Reuters blog archive
from Global Markets Forum Dashboard:
The largest Wall Street investment banks reported good earnings this week, many beating analysts’ expectations, but the devil remains in the details.
Banks are in the middle of implementing global regulations designed to create a safer framework under which they operate and avoid an encore of 2008. Still, these financial institutions are not as forthcoming as they should be in disclosing key elements that would help measure their resilience, Mayra Rodríguez Valladares, managing principal of MRV Associates and a bank regulation expert told the Reuters Global Markets Forum during a LiveChat this week.
Notably thin or missing from quarterly reports is: the identity and credit quality of trading counterparties in derivatives portfolios, how a bank calculates loan loss reserves and more transparency on leveraged loans, which are on the rise.
“Banks are chasing yield again and let's remember that the leverage rule does not really kick in yet, so we need to keep an eye on bank leverage,” Rodríguez Valladares told the GMF.
Rants from TV commentators aside, the market’s going to be keenly focused on Janet Yellen’s congressional testimony today, with a specific eye toward whether the Fed chair moderates her concerns about joblessness, under-employment and the overall dynamism of the labor force that has been left somewhat wanting in this recovery. The June jobs report, where payrolls grew by 288,000, was welcome news even as the economy continues to suffer due to low labor-force participation and weak wage growth.
Inflation figures are starting to show some sense of firming in various areas, for sure, but still not at a point that argues for a sharp move in Fed rates just yet. Overall, a look at Eurodollar futures still suggests the market sees a gradual, very slow uptick in overall rates – the current difference between the June 2015 futures and June 2016 futures are less than a full percentage point – not as low as it was in May of this year, but still lower than peaks seen in March and April 2014 and in the third quarter of 2013, before a run of weak economic figures and comments from Fed officials themselves scared people again into thinking that the markets would never end up seeing another rate hike, like, ever again.
from Anatole Kaletsky:
John Maynard Keynes famously said that his highest ambition was to make economic policy as boring as dentistry. In this respect, as in so many others, Federal Reserve Chair Janet Yellen is proving to be a loyal Keynesian.
Yellen’s second news conference as Fed chair conveyed no new information about the timing of future interest rate moves. She gave no hints about an “exit strategy” for the Fed to return the $3 trillion of bonds it has acquired to the private sector. She told us nothing about the Fed’s expectations on inflation, employment and economic growth -- not even about the board’s views on financial volatility, regulation, asset prices or bank credit policies.
from Anatole Kaletsky:
“Sell in May and go away.”
This stock market adage has served investors well four years in a row. Every year since 2010, stock markets around the world have suffered significant corrections between a high reached in May and a low in the summer or early autumn: by 15 percent in 2010, 19 percent in 2011, 9 percent in 2012 and 5 percent in 2013, as gauged by the Standard & Poor’s 500.
Given that the Dow Jones Industrial Average hit its highest level ever on April 30, while the S&P 500 peaked less than 1 percent shy of its all-time record, it may seem sensible to follow the seasonal adage. Regardless of one’s views about the long-term prospects for the world economy.
"It's about time" was the general reaction when on Thursday the Senate Banking Committee scheduled a vote on Barack Obama's nominees for the Federal Reserve board. Not that Stanley Fischer, Lael Brainard and Jerome Powell (a sitting governor who needs re-confirmation) have been waiting all that long; it was January that the U.S. president nominated them as central bank governors, and only a month ago that the trio testified to the committee. The urgency and even anxiety had more to do with the fact that only four members currently sit on the Fed's seven-member board and one of those, Jeremy Stein, is retiring in a month. The 100-year old Fed has never had only three governors, and the thought of the policy and administrative headaches that would bring was starting to stress people out. After all, the Fed under freshly-minted chair Janet Yellen is in the midst of its most difficult policy reversal ever.
"Boy it would be more comfortable if there were at least five governors and hopefully more" to help Yellen "think through these very difficult communications challenges," said Donald Kohn, a former Fed vice chair. Former governor Elizabeth Duke, who stepped down in August, said one of the Fed board's strengths is its diversity of members' backgrounds. "With fewer people you don't have as many different points of view on policy," she said in an interview.
from Nicholas Wapshott:
The difference between the Federal Reserve Board of Chairwoman Janet Yellen and that of her immediate predecessor Ben Bernanke is becoming clear. No more so than in their approach to the problem of joblessness.
Bernanke made clear that in the post-2008 economy, his principal goal was the creation of jobs, not curbing inflation. He settled on a figure, 6.5 percent unemployment, as the threshold that would guide his actions.
from The Great Debate:
In America today, anecdotes have become the new facts.
Consider Obamacare. Opponents have produced ads featuring apparently ordinary Americans telling stories about the travails forced upon them by the Affordable Care Act. One ad, financed by the Koch brothers, highlighted a leukemia sufferer named Julie Boonstra, who claimed that Obamacare had raised the cost of her medications so much that she was faced with death! Pretty dramatic stuff -- except that numerous fact-checkers found she would actually save $1,200 under Obamacare.
But what are you going to believe -- a sob story or a raft of statistics about the 7.5 million Americans who have signed up and the paltry 1 million folks who had policies canceled?
The Federal Reserve did it again, giving back to the markets at a time when it wasn't expected, and showing once again that the early months of a new Fed chair's tenure are fraught ones, in terms of interpreting monetary policy.
Janet Yellen probably didn't mean to suggest rate hikes could come as soon as six months after the bond-buying program ends for good. And the release of the Fed minutes also demonstrated that the Fed - even in discussing projections - worried about how it would all look, specifically the "dot matrix" that showed several Fed members saw higher rates before long, and really, that it was all just kind of overstated. (Yellen even said this at her press conference - that the dots did not mean what you thought they meant).
Welcome Madame Chair, here's a market selloff for you.
Fed Chair Janet Yellen made some news that she didn't expect yesterday. She perhaps thought she was offering some clarity when she answered the question from Reuters' Ann Saphir as to when the Fed might start raising interest rates. That's not how it worked, although at least in this case she didn't mouth off to Maria Bartiromo the way Ben Bernanke did eight years ago.
What we didn't see in her answer on the distance between the end of QE3 and the first rate hikes of "six months" (or something like that), is whether we will start to see any kind of reaction from the primary dealers surveyed by Reuters yesterday.
from Anatole Kaletsky:
When Janet Yellen chairs her first meeting of the Federal Open Market Committee Tuesday and Wednesday, she will be presented with a once-in-a-generation opportunity that even her predecessors in the world’s most powerful economic position have rarely enjoyed.
Not only can Yellen alter the guidance on interest rates with which the FOMC has been steering global financial markets. Beyond that she could do something far more profound and exciting: transform an entire generation’s way of thinking about economics, market forces and the role of government in achieving and maintaining prosperity.