Reuters blog archive
The European Central Bank holds its last rates meeting of the year with some of the alarm about looming deflation pricked by a pick-up in euro zone inflation last week – though at 0.9 percent it remains way below the ECB’s target of close to two percent.
The spotlight, as always, will be on Mario Draghi but also on the latest staff forecasts. If they inflation staying well under target in 2015 (which is quite likely), expectations of more policy easing will gather steam again.
For today, another rate cut after last month’s surprise move would be a huge shock. Launching quantitative easing is anathema to much of the Governing Council unless it was clear a Japan-style downward price spiral was in the offing, which it isn’t. The bank's vice-president, Vitor Constancio, has said the ECB would only cut the deposit rate it pays banks for holding their money overnight - now at zero - into negative territory in an extreme situation.
So most likely is a repeat of LTRO low-interest long-term loans for banks and even then, not until next year.
Corporate profits and cash piles have never been higher. But it's not just an economic imperative that firms get spending and investing, it's their social and moral responsibility to do so.
Three of the four sectors that make up the economy got battered by the global financial crisis and Great Recession:
Justin Vélez-Hagan is the executive director of the National Puerto Rican Chamber of Commerce, a small non-profit not to be mistaken with the much larger Puerto Rico Chamber of Commerce. Vélez-Hagan argues in a recent Forbes opinion piece that Puerto Rico must default on its debt:
Washington politicos aren’t the only ones instigating a perpetual debt crisis. Puerto Rico too is experiencing a political stalemate-induced fight for their financial lives that affects not only its 3.7 million residents, but millions of others who have purchased bonds to help finance its government, causing us to wonder if the next logical step is a debt default.
from Global Investing:
A perfect storm seems to be brewing for the Russian rouble. It has tumbled to four-year lows against a euro-dollar basket. Against the dollar, it has lost around 7 percent so far this year, faring better than many other emerging currencies. But signs are that next year will bring more turmoil.
While oil prices, the mainstay of Russia's economy, are holding up, Russian growth is not. It is running at 1.3 percent so far this year and capital outflows continue unabated -- $48 billion is estimated to have fled the country in the first nine months of 2013 compared with $55 billion in 2012. Russia's mighty current account surplus has shrunk to barely nothing and could fall into deficit by the middle of next year, reckons Alfa Bank economist Natalia Orlova. Finally, the rouble can no longer count on the central bank for wholehearted day-to-day support. FX market interventions cost the bank $3.5 billion last month but it also shifted the exchange-rate corridor upwards six times, indicating it is keen to move to a fully flexible currency.
from Nicholas Wapshott:
By the end of the year, American taxpayers will no longer be part owners of General Motors. That is good news all around. Nationalization of a private company rarely makes economic sense. Even for red-blooded socialists, the ownership of the means of production has long been an empty threat, a totemic cul de sac that for years led socialism down the wrong path. Regulation is a far better way to ensure an industry works for the public good.
The federal government is not best-suited to administer a private industry. The emergency that once threatened American motor manufacturing has passed. State intervention has forced much-needed restructuring into a hidebound business riddled with grandfathered practices and anachronistic benefits. Intervention avoided the deleterious knock-on effects of the collapse of a major domestic industry, helped the external balance of payments, and saved thousands of skilled jobs in good time.
from Global Investing:
What a dire year for emerging debt. According to JPMorgan, which runs the most widely run emerging bond indices, 2013 is likely to be the first year since 2008 that all three main emerging bond benchmarks end the year in the red.
So far this year, the bank's EMBIG index of sovereign dollar bonds is down around 7 percent while local debt has fared even worse, with losses of around 8.5 percent, heading for only the third year of negative return since inception. JPMorgan's CEMBI index of emerging market corporate bonds is down 2 percent for the year.
from The Great Debate:
I like to joke about the fact that I have a ten-year-old boy at the age when my mother was not only an empty nester, but also an empty nester with a son-in-law. (That would be my husband.)
What I don’t like to contemplate as much? That I will almost certainly have just finished paying for the college education of the same adorable ten-year-old when the law permits me to claim a monthly Social Security check.
from Global Investing:
Sales of dollar bonds by emerging governments may surge 20 percent over 2013 levels, analysts at Barclays calculate. They predict $94 billion in bond issuance in 2014 compared to $77 billion that seems likely this year. In net terms --excluding amortisations and redemptions -- that will come to $29 billion, almost double this year's $16 billion.
According to them, the increase in issuance stems from bigger financing needs in big markets such as Russia and Indonesia along with more supply from the frontiers of Africa. Another reason is that local currency emerging bond markets, where governments have been meeting a lot of their funding needs, are also now struggling to absorb new supply.
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Suntech has gone from solar panel maker to financial black hole. The stricken company is fighting with creditors who want to see it liquidated after it defaulted on interest payments in March. Proposals to sell assets and take Chinese government cash seem unlikely to help investors avoid huge losses. For investors it’s a lesson in what happens when things really go wrong with Chinese companies.
After today's surprise ECB move it is safe to forget the code words former ECB President Jean-Claude Trichet never grew tired of using - monitoring closely, monitoring very closely, strong vigilance, rate hike. (No real code language ever emerged for rate cuts, probably because there were only a few and that was towards the end of Trichet's term.)
His successor, Mario Draghi, has a different style, one he showcased already at his very first policy meeting, but no one believed to be the norm: He is pro-active and cuts without warning. Or at least that's what it seems.