Unintended consequences

12 February, 2016

Yesterday’s session once again opened up the divisive world of currencies. With Fed rate hikes off the table, then that dynamic is no longer applicable for the market. It’s become a lot more about risk, but more specifically the inability of central banks to counter-act the instability and uncertainty we are seeing, whether through words, actions or deeds. Indeed, the question is to what extent they have contributed to the current round of volatility and uncertainty through policies of negative interest rates, which we’ve seen in Switzerland, Sweden, Japan and the Eurozone in various forms. As is often the case, there are negative and unintended consequences when you turn the world of finance upside down, as happens when you ask depositors to pay for the privilege for depositing funds with you.

The other issues in markets this week has been the further fall in banks stocks, together with the sell-off in CDS and also CoCo bonds. The irony is that such bonds were designed to act as a buffer between banks and governments, taking the strain through cancelled interest payment or, in extremis, conversion into equity, to avoid governments taking the pain and bond-holders sitting pretty (as happened in the global financial crisis). The irony is that the lack of liquidity in many markets (in part owing to banks pulling back from taking risk) has contributed to the cure becoming the thing that is killing the banks. Another example of the law of unintended consequences.

There has been little respite overnight, with the Nikkei down nearly 5%, although European equity markets are seeing some stability in early trade. The yen’s move below the 112.00 level has yet to be sustained. There is some scattered talk in the market of possible intervention on the yen from the BoJ, but this is just speculation, given the extent of the move seen and the likely internal disappointment and frustration that the move to negative rates last month proved to be so ineffective on the currency.


Source link  
Consumer Sentiment Index Close to Higher

US Fed Boston President Rosengren is due to deliver the keynote speech on the economic outlook, at the Greater Boston Chamber’s Economic Outlook Breakfast...

Chinese president soothes worries

With US Producer Prices data on the way this afternoon, and predicted to be largely as expected, the morning session will be dominated by central bankers...

Markets fall after more tariffs proposal

Friday's session is expected to be volatile, with Non-Farm Payrolls (13:30 UK Time) ahead and President Trump’s proposal for an additional $100B...


Korea gets exemption on steel tariffs

The US and South Korea have reached agreement on a Trade deal that comes with the added bonus for South Korea of a permanent exemption from...

EU Publishes List of Tariffs on US Goods

Over the weekend, the EU published a list of tariffs on US products in response to the US tariffs on Steel and Aluminium. The total value of EU tariffs...

Consumer Price Index and Housing Starts

Eurozone Consumer Price Index – Core (YoY) (Feb) will be released. The consensus points to an unchanged value of 1%. Consumer Price Index...


USD Weakens as Risk-Off Returns

Yesterday, the US announced Tariffs on Steel and Aluminium, which prompted an outcry from various global leaders and an acceleration in the...

Volume of data put US in focus

US Gross Domestic Product Annualized (Q4) was as expected at 2.5%, from 2.6% previously. Gross Domestic Product Price Index (Q4) was 2.3%...

Markets wait for new Fed chairman Powell

The ECB’s Coeure spoke in Frankfurt at a working group meeting regarding euro risk-free rates. He said that a reform of reference interest rate will...


In the past 24 hours Bitcoin has gained 1.83% and reached $8926.5. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has gained 0% and is now at $0. Start trading and making money on Forex today.

In the past 7 days Ethereum has gained 21.38% and is now at $632.543. Have the most popular cryptocurrencies compared online 24/7.


Top Brokers offering Daily Forex Market Reviews


Forex Currencies Forecasts


Top 10 Forex Brokers 2018

# Broker Review
1easyMarketseasyMarkets90%
2FXTMFXTM87%
3HYCMHYCM85%
4FxProFxPro84%
5FIBO GroupFIBO Group82%
6FXCMFXCM70%
7XMXM68%
8Fort Financial ServicesFort Financial Services67%
9Alfa-ForexAlfa-Forex66%
10HotForexHotForex66%
  


Share: