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from Breakingviews:

Confused Fed adds to emerging market muddle

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By Andy Mukherjee

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

A confused U.S. Federal Reserve has added to the muddle in emerging markets.

At their meeting that ended on March 19, the nine voting members of the Federal Open Market Committee (FOMC) wriggled out of a previous commitment to start increasing interest rates after unemployment had fallen to 6.5 percent. To assure markets that overnight rates will stay at near-zero levels, the committee promised instead to seek maximum employment and 2 percent inflation.

The accompanying Economic Projections document, though, poured cold water on this dovish, if somewhat vague, statement. In it, FOMC members – both voting and non-voting – bumped up their expectation of future interest rates. The committee’s median expectation for the target overnight rate at the end of 2016 is now 2.25 percent, up half a percentage point from its previous estimate, according to Barclays. The hawkish projections caused a selloff in U.S. Treasury bonds. Asian equities and currencies followed suit.

The mixed message raises concerns of another Fed communication failure. Last summer, the Fed had a tough time persuading investors it could gradually reverse quantitative easing without accelerating its first rate increase. The subsequent “taper tantrum” cut many emerging market countries’ access to dollar funding.

from Counterparties:

MORNING BID – Copper, China and currencies

Markets start on the back foot this morning, with weakness overseas - and particularly in emerging markets - feeding through to a bit of strain on U.S. futures and a bit of flight to quality to the U.S. bond market.

The outlook for China once again comes into play, with the most recent fears being more corporate defaults in the world's second-largest economy and the way in which copper imports are used in China as collateral to raise funds. So it's all nicely intertwined here and has had a detrimental effect on both China's stocks, stocks in various exchanges around the world, and of course the price of copper, which was down 5 percent in Shanghai.

from Breakingviews:

Scandal will reshape FX trading dynamics

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By Swaha Pattanaik

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

Around the world, investigators are trying to find out if the largely unregulated foreign exchange market was manipulated. Even before the probes are completed, the pace of change will pick up in the $5 trillion-a-day market, in both what moves currencies and the way business is done.

from Counterparties:

MORNING BID – Janet Yellen’s rain (snow) check

This is the thing about delaying the new Fed chair's follow-up testimony by two weeks due to bad weather, you actually make the second hearing something that's potentially interesting. (It will depend, of course, on whether members of the Senate Committee ask provocative questions, and while you can lead a horse to water, well, you know.)

In the interim two weeks since Janet Yellen last appeared before Congress, the U.S. economic picture has gotten much more muddled. That's mostly because of poor retail sales and employment figures, and the out-of-control situation in Ukraine which has led to a regional flight of some assets. There's also been some interesting comments from the likes of Fed Governor Daniel Tarullo, who suggested the Fed should be paying more attention to the formation of asset bubbles and the use of monetary policy to curb them. That anyone is surprised at this shows how pervasive the "Fed put" option has become in the discussion of Fed activities, so we've really lowered expectations here.

from Breakingviews:

Whole FX business belongs in the dock

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By Edward Hadas

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

No one has yet been accused of a crime in the foreign exchange market, but there is a lot of talk of disturbing practices, including dealing in personal accounts against clients’ interests. This could be a scandal as big as the fixing of interbank lending rates. However, the probes seem unlikely to address the hardest questions about how the whole currency business works.

from MacroScope:

A week before emerging-market turmoil, a prescient exchange on just how much the Fed cares

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The last seven days has been a glaring example of fallout from the cross-border carry trade. That's the sort of trade, well known in currency markets, where investors borrow funds in low-rate countries and invest them in higher-rate ones. Some $4 trillion is estimated to have flooded into emerging markets since the 2008 financial crisis to profit off the ultra accommodate policies of the U.S. Federal Reserve, Bank of Japan, European Central Bank and the Bank of England. Now that central banks in developed economies are looking to reverse course and eventually raise rates, that carry trade is unraveling fast, resulting in the brutal sell-off in emerging markets such as Turkey and Argentina over the last week.

The Fed's decision on Wednesday to keep cutting its stimulus effectively ignores the turmoil in such developing countries. And while the Fed may well be right not to overreact, it makes one wonder just how much attention major central banks pay to the carry trade and its global effects -- and it brings to mind a prescient exchange between some of the brightest lights of western economics, just a week before emerging markets were to run off the rails.

from Breakingviews:

Exportless recovery adds to emerging market risks

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By Andy Mukherjee

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

The devaluation of the Argentine peso has shaken investors. It’s not exactly an emerging market crisis, but cracks are beginning to emerge in the cheery consensus about the global economy’s prospects in 2014.

from Edward Hadas:

Bitcoin repeats gold-standard errors

I cannot judge whether bitcoin represents a technological breakthrough, but I am confident that the pseudo-currency’s popularity shows widespread economic amnesia. If bitcoin ever became a real currency, it would suffer from the crippling problems of the gold standard.

The underlying problem is the belief that the electronic token’s independence from the government is a good thing. This libertarian notion could hardly be more wrong. Money is a common good for the whole society, and in the contemporary world governments are the pre-eminent social guardians.

from Counterparties:

MORNING BID – Only a dream in Rio

Among the BRIC nations, Brazil’s the one that’s been repeatedly whacked with a brick in the last couple of years, seeing its currency depreciate and its stock market trashed as it steadily ratchets up interest rates to an expected 10.25 percent this evening (or perhaps even 10.50 percent).

Most emerging nations were hit hard in the last year as the Federal Reserve announced it would start changing its strategy toward reduced bond buying, which will reduce some liquidity among dealers and result in less cash sloshing around in the vast ocean of world markets.

from Counterparties:

Morning Bid: Dollar Bills and Dollar Bulls

The dollar’s performance hasn’t been anything to write home about in the last few years. It has weakened against major currencies like the euro and the Swiss franc, and been held back by lower interest rates thanks to the Federal Reserve’s triple-dose of quantitative easing, but there’s been a turn of late, though it’s too early to say whether it will have lasting power.

In 2013, the dollar was at least better than the yen, amassing a 35 percent move against the Japanese currency, which countered the Fed’s QE with Abenomics and a massive monetary dose of its own.

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