Central banks / bond markets

The politicisation of central banks

Growing hope for even cheaper money and a further decline in central bank interest rates is apparent in the capital market. It has been evident again for some time now that bond yields are falling and risk-bearing assets, such as equities and corporate bonds, are increasing. With the appointment of Christine Lagarde as successor to ECB president Mario Draghi, we can expect a loose monetary policy to continue even after the Draghi era comes to an end. With Ms Lagarde, a lawyer is now taking the helm at the ECB, as is already the case with the US Federal Reserve. The politicisation of central banks is therefore being consistently pursued. This development does not come as any great surprise: thanks to the central banks’ willingness to act even in the extreme areas of monetary policy, central bank policy has become very relevant for the governments. It remains to been seen…

President Erdogan – always good for negative surprises

In a completely unexpected move, Turkish President Erdogan has discharged Murat Cetinkaya from the office of governor of the central bank. His deputy Murat Uysal is now expected to assume the position in the future. The background to the decision is the dispute about the adequate orientation of the central bank’s monetary policy, which Erdogan views as being much too restrictive. This opinion is based on the president’s confused economic view that high key interest rates lead to high inflation. According to media reports, the president is said to have clarified that he will not accept any other opinion from either the ranks of the government or of the central bank. Erdogan appears to have very successfully suppressed the fact that Cetinkaya helped to significantly ease the situation with a marked increase in key interest rates to 24% in September, thus stabilising the lira with the effect that price pressure…

Bank of Japan Tankan index hits three-year low

The Bank of Japan’s quarterly sentiment index has weakened again recently, falling by 5 points for large and export-orientated industrial companies in the second quarter, and reaching a three-year low of only +7 points. This important index, with readings ranging from -100 to +100, is now close to showing a balance between optimistic and pessimistic responses from the companies surveyed. Conversely, assessments from large companies in the services sector which are geared more to the domestic market have improved slightly recently, up from 21 to 23 points. The Tankan has recently slipped down from 12 to 10 points for all companies (all sectors and size categories). Sentiment at large Japanese manufacturing companies consequently showed an above-average deterioration in the second quarter. Concerns about the current and future business climate are also understandable given the uncertainty and the real impact of the US/China trade dispute. Some good news did nevertheless emerge…

The world after the G20

At the recent G20 summit, US President Trump and his colleagues once again spared us a catastrophe through their heroic conduct. Or such at least has been the press narrative built up very skilfully and effectively (particularly by the US) for the last few weeks. The problems that needed to be solved were actually created by the heads of government themselves beforehand – yet the G20 summit is viewed as a success. One undoubtedly positive aspect is that there was no major spat at the G20 meeting, while the countries involved also managed to come up with a final declaration – a little humility at least. The commitment to environmental targets is also a positive and necessary thing, but unfortunately the US was ultimately not willing to play ball here. The agreement between the US and China to resume negotiations on economic cooperation, and the announcements by President Trump that…

ECB: Battle over Draghi’s successor fully joined

The eight-year tenure of ECB President Mario Draghi will come to an end in late October, and it remains unclear who will succeed the Italian in the top ECB job. But irrespective of who ultimately takes over the ECB reins in November, we are anticipating a continuation of the current ultra-expansionary monetary policy. Why? Because the direction of monetary policy of the Eurozone’s central bank is not set by the President alone, but by the Governing Council as a whole. In other words, even the staunchest monetary policy hawk would not be able to bring about any immediate change in direction. However, the next few weeks will involve not just a search for a successor to ECB President Draghi, but also a replacement for EU Commission President Jean-Claude Juncker, who is likewise nearing the end of his term. According to an unwritten rule, these two key EU positions should not…

Why such actionist behaviour on the part of the ECB?

ECB President Mario Draghi has put the ECB under enormous pressure to act on Tuesday with an announcement that has come as a complete surprise and is in my opinion economically incomprehensible: he said that the ECB was considering further monetary stimuli if inflation failed to pick up and there were no signs of economic improvement in the coming weeks. In a move most unusual for a central bank, Draghi has explicitly demanded an improvement in the economic situation and higher inflation expectations. This of course means that the current situation has taken the ECB by surprise, or that actions in recent weeks have been too hesitant. A further interest rate cut was explicitly announced and – if this were to prove insufficient – another asset purchasing programme. In purely formal terms, the new monetary orientation might have been prompted by the visible decline in inflation expectations, and, in particular,…

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