Reuters blog archive

from Breakingviews:

ECB deserves to lose market’s inflation confidence

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. 

The case of the euro zone’s vanishing inflation rate has so far stumped European Central Bank President Mario Draghi. Quite rightly, investors’ faith in his ability to do anything about the problem is also evaporating.

The clearest sign is a sharp decline in the ECB’s preferred barometer of market inflation expectations, which tracks how investors see inflation behaving over a five-year period beginning five years from now. At first glance, the measure’s modest drop - from 2.12 percent at the end of July to this week’s 1.94 percent low - doesn’t seem to reflect scepticism in the ECB’s ability to lift inflation back up to its 2 percent medium-term target. But things aren’t that simple.

Immune to the blips and dips of monthly data, the “five year/five-year forward” gauge rarely moves much. Yet it has just suffered its biggest four-week decline since 2012, and is now at its lowest since 2011, according to Credit Agricole. More sensitive indicators of inflation expectations have fallen even lower.

from Breakingviews:

Latest blunder hits StanChart where it most hurts

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Standard Chartered’s latest blunder hits the UK bank where it hurts most. New York State’s Department of Financial Services has slapped a $300 million fine on the emerging markets-focused lender for compliance lapses. It reinforces the disturbing impression that StanChart’s top brass aren’t on top of things.

from Edward Hadas:

Time to retire unemployment

Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Give Janet Yellen credit. The chair of the U.S. Federal Reserve is keen to use monetary policy to help get more people into good jobs. Her priority – work is more important than finance – is reflected in the subject of this week’s get-together for the world’s central bankers: “Re-Evaluating Labor Market Dynamics.” One item should be on the agenda of the distinguished guests at Jackson Hole, Wyoming: how to replace the concept of unemployment.

from Breakingviews:

Dollar set to take pound’s strong currency title

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Sterling emerged as the currency market strongman over the past year because investors grew increasingly confident the UK would be the first big economy to raise interest rates. The dollar now looks set to wrest the title from the pound.

from MacroScope:

ECB’s fingers crossed for private loans growth

Mostly bereft of policy options except for outright quantitative easing, European Central Bank President Mario Draghi hopes that hundreds of billions of euros more in cheap loans to banks will boost inflation.

The jury will be out for a long time before we get any decision on whether they have worked.

from Global Investing:

The people buying emerging markets

We've written (most recently here) about all the buying interest that emerging markets have been getting from once-conservative investors such as pension funds and central banks. Last year's taper tantrum, caused by Fed hints about ending bond buying, did not apparently deter these investors . In fact, as mom-and-pop holders of mutual funds rushed for the exits,  there is some evidence pension and sovereign  wealth  funds actually upped emerging allocations, say fund managers. And requests-for-proposals (RFPs) from these deep-pocketed investors are still flooding in,  says Peter Marber, head of emerging market investments at Loomis Sayles.

The reasoning is yield, of course, but also recognition that there is a whole new investable universe out there, Marber says:

from Breakingviews:

Banco Espirito Santo could lure periphery bulls

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Euro zone periphery bulls should be eyeing up Banco Espirito Santo. The troubled Portuguese bank’s shares were at one point down 20 percent on July 15, and it needs capital to stabilise itself. For hedge funds looking to profit from Europe’s banking recapitalisation, or an acquisitive bank, this is the moment to pounce.

from Global Investing:

Emerging markets; turning a corner

Emerging markets have been attracting healthy investment flows into their stock and bond markets for much of this year and now data compiled by consultancy CrossBorder Capital shows the sector may be on the cusp of decisively turning the corner.

CrossBorder and its managing director Michael Howell say their Global Liquidity Index (GLI) -- a measure of money flows through world markets -- showed the sharpest improvement in almost three years in June across emerging markets. That was down to substantially looser policy by central banks in India, China and others that Howell says has moved these economies "into a rebound phase".

from Counterparties:

Inflated worries

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After the European Central Bank’s July meeting Thursday, Mario Draghi announced the central bank would maintain its historically low interest rates — a 0.15% main lending rate and -0.1% on funds deposited at the ECB — to try to get inflation up to 2% from the current 0.5%. Draghi reiterated the ECB’s stance on quantitative easing: it’s in the toolbox, but it’s not coming out yet. Despite a report released last week by the Bank for International Settlements that urged austerity and higher interest rates, central bankers from Draghi to Janet Yellen to the Bank of England’s Jon Cunliffe seem united in their desire to keep rates low and push consumer prices higher.

David Wessel thinks the central bankers’ logic goes something like this: “There may come a day when our worries about financial stability will prompt us to hike interest rates, but rates are ‘the last line of defense.’ Not now.” That said, Wessel is skeptical about Yellen’s preferred methods to ensure stability — macroprudential tools (regulations, mostly) that attempt to guard against system-wide risk before crises can happen. They haven’t been tried enough for us to predict their success, he says, but he welcomes the bankers’ reluctance to raise rates quickly. The Economist points out that while some markets, such as housing in London, are starting to look frothy and overvalued again, “the excesses are still small, compared with those that brought down the global economy in 2007.” Since the eurozone economy is barely growing, raising interest rates “could push the economy back into recession and turn inflation to deflation.”

from MacroScope:

U.S. hiring may be rebounding, but wage growth is not

AThe U.S. job market has finally turned a corner. What is remarkable is that it has taken so long.

Companies have finally begun taking on staff in consistently greater numbers, half a decade after the end of a deep recession brought on by one of the most punishing financial crises in history.