year to date and is off 18.8% over the last 12 months.
That’s compared with a 14.3% year-to-date rise for the pan-European Stoxx 600 Europe Index, which is up 3.3% over the last 12 months.
The S&P 500 is up 18.7% year-to-date and 3.6% over the last year.
So with that in mind, the ECB is also expected to take steps aimed at easing the pain.
In particular, policy makers have indicated the ECB could introduce a tiered system of deposits, which would see only a portion of deposits subject to negative rates.
But such a system would be complicated and would carry risks of its own.
Here’s a quick guide to what is being discussed:
What is the deposit rate?
The ECB’s deposit rate stands at -0.4%.
That means banks that park reserves overnight pay a 0.4% annual rate for the privilege.
The ECB’s past stimulus measures and other accommodative policies have left the eurozone flooded with massive excess liquidity — or liquidity in excess of that needed to meet short-term obligations.
As noted by Luca Cazzulani, deputy head of fixed-income strategy at Milan-based UniCredit Bank, that excess liquidity has pushed money-market rates toward the deposit rate, making it the ECB’s effective policy rate.
For the ECB, the key question centers on the minimum amount of excess liquidity that is needed to keep money-market rates anchored to the deposit rate, Cazzulani said in a note earlier this month.
Having banks pay the deposit rate beyond that amount is unnecessary and painful.
What’s the ECB expected to do?
Economists look for the ECB to cut its deposit rate by 10 to 20 basis points.
The jury is out on whether the ECB will also move to launch another round of asset purchases.
A previous program of monthly bond buys came to an end in December.
Expectations for a combination of rate cuts and renewed asset-buying were dented in recent weeks as some ECB policy makers appeared to push back against indications from fellow officials that an aggressive program was on the cards for September.
What is tiering?
The ECB isn’t alone in pushing official interest rates into negative territory or in worrying about the effect that move has on the banking sector.
Central banks in Switzerland, Japan and elsewhere have adopted tiering systems of various designs.
Switzerland, for example, exempts bans from paying negative rates on up to 20 times the reserve requirement, while Japan uses a three-tiered program, in which only a fraction of reserves are charged negative rates, Cazzulani noted.
The ECB’s task is made more complicated by the region’s 19-nation banking system and the uneven distribution of excess liquidity across the eurozone, economists said, noting differences in ratios of total reserves/required reserves.
What are the ECB’s options?
Economists largely expect the ECB to adopt a two-tiered system.
The Rabobank analysts described two options: The central bank could introduce a new, lower deposit facility for “‘excess’ excess liquidity,” or it could introduce a “reserves allowance” that comes on top of existing required reserves, with the balance remunerated at the refinancing rate of 0%, the same as required reserves.
In the first option, the lower deposit rate would apply only to excess reserves above a certain threshold, while all excess reserves below the threshold would still be charged the current -0.4% rate.
The second option, in which a certain amount of reserves in addition to required reserves are charged at the 0% refinancing rate, may be more appealing, they said, as it would allow the ECB to cut rates further without any additional costs for the banking sector.
To make it work, however, the allowance would need to be quite large, the Rabobank economists said, estimating that with excess liquidity seen at around €1.8 trillion ($1.99 trillion), the ECB would need to create an allowance worth around €800 billion to fully offset another 40 basis points of deposit rate cuts.
What would it say about future policy?
A tiered system would also see the ECB push back against the idea that it’s ability to drive rates further into negative territory is constrained, but it won’t fully dispel worries about the region’s banking sector.
“If implemented, tiering may weaken the perception of a floor in policy rates, leaving the door open to pricing several rate cuts if necessary,” wrote Cazzulani.
“However, while tiering may address direct costs that negative rates have on banks, the ECB would still have to consider the indirect effects that progressively lower rates have on banks (namely a flat curve in a low yield environment).”
https://www.marketwatch.com/story/the-e ... 2019-09-10