Daily Picks Monday: Time to Kiss Easy Money Goodbye?
June 11, 2018
4 Min Read
Here are summaries from a selection of articles we read today:
Bitcoin tumbles to 2-month low in wake of futures probe
- Report that regulators had asked cryptocurrency exchanges to provide trading data for a probe into possible manipulation.
- Bitcoin fell as much as 11.5% to as low as $6,627.
- Ether also fell 11.2%, Ripple fell 10.6%
- CME Group asked exchanges to share trading data related to futures contracts. The exchanges provided some data but didn't fulfil CME's request, this led the CFTC to step in and subpoena the exchanges.
It's time for the ECB to step back and let the market do its job
- ECB's plan is for Asset Purchase Programme (APP) to run until at least September. But Draghi is under pressure to provide some guidance about whether September will be a hard stop or if purchases will continue.
- The eurozone still needs very low interest rates. Inflation is still close to 1% and unemployment outside Germany is still well above pre-crisis levels. There is slack for the eurozone to absorb before the ECB can be confident inflation will return to target.
- It's less clear whether it should still continue quantitative easing (QE).
- Investors dread the end of QE. If markets went up with QE, inevitably they must come down without it. However, central banks are not allowed to pick winners and losers.
- Sometimes short-term market pain is needed for long-term economic gain.
- 'Bond vigilantes' are an essential element for a thriving economy. (A bond investor who protests monetary or fiscal policies they consider inflationary, by selling bonds - therefore increasing yields).
- Sensible governments need the threat of rising bond yields to keep populist parties at bay. Italian mainstream parties would have fared better in the election if they had been able to show the electorate that lower taxes promised by populist parties would be offset by higher borrowing costs and higher taxes.
- We also need market forces to prevail in corporate bonds. Management teams need to be accurately incentivised to overcome the productivity issue and zombie companies must be cleared out.
Time to kiss easy money goodbye? Five questions for the ECB
- What will the ECB do on Thursday?
- If not June, when will the ECB's policy shift come?
- Could the ECB still extend stimulus if it wanted to?
- How could Italy impact the ECB's exit plans for QE?
- Will the ECB declare victory over inflation?
Banks' use of AI, blockchain, cloud is systemic risk, warns industry
- A new research paper from industry lobby group shows rising use of AI, cloud technologies and blockchain challenge traditional notions of risk and risk management.
- Regulators already force banks to hold more capital if they're exposed to greater risk. Increased use of cloud-based data storage and experimental applications of AI and blockchain could constitute higher risk.
- Technology advancement accelerates the speed at which risks can spread across financial system, e.g. 2010 Flash Crash was triggered by an automated algo trade, leading to a 10% fall in minutes.
- There's an increased concentration of power in providers like Amazon Web Services, Google and Microsoft. Any of these companies may decide to launch a financial service of their own, based on their knowledge of banks and their platforms.
Shock manufacturing slide casts doubt on UK economy's bounceback
- British factories had the worst month since 2012.
- This suggests that the economy's weak start to 2018 has persisted.
- Britain also posted the biggest trade deficit since September 2016.
- The low reading raises questions as to the likelihood of a rate increase in August since the Bank of England are looking for evidence that the economy is on a firmer footing before raising rates.
- The low numbers could show lack of confidence across the industry due to trade concerns.
The Fed has a surprise in store that could mean an early end to interest rate hikes
- Instead of reducing the balance sheet from its peak of $4.5 trillion to $2.5 trillion, the impact could be far less depending on how tight financial markets get.
- The balance sheet reduction has proceeded with minimal market disruptions, but much work remains ahead for the central bank.
- FOMC officials are concerned that the funds rate is rising a bit quicker than anticipated, causing a tightening in money markets that would make a more aggressive unwind of the balance sheet problematic.
- Closing the roll-off program earlier than expected would be consistent with a growing sense at the Fed that it is nearing the end of this rate-hiking cycle.
- The policymaking FOMC has hiked the benchmark rate six times starting in December 2015, and is indicating two more hikes this year and three the next. However, with inflation remaining muted, some members believe the funds rate won't need to go much further.
- The balance sheet rundown will be done "by the middle of next year," Crandall said. "That's optimistic on my part, but I don't think that's unrealistic."
Donald Trump accuses India of charging 100% tariff, says trade might stop
- Trump accused New Delhi of charging 100 per cent tariff on some of the US goods, as he threatened to cut trade ties with countries who are 'robbing' America.
- The reference to India indicates the tariffs are not restricted to the developed economies alone.
- Trump has threatened to increase the import tariff on "thousands and thousands" of Indian motorcycles to the US.
- His administration has asked New Delhi to lower its trade barriers and open up its market.