Category: Economics

Labor Economist and Fed Chair Yellen Should Like the Jobs Data


After another soggy Asian session, European markets have begun on a firm note, and US shares are trading broadly higher in Europe as well.  Led by the beleaguered financial shares, and healthcare, the Dow Jones Stoxx 600 is up 2%.  Similarly, the peripheral bonds, including Portugal (though not Greece) are seeing a reprieve from the recent selling.  Spanish and Italian 10-year benchmark bonds are off 5-6 bp while the Portuguese yield is off 10 bp.  The yield on JGBS, bunds, gilts and Treasuries are 2-5 bp firmer.

Sunnylands Summit Especially Meaningful to US Influence in Asia


Can America preserve the US-led regional order by resisting China’s challenge to replace it with ‘a new model of great-power relations’? A lot depends on how much support the United States can expect from its friends and allies in the region. That is why President Obama has invited ASEAN leaders to a special summit at Sunnylands in California next week.

Returning to the Fed’s Transitory Dollar Effect Argument


Investors and policymakers continue to wrestle with the economic impact of the dollar’s rise.  The Federal Reserve has argued that the dollar’s appreciation acts as a headwind on exports and dampens imported inflation.  At the same time, despite the dollar’s appreciation and the fall in oil prices, core inflation rose steadily last year.

Core CPI rose from 1.6% at the end of 2014 to 2.1% at the end of 2015.  The core PCE deflator lagged, but the after bottoming last July below 1.26%, it finished the year near 1.41%.

Japan, Iran Enter Into Investment Treaty, $10 Billion Debt Guarantee


Japan and Iran have entered into a bilateral investment treaty and an agreement for a $10 billion debt guarantee for Iran. The move could create an enormous inflow of Japanese investment in the Middle Eastern nation. The Japanese Ministry of Economy, Trade, and Industry and Japan’s Minister for Foreign Affairs, Fumio Kishida, approved the agreement.

These officials welcomed the signing of the investment treaty, and feel the $10 billion debt guarantee will allow Japanese companies to invest without significant risk.

What if Paying Someone to Borrow Money Doesn’t Work?


This winter has been relatively mild in Japan, but at least in financial markets, it is sub-zero. Governor Haruhiko Kuroda of the Bank of Japan (BoJ) announced on 29 January that the BoJ would apply a negative interest rate of minus 0.1 percent to deposits that financial institutions hold at the Bank, starting from 16 February.

Anguish, Opportunity and Trade Agreements


At the last Asia Pacific Economic Cooperation (APEC) Summit in November 2015, the United States and China advanced their own set of interests with respect to trade agreements in the Asia-Pacific region. While the United States celebrated the conclusion of its Trans-Pacific Partnership (TPP) deal in early October 2015, China stressed the potential of a Free Trade Area of Asia-Pacific (FTAAP).

When did Negative Interest Rates become a Thing?


In many ways, the world has turned upside down.  It is not just central banks that have set policy rates below zero, but the entire German curve out through eight years have negative yields.  Japan, which has the largest debt burden relative to GDP, has negative yields out through nine years.  The Swiss curve is negative through 15 years.  

Eastern Europe’s Geopolitics Goes Underappreciated


The great British geographer Halford Mackinder invented the term “geopolitics” over 100 years ago. He painted a grand vision of international relations that revolved around one fear: dominance of what he called the “Heartland” of Eurasia. Mackinder believed the road to dominance ran through Eastern Europe. His ideas have remained influential ever since, for as long as the West has concerned itself about the impact of Eurasia on world affairs.

The Dollar Slips and Data from Japan Starts the Week


Many markets are closed in Asia, and although Tokyo managed posted equity gain, most other markets in the region that were open fell.  In addition, the selling pace picked up in Europe.  The Dow Jones Stoxx 600 is off 2.3%, led by information technology, industrials, and consumer discretionary.  It is trading at new lows since late 2014.   It is the sixth consecutive losing session, which is the longest such streak in seven months. 

Maybe not Recession-bound, but the Energy Sector is not Helping


With many equity markets having fallen 20% from their peaks, meeting a common definition of a bear market, investors, analysts, and journalists understandably seek a narrative that gives it meaning.  At the very start of the year, the culprit singled out was drop in Chinese shares and the yuan.  However, the yuan has stabilized as the PBOC drew down another $100 bln of reserves in January to help ease the pressure what appears to at least in part be a speculative attack by hedge funds (who conclude the yuan is overvalued).