negative interest rates

One Less Reason For A Rate Hike: March NFP Misses Big

One Less Reason For A Rate Hike: March NFP Misses Big

So much for speculation of a June or September Fed Funds rate hike. After our exhaustive commentary on the FOMC's latest statement on 19 March 2015, we concluded that a "September rate "liftoff" was extremely unlikely".

Just so happened on Easter Friday, the monthly non-farm payrolls (NFP) report for March came out to be their worst since December 2013.

For a long while now, we have been bullish on the US dollar. Our premise was mainly based on the relative strength of the US economy, and on the Fed's guidance and propensity towards monetary tightening while most of the world's other central banks have embarked on their respective paths of loosening monetary conditions.

However, having been through the volatility in both the financial markets and on the economic front, we are on the precipice of shifting our stance to being intermediately bearish the dollar.

Euro Parity, Coming Sooner Than You Expect

Euro Parity, Coming Sooner Than You Expect

The time from when we last published our latest addition of the Daily Grail has been rather eventful. From the blistering jobs report 2 weeks ago that propelled market's expectation for a June rate hike even higher, to the continuation of monetary policy bifurcation by the world's central banks that will soon see the Euro trading at par to the Dollar, the month of March has so far endowed the financial markets with much needed cross-asset volatility.

On 22 January, the ECB unveiled something the world had never seen before. Mario Draghi, President of the European Central Bank, announced that for the first time in the 14 years of the Euro's existence, the ECB was going to monetize debt securities to the tune of €60bn/month. Just 2 short months ago, the ECB termed this open market operation the EAPP (Expanded Asset Purchase Program).

2 months and 1000 pips later, the ECB has coined a new term - the PSPP (Public Sector Purchase Program).The big question on the minds of currency traders across all trading desks is when will parity be attained on EURUSD. Not if but when.

Europe Frozen In Coldest Deflation Ever

Europe Frozen In Coldest Deflation Ever

Everyone certainly knows about the blockbuster Disney animation film "Frozen" and its plot. Though we realize, rather humbly indeed, that we will never come anywhere close to Chris Buck's eloquence in personifying fictional fantasy, we nonetheless were able to connect the quaint dots of what was one of the most popular movies of 2013 & 2014, and that of the biggest stories of the global economy.

We liken Elsa to global oil prices; once the innocent commodity everyone vied for has now become the harbinger of disinflation and deflation, causing great pain and blowing a bone-chilling deflationary wind across much of the world. Anna (Elsa's beloved sister), which we liken to central banks, embarks on a journey of wanderlust and real purpose to try to rescue her dearest sister who has uncontrollably morphed into an Ice Daemon.
Once in the bliss of a dearest sisterhood with Elsa - like central banks were to elevated asset prices, Anna now frantically embarks on an unprecedented journey of uncertainties to save Arendelle from an eternal ice age - like central bankers are now embarking on extraordinary monetary programs to reverse the unintended consequence of their previous misdeeds.

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.

Swiss Franc Rises Most On Record As SNB Kills Currency Peg

Swiss Franc Rises Most On Record As SNB Kills Currency Peg

We are shocked, shell shocked in utter dismay; while we were still updating our memorial piece on the Charlie Hebdo attacks news so big and unprecedented broke, that we had no choice but to shelve all immediate plans and cover this extremely nerve wrecking story. In our more than 6 years in the financial markets, we have NEVER seen anything as ginormous as the move in the Swiss Franc has been. Something as innocuous as decoupling one's currency after 3 years of the status quo has turned out to be what will go down the history books.

The bottom line is crystal clear, almost nobody had guessed the SNB's hand in today's shocking move; and we suspect the SNB better gear up with some physical protection as we smell Molotov cocktails and napalm bombs when trading closes later and the full scene of the vicious carnage is laid fully bare for all to see.

Jim Reid: Volatile Volatility

Jim Reid: Volatile Volatility

What makes this move shocking is that just last month the SNB committed themselves to preventing their currency appreciating beyond 1.20 to the Euro and vowed they would enforce the policy with "the utmost determination". The risk for the global financial system is that if the SNB can make such a dramatic u-turn could other central banks follow at some point. We're not so concerned here as their situation is arguably a lot different to the ECB. The ECB might actually look at the wider market moves yesterday and be scared to disappoint.

17-18 December: Negative Swiss Rates; FOMC Shows Resolve Despite Risks; Russia Goes Full Frontal Amid Crisis

17-18 December: Negative Swiss Rates; FOMC Shows Resolve Despite Risks; Russia Goes Full Frontal Amid Crisis

It just keeps coming. In this week alone we have already seen 4 central bank events starting with Russia's immense 6.5% rate hike and other policy accessories that eventually led to the chaos we saw on Tuesday; the ECB then dropped hints that it might extend its QE to sovereign bonds instead of the covered securities it currently purchases; the the planned FOMC statement and press conference with the chair woman yesterday; and then the SNB (Swiss national bank) unexpectedly cut its deposit rate.