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Europe On The Brink: €1.1 Trillion Bazooka & Greek Elections

Europe On The Brink: €1.1 Trillion Bazooka & Greek Elections
  • ECB to buy €60bn/month in assets
  • Purchases will be conducted "until we see a sustained adjustment to path of inflation"
  • Purchases to last until September 2016
  • ECB rates have reached lower bound
  • Sees sizable increase in ECB's balance sheet
  • Eurozone risks on the downside
  • Annual inflation is expected to remain very low or negative in months ahead
  • Volume of QE is in ballpark of getting ECB's balance sheet ti levels of early 2012
  • There has to be a program to buy GGBs; there is also an issuer limit
  • Don't have any special rule for Greece
  • Will buy bonds with negative yield

A quick take: Slightly more than expected per month, with a slightly shorter duration than expected, amounting to just about €1.1 trillion over 16 months, which is a tad on the low side to the super-aggressive expectations of €1 trillion per year. Furthermore, as expected there will be partial risk-sharing. It is still unclear what are the embedded conditions regarding purchasing Greek or other "risky" bonds.

23-28 December: Record Highs on Santa Rally; Russia Say Ruble Crisis Over; Japanese Prices Slip Yet Lower

23-28 December: Record Highs on Santa Rally; Russia Say Ruble Crisis Over; Japanese Prices Slip Yet Lower

The S&P 500 index closed at a record high of 2083 at Friday's close, capping what has been an ebullient Christmas week where equities have historically enjoyed outsized returns relative to volatility. Indeed, the S&P 500 was joined by the Russell 2000 index of stocks and the DJIA (Dow Jones Industrial Average of 30 stocks) to close Friday at their respective record highs.

Trading volumes have been thin across the board, perhaps not so in China where people apparently are told not to celebrate the festivities of Christmas, as markets there remained opened for the entire week. Apart from American markets, the Shanghai Composite surged to a record high this past week. Reason? Mainstream media has been blaring more stimuli from the PBoC. If indeed true, that the PBoC is indeed gearing up for more stimulus come 2015, it would indeed be trying to balance a very tricky scale. Readers will recall that earlier in December, the PBoC reigned in on shadow banking by tightening collateral rules; and now wants to prop up asset prices by introducing more stimulus via other conduits? Seems like some central bankers over there are a little confused on what they actually wish to achieve with their Schrödinger policies.

19-22 December: Reeling From Russia's Pain, Belarus Implodes; Global Markets Rebound Sharply; Sony Hacking Satire

19-22 December: Reeling From Russia's Pain, Belarus Implodes; Global Markets Rebound Sharply; Sony Hacking Satire

The overnight night unsecured deposit rate on BYR has exploded north of 30% as the national bank has made it too expensive to lend BYR even amongst banks. As we learned from the bank's press release, it wants to halt sales of BYR by as much as possible though pseudo and conventional capital controls. The interest on commercial and retail deposits at local banks has also spiked to encourage individuals and businesses to leave their currency in their banks. Apparently enough, we know this is not working one bit and the run on banks continues and will probably extend all the way to Christmas Eve before there is any easing of tensions.

Indeed, just a few hours after AFP broke this news, the overnight interbank BYR deposit rate has surged past 50% as the fire intensifies.

15-16 December: Russian Ruble Falls to Record Low Despite Massive Rate Hike

15-16 December: Russian Ruble Falls to Record Low Despite Massive Rate Hike

Update: After surging 9% against the dollar in the early hours of European trading, the Ruble has resumed its slump towards 70 to the dollar, as Bloomberg reports. Seems like all is not fixed even in the surface.

Update 2: USDRUB breaches 80, RTS index down a whopping 15%. Alarm bells going off. Dollar is at session lows and safety is massively bid.

The CBR raised its main interest rate to 17% from the 10.5% last week, a 650bp hike, sending the ruble much higher as traders knew jerked to the eleventh hour decision to try halt to ruble's cataclysmic collapse amid even lower oil prices. The decision to raise the borrowing cost of interbank borrowing came at 1am local time, highlighting the desperation and intended impact of the measure

10 December 2014: China Rubs Salt Into Weak Oil Wound

10 December 2014: China Rubs Salt Into Weak Oil Wound

China's Securities Depository Corporation announced (CSDC) Tuesday that they would no longer accept non AAA-rated corporate debt securities as collateral in repurchase transactions, essentially raising the cost of short term collateralized borrowing in the private sector. AAA-rated corporate debt securities to be pledged as collateral must also originate from AA-rated issuers.

China has hinted rather overtly it wants to drastically reduce leverage in its stock and bond markets, and is partially working on this goal by tightening monetary policy through indirect tools; fixing Yuan higher and raising collateral standards and reducing availability.