Economics summary

At yesterday’s interest rate decision meeting, the ECB kept the interest rates unchanged at 0% for the refinancing rate and -0.4% on deposit rate, as expected by the financial markets. Mario Draghi had also indicated an announcement of a more expansive monetary policy on the next meeting in September. The reason the ECB was waiting with the rate cut was, according to Draghi, that the ECB would like to wait for the next economic projections, releasing in September, before taking any action. He also said that the decision to handle the current economic situation was complex and needed more preparation. This last statement indicated that a possible rate cut decision would be accompanied by new economic stimulus like another quantitative easing and changes in the ECB’s current liquidity system which could make banks pay less interest on their reserve in the Central Bank. On the question about the ECB’s constraints of the capital key and the issuer limit , the ECB didn’t discuss about...

In a speech at the Bank of France in Paris yesterday, the Fed’s Chair, Jerome Powell, gave clear signals of interest rate cut on the upcoming interest rate decision meeting. The financial markets had since June priced in a 100% probability of a rate cut on the July meeting. Yesterday’s speech in Paris was the last chance for Powell to correct those signals, but there were no signs of corrections. Powell said many of the FOMC members had argued for a more expansive monetary policy, thus confirming the signals for a rate cut. Even though the Fed had planned to make the monetary policy more expansive, didn’t imply that it believed the US economy had slowed down. Powell expected the economy to remain solid and the labor markets to stay strong and the inflation rate to raise to 2%. The Fed’s outreach events were mentioned, and that the Fed had received feedback that the economic recovery had reached many low and moderate income communities to a greater extent than it had been for deca...

Citigroup’s released earning report didn’t show anything out of the expectations. It had left the guidance for growth in net interest revenue unchanged at 4%, even with high probability of interest rate cut from the Fed. Citi had expected only one interest rate cut from the Central Bank, if there should be more than one rate cut this year, the growth guidance in net interest revenue would be quite affected. The financial markets are expecting weak company earnings from the past quarter, some are expecting earning recessions, classified by two quarters of weak company earnings. All of these should already have been priced in by the markets. Easy access to liquidity and with low yields had made it easier for Greece to return to the financial markets. It had in March auctioned and agreed to sell 2.5 billion euros of 10 years bonds with a yield of 3.9%.   This was the second   auction this year after the bailout from the EU. At the auction prior March, it offered for sal...

Economic indicators from China were released earlier today. The industrial production had increased, but the electricity production showed a weak growth. The fixed asset investments had increased, but investments in the manufacturing sector were still affected by the trade conflict with the US. Investments in the housing market were on the weaker side, but this was due to the tightening in regulations from the Chinese government to avoid an overheated housing market. Retail sales showed a small improvement. Overall, the economic growth in China is still not improved. The housing and manufacturing sectors are still weak, even with the Chinese’ government expansive fiscal policy. ECB’s monetary policy meeting accounts released last week showed that the members in the Governing Council were all agreed that they needed to be ready and prepared to ease the monetary policy further by adjusting all of its instruments , as appropriate, to achieve price stability. Potential measures were ...

The Managing Director of the IMF, Christine Lagarde was nominated to take over for Mario Draghi as the President of the European Central Bank. It was last night that the members of the European Council agreed on the future leaders of the EU, which also included Mario Draghi’s successor. There were already talks of Christine Lagarde becoming the next EU president, but many believed her lack of central bank experience and economic background made it less likely for her to be nominated. Even with no central bank experience, she still was considered to bring continuity in the monetary policy. She had been supportive of recent years expansive monetary policies, as well as believed that the implemented unconventional monetary policy such as quantitative easing was necessary. She had the experience from the eurozone debt crisis and had been overseeing the bailouts of Greece, Spain, Portugal and Argentina. These experiences would come in handy in a current polarized political landscape, and ...

Released Caixin manufacturing PMI from China fell below 50 in June. The index was also below 50 earlier this year, the PMI increased in March, which the financial markets thought was due to the  Chinese government’s economic measures taking effect. Though this might not be the case, the increase in PMI earlier this year might be due to the celebration of the Chinese new year of 2019, which had led to the manufacturing sector to lag on regaining the production. Once the manufacturing started again after the celebration, the regain was stronger than previous year. Chinese government’s economic measures this year were difference than the previous years. The measures this year had been more selective. There were tax cut and increase public spending, but the government still tightened on the housing market, like where the local banks were not allowed to cut the mortgage rate, as well as the government’s tightening on shadow banking regulations, and led to difficulty for the pr...

The weekend’s G20 meeting yielded positive results. The biggest news was that President Donald Trump crossed the border from South Korea into North Korea to greet with the country’s leader, Kim Jong-un. This was considered a symbolic milestone. President Trump had already tweeted to Kim about the greeting prior the G20 meeting. Trump was thus the first sitting US president that ever visited North Korea. Former presidents Jimmy Carter and Bill Clinton had also visited North Korea, but only after they left the office. More important for the financial markets was the meeting between President Trump and the Chinese President Xi Jinping. The meeting ended positively, and Trump confirmed after the meeting that the US would temporarily be postponing the implementation of tariff on 300 billion dollars’ worth of Chinese goods. He also indicated that the US companies would be permitted to resume sales to the Chinese telecommunications company, Huawei, and that the ban would only be for ite...