Another Day, Another
Slowdown Call For QE Divergence
“China’s economy grew at its slowest pace (alt) (7.4%) in almost a quarter of a century last year even as it overtook the US to become the world’s largest in purchasing power terms….as the world’s most populous nation approaches middle-income levels, its credit-fueled, investment-led growth model, with its reliance on low wages, polluting industries and real estate construction, is also running out of steam.” Meanwhile, the Economist says “the focus on the slowdown seems almost myopic.” They cite two reasons why “China’s growth also appears to be slowly becoming better balanced.” (1) Consumption and services have grown their share of GDP since 2013 (up 3% and 1.2% respectively), and (2) wages grew 8% last year, and rural incomes outpaced urban incomes (9.2% vs 6.8%). Meanwhile, in Europe: “Insiders expect a programme of sovereign-bond purchases of around €500 billion to be announced on Thursday. Anything less would be likely to disappoint markets that have already been anticipating a move by the ECB to adopt QE, causing, for example, the euro to weaken.” Also, Mario Draghi has said he is targeting a €3 trillion balance sheet with covered bonds and ABS purchases. The only problem with that is um…the market doesn’t exist? The market for sovereign bonds, however, is estimated at over €6 trillion. Meanwhile, “the International Monetary Fund lowered its forecast for global economic growth in 2015…projected at 3.5 percent for 2015 and 3.7 percent for 2016…The United States was the lone bright spot in an otherwise gloomy report for major economies, with its projected growth raised to 3.6 percent from 3.1 percent for 2015.” Jon Hilsenrath says “the world hasn’t seen an economic divergence like this since the mid-1990s, when growth in the U.S., Japan and Europe went in different directions.” Furthermore, “though recent developments in the economy and markets have caused some trepidation among Fed officials and, if sustained, could cause them to delay acting, several have indicated recently they still expect to move this year and are withholding judgment on delay.”
Vultures Feed Off Dodd-Frank’s Kill
“Wall Street banks struggling with recently defanged currency-trading desks have found a surprising ally: high-frequency traders…Regulations imposed in the aftermath of the financial crisis restricted banks’ ability to deal currencies on their own account, a practice known as proprietary — or prop — trading. That opened the door to co-operation with the HFT firms they once avoided…By working with the HFT firms, banks benefit from narrower gaps between buying and selling prices without having to reveal their trades in the wider market.” Meanwhile, do NOT take the other side of that trade.