The Signal and the Noise (Part 5)

By | 2017-07-17T12:21:17+00:00 June 16th, 2017|Global Market Update|

So how do you decide? Photo: Sebastian Lühnsdorf. Source: Morguefile When a news event occurs, is it a new signal, or is it just noise? The European Central Bank is maintaining a negative inter-bank rate – is it signal or noise? The Consumer Price Index just came out flat from the month before – was that signal or noise? It’s tempting to label all these interim economic reports financial static. And a lot of them are. So much data comes at us from so [...]

Draghi’d Forward

By | 2017-07-17T12:23:07+00:00 January 23rd, 2015|Global Market Update|

Exceeds expectations. Photo: Frankfurt Skyline; Source: Wiki Commons/Thomas Wolf That’s what I thought when I read about the European Central Bank’s program to expand the Eurozone’s money supply by buying government bonds, commonly known as quantitative easing (QE). A week ago, rumors were circulating that they would buy about €700 billion worth of bonds. But yesterday Mario Draghi announced that the program would be more than €1.1 trillion. Markets around the world rallied on the news. […]

(Currency) Wars and Peace

By | 2017-07-17T12:23:07+00:00 January 16th, 2015|Global Market Update|

What’s happening in Switzerland? Source: Wikipedia Yesterday the Swiss National Bank announced they would no longer keep the Franc pegged to the Euro. The currency immediately jumped about 20%, roiling the markets. Some currency trading firms have been wiped out. They also lowered the deposit rates for banks to -0.75% to discourage inflows. Why did they do this? […]

Carry On, Mister Trader

By | 2017-07-17T12:23:07+00:00 January 14th, 2015|Global Market Update|

Why are bond yields so low? Source: Daily Telegraph One of the most surprising market moves of 2014 was the persistent rally in US Treasury Bonds. It wasn’t supposed to be this way. Starting in April of 2013, rates were supposed to normalize. That’s when Ben Bernanke signaled that the Fed would gradually end its bond-buying program known as Quantitative Easing. […]

Going Negative

By | 2014-06-09T14:17:18+00:00 June 9th, 2014|Global Market Update|

So much for the zero-bound. On Thursday the European Central Bank lowered the interest rate it pays banks on their reserve balances to negative 0.1%. Now it will charge banks money for keeping balances with the ECB. Economists used to discuss negative rates the same way engineers talked about flying cars: possible in theory, but just not practical and never seen in reality. But several advanced labs are working on practical flying cars, and the world’s second largest central bank has now gone to [...]

In Praise of Flexibility

By | 2013-11-07T11:36:27+00:00 November 7th, 2013|Global Market Update|

Everyone wants rules. But sometimes they lead you astray. In mid-2008 everyone was watching oil and the end of the housing bubble. Oil had recently broken $100 per barrel and many expected that it would soon double in price, adding to inflation. Bear Stearns had just gone bust. Bank managers weren’t sure where their funding would come from each night. Everyone expected further fallout. In the midst of this, the European Central Bank raised rates. Their inflation indicators—impacted by oil prices—where flashing red. By [...]

Going Negative?

By | 2013-05-31T10:22:08+00:00 May 31st, 2013|Global Market Update|

Is Europe headed for negative interest rates? The Euro-zone has been in recession since mid-2011. Their recovery from the Financial Crisis of ’08 and ’09 was tepid, and the currency crisis over there has severely damaged business and consumer confidence. So ECB President Draghi is considering setting negative interest rates on bank reserves—charging banks for the privilege of stashing cash with the central repository. There’s precedent for such an action: Switzerland and Sweden have had such a policy in the past, and Denmark cut [...]