Central Banks

Euro weakness forces itself on ECB’s agenda

12 Jul 2022

The single currency is nearing parity with the dollar for the first time in 20 years. It’s due to the U.S. economy’s strength and fears of a continental gas crisis. It also reflects the European Central Bank’s late response to inflation, which a weak euro makes harder to fight.

China’s rural bank scandal has $300 bln tail risk

12 Jul 2022

Authorities in Henan province will finally cover customer deposits caught up in a possible fraud tied to third-party apps. It’s a cautionary tale for the 1,600-odd village banks that lend to small businesses, are most exposed if GDP tanks, and receive less regulatory oversight.

Raging crisis puts Sri Lanka’s creditors on spot

11 Jul 2022

Protesters are forcing out the president after petrol pumps ran dry. It removes one obstacle to an IMF rescue. Now bondholders need to swallow big losses on Colombo’s $50 bln of foreign debt. An ugly global economy means citizens and lenders face a long, hard road to recovery.

Review: A timely warning of central bank folly

8 Jul 2022

Were 15 years of ultra-low interest rates a miracle cure for the world economy or an epochal mistake? Edward Chancellor’s “The Price of Time” makes a strong case for the latter view. As policymakers hike rates to combat resurgent inflation, fixing the error involves large risks.

Hong Kong banks are slow to gain from rate rises

7 Jul 2022

The Asian hub must track the Fed’s rate hikes to preserve its currency peg, but commercial lenders can’t follow so quickly. That reflects China’s weak growth and long term, the awkwardness of the 39-year-old system. Near term, it’s a profit drag for HSBC and Standard Chartered.

Italy starts countdown to risky life after Draghi

5 Jul 2022

The 5-Star party may bring down Mario Draghi’s coalition government. A crisis would hurt growth and raise the chances of a less EU-friendly executive. Worse, market jitters due to rising political uncertainty may complicate the European Central Bank’s efforts to tame bond yields.

Capital Calls: EU bank windfalls

4 Jul 2022

Concise views on global finance: The European Central Bank is worried banks will pocket a windfall on special loans when it starts raising rates. But deciding whether the bonanza is too big is a political choice.

Capital Calls: Russian default, Inflation and debt

27 Jun 2022

Concise views on global finance: Moscow defaulted on its foreign debt for the first time in over 100 years, leaving bondholders in limbo; the Bank for International Settlements wants rates raised “quickly and decisively”, but is also worried about higher borrowing costs.

Job losses add turbulence to Fed’s softish landing

24 Jun 2022

The central bank reckons taming inflation means doubling interest rates and unemployment rising to 4.1% in 2024. Yet it expects GDP to keep growing despite the loss of about 1 mln jobs. Even if the Fed is right, the risk is that cooling consumer confidence squashes growth.

Investors need to learn to ride inflation cycle

23 Jun 2022

Bonds and shares are tumbling as prices soar, just as in the 1970s. The experience of that decade suggests value stocks, commodities and safe-haven currencies offer the best protection, says Edward Chancellor. But wild swings in inflation can still catch markets off-guard.

Capital Calls: Revlon, Bank of England

16 Jun 2022

Concise views on global finance: The makeup company filed for bankruptcy but its lasting contribution to financial history was a ruling that boards must maximize value; the UK central bank keeps concerns about runaway prices in check with a modest hike in borrowing costs.

Central bankers forget the lessons of the 1970s

16 Jun 2022

Inflation is complex, yet all sustained increases in prices have been accompanied by an expanding money supply. The Federal Reserve and other central banks ignored this the last time inflation took off, writes Edward Chancellor. There’s no sign they are learning any faster today.

ECB’s crisis weapon pledge is vague and late

15 Jun 2022

The European Central Bank will “accelerate” work on a new tool to control soaring bond yields from weak sovereigns. The lack of detail reflects divisions within the bank on when and how to use such a programme. It’s an invitation to markets to test the ECB’s resolve yet again.

Central banks still have space to fight inflation

15 Jun 2022

Jerome Powell and Christine Lagarde are tightening monetary policy to try to control soaring prices. Previous shocks have prompted the Fed and ECB chiefs to pause or loosen again. Despite plunging equity prices this time, calmer credit markets imply the “Fed Put” is far off.

Crashing yen disturbs Haruhiko Kuroda’s zen

15 Jun 2022

Japan’s currency is at its weakest against the U.S. dollar since 1998 and bond traders are revolting. It disrupts the central bank governor’s meditations on the mystical balance between growth, public debt and near-zero rates. Stagflation risk suggests a new mantra is warranted.

UK lacks fiscal plan to buffer coming slowdown

13 Jun 2022

GDP has shrunk for two consecutive months while growth and inflation forecasts are the worst in the OECD. The Bank of England is fighting runaway inflation with ever-higher rates. As Brexit exerts an additional drag, the government needs a bolder approach to spending.

ECB’s farewell to QE may prove premature

8 Jun 2022

The European Central Bank may on Thursday confirm plans to end its 3 trln euro asset purchase programme and raise rates in July. Weaker economies’ borrowing costs are already soaring. A mere hint that bond-buying could resume if yields jump may not be enough to keep markets calm.

Consumers are the next transitory guessing game

27 May 2022

Central bankers and investors spent months debating whether inflation was here to stay. Now that mystery applies to the financial state of Americans, who are glum about the economy but still spending. It’s a problem for the Fed, but consumers might just have staying power.

U.S. sanctions give Russia default it doesn’t need

25 May 2022

The Treasury won’t let Moscow pay U.S. bondholders, tipping it into default. The move further isolates Vladimir Putin but will have minimal impact. It’s a surreal twist given Russia can still pay its debts, while battlefield foe Ukraine urgently needs relief but isn’t getting it.

BoE pours cold water on bank global-warming panic

24 May 2022

The watchdog’s stress test showed UK lenders can weather a chaotic climate switch without a capital hit. For bank CEOs copping flak for funding polluters, it’s a let-off. The other lesson is that governments will get little help from financial regulators in greening the economy.