Saturday, 14 March 2015

The Chinese have put out billboard ads announcing the renminbi as the new world currency


When I arrived to Bangkok the other day, coming down the motorway from the airport I saw a huge billboard—and it floored me.

The billboard was from the Bank of China. It said: “RMB: New Choice; The World Currency”

Given that the Bank of China is more than 70% owned by the government of the People’s Republic of China, I find this very significant.

It means that China is literally advertising its currency overseas, and it’s making sure that everyone landing at one of the world’s busiest airports sees it. They know that the future belongs to them and they’re flaunting it.

And it’s true. The renminbi’s importance in global trade and as a reserve currency is increasing exponentially, with renminbi trading hubs popping up all over the world, from Singapore to London to Luxembourg to Frankfurt to Toronto.

Multinational companies such as McDonald’s are now issuing bonds in renminbi, and even sovereign governments are issuing debt denominated in renminbi, including the UK.

Almost every major global player out there, be it governments or major multinationals, is positioning itself for the renminbi to become the dominant reserve currency.

But here’s the thing. Nothing goes up and down in a straight line. And China is in deep trouble right now. The economy is slowing down and the enormous debt bubble is starting to burst.

A lot of people, including the richest man in Asia, are starting to move their money out of the country.

So while the long-term trend is pretty clear – China becoming the dominant economic and financial superpower – the short-term is going to look incredibly rocky.

- Source, Sovereign Man

Sunday, 8 March 2015

ECB Will Cut Rates To Minus 3%: JP Morgan

A running theme here over the past several weeks has been that the ECB’s €1.1 trillion foray into quantitative easing will be severely hindered by a laundry list of constraints (some of which were unwittingly self-imposed). Another topic we’ve covered exhaustively is the idea that the world’s central banks will likely all, in relatively short order, run up against thenatural limits of accommodative monetary policy (indeed, even some Japanese policy makers are starting to agree on this).

Thinking about these two things in conjunction raises an interesting question for the ECB: if a tail event comes rearing its ugly head and the global central bank race to the bottom accelerates, will Mario Draghi, effectively fighting with one hand tied behind his back by virtue of Q€’s limitations, be able to fend off an outright collapse?

Here’s FT with more:
...the ECB is now close to running out of ammunition. The true constraints on further ECB intervention lie in the 25 per cent issue limit and 33 per cent issuer limit on its sovereign bond purchases.

Except for Greek debt, the 25 per cent and 33 per cent caps should not prove binding in a scenario where the ECB keeps its monthly asset purchase pace of €60bn.However, the limits could be reached in worst-case scenarios where the ECB would have to boost the size of its QE programme or implement OMTs targeted on specific sovereigns.

The first type of worst-case scenario would be a new global deflationary shock. It might be triggered by faltering US growth or a sharper-than-expected slowdown in China. The consequence would be fiercer currency wars with balance sheet expansion races among central banks.

In this competition, the ECB would be handicapped: it would not have much room to significantly increase the size of its bond purchase programme. For instance, if monthly purchases had to be raised to €100bn, the 25 per cent issue limit would be reached after only eight months in the case of German government debt.

Given the narrow size of the eurozone corporate bond market, any substantial further expansion of the asset purchase programme would then have to include equities. But this could prove controversial within the ECB governing council.

- Source, Zero Hedge, read more here

Thursday, 5 March 2015

Euro Slides, Futures Flat Ahead Of Mario Draghi's Press Conference And Q€ Cheat Sheet

It has been a while since we have seen the USDJPY rampathon push US equities higher, so in a day dominated by central banks (first the BOE momentarily), and then the ECB's much anticipated announcement of the actual QE launch at the Draghi press conference at 1:30pm CET (taking place, ironically enough, in the place that was the blueprint for the Eurozone's capital controls, Cyprus), it only makes sense that after weeks of stage fright, the USDJPY algos reminded the world they are alive and well, and proceeded to ramp the key FX pair above 120, even though the currency that everyone will be talking about today is the Euro, hugging 1.10 as of this moment, but the real question is what happens after Draghi gives the asset buying green light: has all of Q€ been priced in already in FX, and will the EURUSD resume its surge higher, or is parity next stop?

- Source, Zero Hedge, read more here