lunes, 1 de diciembre de 2014

lunes, diciembre 01, 2014
Tightening by superpower Fed trumps mini-stimulus in Europe and Asia

The world is already turning on its axis even before the Fed pulls the trigger, as if the QE era were a memory

By Ambrose Evans-Pritchard

10:48PM GMT 26 Nov 2014
.
One dollar bill notes pass through a printing press
Some $11 trillion of cross-border loans and bonds issued outside the US are denominated in dollars Photo: Getty Images
 
 
The apparent tsunami of stimulus from central banks in Asia and Europe is a mirage. The world's monetary authorities are on balance tightening. 
 
There may or may not be good reasons to buy equities at the current giddy heights, but reliance on the totemic powers and friendly intention of central banks should not be one of them.
 
The US Federal Reserve matters most in a financial world that still moves to the rhythm of the 10-year US Treasury bond, and still runs on a de facto dollar standard. More than 40 currencies have dollar pegs or "dirty floats", including China, joined to America's hip whether they like it or not.
 
Some $11 trillion of cross-border loans and bonds issued outside the US are denominated in dollars.

The US capital markets are still a colossal $59 trillion, more than the total for Europe and Japan combined. The Institute of International Finance says the impact of Fed action on capital flows to emerging markets is "twice as large" as moves by the European Central Bank.
 
The Fed can hardly put off rate rises for much longer as the US economy grows at a 3.9pc clip and the jobless rate drops to a six-year low of 5.8pc. The "quit rate" tracked by labour economists as a barometer of the jobs market is suddenly surging, a clear sign that slack is vanishing and wage pressures will soon rise.

The world is already turning on its axis even before the Fed pulls the trigger, as if the QE era were a memory. The dollar largesse that flooded the commodity nexus and drove the credit booms of Asia, Latin America and Africa is draining away. "The liquidity cycle is inflecting downwards. The odds of turbulence are rising," said CrossBorder Capital, which monitors global flows.
 
Fresh money creation in Japan, China and the eurozone would not offset a liquidity squeeze by the Fed in a symmetric fashion even if it were happening, but it is not in fact happening on anything like an equivalent scale, and may not do so for a long time. The "happy handover" scenario is wishful thinking.
 
China is tightening at a slower pace, but it is still tightening. The surprise rates cuts last week are less than meets the eye. The People's Bank of China (PBOC) regulates the level of credit in the economy through curbs on quantity, not by adjusting the cost of credit. These controls are still in place.
 
It is too early to conclude that President Xi Xinping has capitulated and ordered the PBOC to reflate, pushing the day of reckoning into the future once again. The balance of evidence is that Beijing is still attempting - with great difficulty - to deflate China's $26 trillion credit boom before it turns into a national tragedy.
 
Fixed asset investment dropped to a 13-year low in October. New credit fell to $108bn, down 24pc from a year earlier. Shadow banking is being suffocated. Bo Zhuang, from Trusted Sources, said new rules for off-balance sheet loans (bringing it under reserve ratio limits) amount to a $250bn squeeze for lending.



The rate cuts have a specific aim. They alleviate a fraction of the drastic tightening that has occurred automatically - "passively" in the jargon - as China slides towards deflation. Tao Wang, from UBS, said the real cost of borrowing for companies has spiked from zero to 5.5pc since 2011. The interest burden has doubled to 15pc of GDP.
 
The rate cuts may avert bankruptcies but they will not in themselves increase credit or the M2 supply. The commodity markets have discerned this. The copper rally has fizzled. The CRB commodity index has continued dropping. It is down for five months in a row, the first time this has happened since the 2008-2009 crash.
 
Japan is another story. The Bank of Japan is adding roughly $12bn a month to its asset purchases, beyond what is has already been doing for more than a year. This is certainly strong medicine for the domestic economy. Governor Haruhiko Kuroda is determined to lift nominal GDP growth to 5pc, the minimum required to stop Japan's debt from spiralling out of control. Good luck to him.
 
Yet the extra amount is hardly detectable compared with the net reduction of $85bn a month by the Fed as it shuts down QE. A smaller share of Japan's stimulus is leaking into global finance in any case because of the closed nature of the Japanese system. The greater effect for the rest of the world from Mr Kuroda's latest blitz may be a deflationary trade shock caused by a 12pc fall in the yen since August.



As for the European Central Bank, its actions never quite seem to catch up with rhetoric. The ECB's balance sheet is still sitting at €2.033 trillion. It has contracted by more than €150bn since early June when the bank first talked of reaching €3 trillion.
 
Mario Draghi is doing what he can against entrenched resistance, chipping away with "TLTRO" loans , and purchases of asset-backed securities, covered bonds and probably corporate bonds next week. Yet the pace is painfully slow. The net increase of securities last week was €400m.
 
Vice-president Vitor Constancio made clear that the ECB is preparing escalate to sovereign bonds, but not yet. “During the first quarter of next year we will be able to gauge better,” he said.
 
At each meeting, the ECB's governing council issues a statement showing unanimous support for further measures "if needed", but nobody knows what this means, or when, or on what scale. The balance sheet mantra is "towards" €1 trillion, but not actually €1 trillion. It is an "expectation" not a target.
 
It is always the same elusive language, and always for the same reason: Germany is not yet on board. Bundesbank chief Jens Weidmann repeated again this week that the debate is "intense" and that there are "high legal hurdles" to sovereign QE.
 
The ECB's Latin bloc and its allies can of course outvote the Teutonic core - and I have long argued that they should do exactly that - but the risk of doing so is to engender a surge of support for the AfD anti-euro party in Germany, enrage the Bavarian Social Christians (CSU) among others, and undermine German political consent for monetary union.
 
Eurosceptic professors are ready to launch a fresh case at the German constitutional court as soon as full-blown QE is launched, arguing that the scale of full QE amounts to fiscal policy by the back door, in violation of the budgetary sovereignty of the German parliament. They are right, of course, and comments by chief justice Andreas Vosskuhle suggest that Karlsruhe would take such arguments very seriously.
 
Some had been praying that Germany would at least do Europe a favour by sliding into deep recession, forcing the Bundesbank's hand. They are likely to be disappointed. The IFO index is rebounding. German exports are recovering.
 
This divergence between the interests of Germany and southern Europe may get worse rather than better over coming months as the euro weakens. Germany has a much higher trade gearing than France, Italy or Spain, and sells a much higher share of exports (50pc) outside the eurozone. Devaluation is acting as an asymmetric stimulus for the country that needs it least.
 
JP Morgan expects German growth to reach a 2pc rate in the first half of 2015, with domestic inflation running 1.7pc later in the year. It is hard to imagine that the German authorities will tolerate full-blown QE - with all its legal and political risks - when its own economy appears to be recovering anyway. Mr Draghi must walk through a political minefield.
 
So we have a hiatus.The Fed has turned off the liquidity spigot, and the rising dollar is pre-emptively tightening policy for half the world. Europe chiefly excels in cacophony. So if you hate QE, your moment is here. Outside Japan there isn't any. Enjoy the drought.
 

0 comments:

Publicar un comentario