Central Banks

Curbing German exceptionalism has political price

11 May 2020

A national court’s ruling on ECB asset buying has challenged the primacy of EU law. If politicians can’t defuse the stand-off, Brussels will have to take legal action against Europe’s paymaster. The fiasco is likely to give Euroscepticism across the continent a boost.

China’s soft power will be hardened by the virus

8 May 2020

Even before Covid-19 emerged in Wuhan, partners were rethinking economic and diplomatic ties. Rising foreign criticism is sharpening attitudes in China. And Western disarray is emboldening Beijing. Restraining China’s influence will be the geopolitical struggle of the decade.

Turkey’s policy sins will be visited on companies

7 May 2020

The lira fell to a record low against the dollar. The central bank set interest rates too low in the past, then depleted FX reserves to limit the exchange-rate damage. Its war chest is too small to prevent further depreciation. Disaster looms for firms with foreign-currency debt.

Andrew Bailey will have the UK bond market’s back

7 May 2020

The Bank of England boss expects a big drop in GDP this year. His asset purchases have pushed down gilt yields despite surging public debt issuance. Investors can count on Bailey to ramp up the buying programme given how long the economy will take to recover from the virus.

ECB firefighters can circumvent German roadblock

5 May 2020

A ruling by Teutonic judges challenged the European Central Bank’s long-standing efforts to use bond buying to stimulate the euro zone economy. Inventive rate-setters will find ways to plough on to achieve their aims. But it’s a very German way to test their independence.

Warren Buffett may have met his match: the Fed

4 May 2020

For the unflappable billionaire, moving Berkshire Hathaway’s annual meeting online and suffering a $50 bln loss from stock swings are minor bumps. His bet-on-America philosophy faces a bigger challenge. Easy money does no favors for an insurance company with $130 bln of cash.

Poor-country central banks will go awry aping Fed

4 May 2020

Rate-setters from Indonesia to Hungary are copying Fed Chair Jay Powell by buying bonds. Others could well follow. That will curb borrowing costs at a time of rising public spending. But these policymakers run bigger inflation and credibility risks than their developed peers.

America could actually shirk its debts to China

3 May 2020

It would cause market chaos and give a clear reason to avoid the dollar. But Donald Trump would find it surprisingly easy to effectively renege on China’s $1.1 trln of U.S. Treasuries, using broad powers he already has. It’s only a matter of time before the idea gains traction.

ECB’s low inflation problem is worse than it looks

30 Apr 2020

Depressed energy costs meant euro zone consumer prices rose 0.4% in April from a year ago. But President Christine Lagarde may in reality be even further away from her just-below 2% goal. Statisticians’ efforts to fill data gaps during lockdown risk overstating price pressures.

Central bankers have more cards up their sleeves

29 Apr 2020

Fed Chair Jay Powell and his peers have fashioned new tools to fight the Covid-19 crisis. In future downturns, they could copy the BOJ’s stock buying and, in extremis, consider financing governments directly. Only surging inflation or overt political meddling will hold them back.

Corona Capital: U.S. GDP, Gilead’s drug, Spotify

29 Apr 2020

Concise views on the pandemic’s corporate and financial fallout: the U.S. economy takes a dive; Gilead’s antiviral drug may help a bit; and Spotify sings an upbeat tune.

Christine Lagarde will need an even bigger bazooka

29 Apr 2020

The ECB boss is snapping up so many bonds to keep Italian and other southern euro zone debt yields in check that she may soon have to augment the 750 billion euro purchase plan unveiled less than two months ago. The more she does, the more squabbling time she buys EU leaders.

China’s tough Luckin line faces deaf U.S. ears

29 Apr 2020

Authorities raided the embattled coffee chain’s office, partly to limit collateral damage from the accounting scandal. Beijing also may be trying to placate impatient U.S. regulators. It will take far more, though, to satisfy hawks demanding China Inc delistings and divestments.

Bank of Japan gifts Abe massive monetary backstop

27 Apr 2020

The central bank says it will buy unlimited government bonds to support a $990 bln stimulus package, plus ramp up purchases of other assets. That helps the prime minister hold off catastrophe, but the BOJ’s balance sheet is getting even more massive with no end in sight.

Crisis gives ECB cover to cast off rating shackles

22 Apr 2020

Central banks have historically steered clear of junk bonds. But the Federal Reserve’s move to buy debt rated below investment grade gives its European counterpart an excuse to follow. Moving swiftly would help it avoid a damaging crisis if the Italian government is downgraded.

India erects low wall against Chinese money

20 Apr 2020

Direct investment from the People’s Republic will now require special approval, potentially slowing technology development. Capital-hungry India has left the door open to buyers from elsewhere, however. Chinese funds will keep flowing in, but only where they’re welcome.

Chinese GDP is refreshingly, depressingly honest

17 Apr 2020

The economy shrank 6.8% last quarter, its first year-on-year contraction on record. The politicised indicator is usually one of the country’s least informative, but this one speaks volumes. It suggests Beijing is seriously rethinking its approach to economic guidance.

Virus forces Fed to clean up its own junk

13 Apr 2020

The U.S. central bank said it will buy bonds of some firms that lose investment-grade ratings. It’s a good compromise to avoid a high-yield market crunch. But companies binged on debt partly because of loose monetary policy. The Fed now risks distorting the price of credit.

Fed bridges over economic chasm lack destination

9 Apr 2020

With more than 15 mln unemployment claims in three weeks, the U.S. central bank is focused on the present. The latest expansion of its debt-buying capacity to $2.3 trln is a lifeline for many. It’s also probably not the last. There will inevitably be tolls to pay later.

Wells Fargo relief is one piece of bailout jigsaw

8 Apr 2020

The Fed is easing its cap on the bank’s growth so it can funnel more rescue loans to small U.S. businesses. It will help a few of the up to 30 million firms in dire Covid-19 straits, but there are plenty of other glitches to fix in the $350 billion-plus federal guarantee program.