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from Global Investing:
Weekly Radar: Draghi returns to London
ECB chief Mario Draghi returns to London next week almost 10 months on from his seminal “whatever it takes” speech to the global financial community in The City – a speech that not only drew a line under the euro financial crisis by flagging the ECB’s sovereign debt backstop OMT but one that framed the determination of the G4 central banks at large to reflate their economies via extraordinary monetary easing. Since then we’ve seen the Fed effectively commit to buying an addition trillion dollars of bonds this year to get the U.S. jobless rate down toward 6.5%, followed by the ‘shock-and-awe’ tactics of the new Japanese government and Bank of Japan to end decades.
And as Draghi returns 10 months on, there's little doubt that he and his U.S. and Japanese peers have succeeded in convincing financial investors of central bank doggedness at least. Don't fight the Fed and all that - or more pertinently, Don't fight the Fed/BoJ/ECB/BoE/SNB etc... G4 stock markets are surging ever higher through the Spring of 2013 even as global economic data bumbles along disappointingly through its by now annual ‘soft patch’. Looking at the number tallies, total returns for Spanish and Greek equities and euro zone bank stocks are up between 40 and 50% since Draghi's showstopper last July . Italian, French and German equities and Spanish and Irish 10-year government bonds have all returned about 30% or more. And you can add 7% on to all that if you happened to be a Boston-based investor due to a windfall from the net jump in the euro/dollar exchange rate. What’s more all of those have outperformed the 25% gains in Wall St’s S&P 500 since then, even though the latter is powering to uncharted record highs. And of course all pale in comparison with the eye-popping 75% rise in Japan’s Nikkei 225 in just six months!! Gold, metals and oil are all net losers and this is significant in a money-printing story where no one seems to see higher inflation anymore.
But with both Fed and BoJ pushes getting some traction on underlying growth and the euro zone economy registering it's 6th straight quarter of contraction in the first three months of 2013, maybe Draghi's big task now is to convince people the ECB will do whatever it takes to support the 17-nation economy too and not only the single currency per se. Last year's pledge may have been a necessary start to stabilise things but it has not yet been sufficient to solve the economic problems bequethed by the credit crisis.
Coincidence or not, Draghi speech on Thursday is flanked by keynotes from his monetary allies. Fed chief Bernanke speaks on Saturday and then to testifies to the congressional Joint Economic Committee on Wednesday, BoJ head Kuroda holds a press conference after the bank's policymaking meeting ends on Thursday and outgoing BoE governor King speaks Friday. G20 sherpas meet in Russia this weekend, while EU leaders meet in Brussels on Wednesday. The big economic data set-piece of the week will be critical flash global PMI readings for May - is business finally pulling out of the early year funk or is confidence still evaporating?
from Breakingviews:
Whatever happened to the inflation “Weimarists”?
By Dan Indiviglio
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Whatever happened to predictions the United States would soon experience Weimar Republic-like inflation? When the Federal Reserve kicked off its massive stimulus campaign, critics invoked this dark period of modern German history and its images of wheelbarrows full of valueless cash. Four years later, only the most stubborn hawks still fear such hyperinflation. Consistently low price growth has made Ben Bernanke’s easing look safe - so long as his exit works.
from MacroScope:
Yellen-san supportive of BOJ’s aggressive easing
For all the talk about clear communications at the Federal Reserve, central bank Vice Chair Janet Yellen's speech to the Society of American Business and Economics Writers ran a rather long-winded 16 pages.
However, while Fed board members generally do not take questions from reporters, there was a scheduled audience Q&A which, at this particular event, meant it was effectively a press briefing.
from Breakingviews:
Review: The Robespierres of central banking
By Dominic Elliott
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The most lasting inheritance of the 2008 financial crisis may be a change in the purpose of central banks. From the 1980s until 2007, most believed that monetary authorities should primarily use a policy interest rate to combat inflation. Interventions in the markets or in the financial system were outside the remit, or so the orthodox view went. Neil Irwin’s “The Alchemists” shows how that thinking has been turned on its head.
from Breakingviews:
Goldman and Buffett scratch each other’s backs
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Goldman Sachs and Warren Buffett have found a way to scratch each other’s backs - again. The mutual assistance started during the crisis when the Sage of Omaha stepped in with a $5 billion rescue investment in 2008 that provided him with a healthy 10 percent yield on Goldman preferred shares. Now, they’re amending terms of warrants granted to Buffett in the same deal that also works well both ways.
from Breakingviews:
Next economic “It girl” is about to be discovered
By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The next economic “It girl” is about to be discovered. In 2008, the obscure Baltic Dry Index was suddenly the subject of every financial conversation. The TED spread and the ABX also briefly rocketed to fame. Now, as investors try to find a telltale gauge of when interest rates will start rising, the JOLTS report, forward curves and the overnight index swap could soon be in vogue.
from Breakingviews:
Fed harder to grade than banks on stress tests
By Antony Currie
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
It’s harder to grade the Federal Reserve over its handling of the stress tests than it is the 18 banks which take them. On the face of it, the regulator has devised a rigorous but fair system. This year, it rapped Goldman Sachs and JPMorgan over the knuckles for their flawed models, though still approved their plans to return capital to shareholders. It vetoed proposals by Ally and BB&T, and gave its blessing to former dunce Bank of America. But the Fed’s math and much of the results remain a secret. That makes some of the toughness seem more for show.
from Breakingviews:
Equity split from commodities may be short lived
By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The often close correlation between equity and commodity prices has faded. World equities are up 15 percent since August while commodities have barely moved. Is this a paradigm shift? Probably not, though shale gas is rattling energy markets. Equities may simply have run too fast on the back of quantitative easing while commodity investors have hesitated over global growth worries.
from MacroScope:
‘Cliff’ deal is one part relief, one part frustration for Fed
When Federal Reserve Chairman Ben Bernanke was last in New York, he joked about his past research into the effect of uncertainty on investment spending. "I concluded it is not a good thing, and they gave me a PhD for that," he said, drawing laughter from a gathering of hundreds of economists in a packed Times Square conference room.
Laughter probably wasn't echoing through the halls of the U.S. central bank on Wednesday. Late on Tuesday, Congress struck a last-minute deal that only partially and temporarily avoids the so-called fiscal cliff. Bernanke and other Fed policymakers - frustrated that it took politicians so long to address tax and spending levels in the first place - were hoping Washington would agree to a bi-partisan, longer-term plan to narrow the country's massive deficit with only modest near-term fiscal restraint. While no deal on taxes would have been far worse for the economy, the fact that Congress put off decisions on government spending and the debt ceiling for another two months simply prolongs the uncertainty that many feel is holding back investments by businesses and households.
from Breakingviews:
Fed’s foreign bank crackdown is price of stability
By Agnes T. Crane and Daniel Indiviglio
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
The Federal Reserve’s unilateral crackdown on foreign banks is necessary. The regulator’s requirement that overseas lenders properly capitalize their U.S. arms is a prudent way to protect the local and global financial system. The Fed’s approach could prompt other regulators to follow suit. But the fear that fragmentation could stifle global banking looks overblown.
