Tags: fed | rate | hike | markets

Fed Talking Heads Seek to Manipulate Markets' Rate Hopes

Fed Talking Heads Seek to Manipulate Markets' Rate Hopes
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Wednesday, 25 May 2016 07:50 AM Current | Bio | Archive

Greece, after having been receiving financial support from the Euro area Member States and the IMF to cope with its financial difficulties and economic challenges since May 2010, once again has gotten another typical Euro area compromise.

The new deal: a cash handout of 10.3 billion euros (about $11.5 billion) will be handed out, as expected, and the IMF has agreed that the debt-relief should be discussed by the end of the program in 2018 rather than before this payment.

Yes, the Euro area’s "kicking the can down the road" exercises seem getting more sophisticated by the day.

Anyway, the debt deal allows the tricky issue of next year’s elections in Germany, but also in the Netherlands, France and elsewhere to be neatly sidestepped.

Interestingly, in the debt deal there are no sums of money mentioned in terms of the debt relief and it is all subject to political approval.

What apparently counts is that at least the principal of debt relief has been broached and at least the latest payment is to be made with IMF participation.

It all removes the issue of Greece from the EU political agenda for now, and as the Euro area political agenda and indeed the wider EU political agenda are rather crowded, crossing off things off the urgent-to-do list could be not such a bad development after all, all things considered of course.

No matter what the people in Brussels, Athens and at the IMF say they are going to do, Greece will never be able to pay back its “bailout” debt that stands at 240 billion euros (about $267 billion) unless most, if not all debt is cancelled in some way or another.

Nevertheless, I’m afraid that in the end it will be the Euro area taxpayers that will pay that horrendous bill that is by the way still growing.

From Germany, which is important but, as too many investors err about, doesn’t represent the Euro area as a whole, we got the business confidence sentiment surveys from the Ifo institute. The surveys data strengthened more than expected in May with the Ifo Business Climate indicator rising to 107.7 in May from 106.6 in April while the current conditions index came in at 114.2, up from 113.2 in the prior month.

Yes, the domestic German economy is doing OK, although corporates have reason to complain about the currency.

Please take care, this is not because the euro is overvalued particularly because it’s not, but because the somewhat stronger euro or, maybe a little bit more accurately, the somewhat weaker dollar is constraining profits.

One should better not overlook the German producer price inflation (PPI) rate that stood at -3,1 percent (yes, negative) on a yearly basis and thus it is German profit margins and not volume of exports that are and will be further affected.

Economically this is not that important as the volume of exports is what matters to real GDP, but for financial markets things are a little different.

Today, we have a cluster of central bankers speaking from the Bank of England and the ECB that are all making appearances, but nothing much these guys can add to the mix all things considered.

The ECB itself is considered off the agenda until next week June 2 when we have the ECB Governing Council meeting’s decision on monetary policy and the press conference of ECB President Mr. Draghi that could become interesting.

In the UK, we see a certain sense of fatigue about the EU referendum in the UK.

However, with the Fed is a different matter; Fed Chair Yellen is scheduled to give a speech this Friday and within a couple of weeks we’ll have her press conference after the FOMC meeting, but in the meantime the desire to signal the possibility of a June rate hike seems to be strong.

In fact, the Fed has never ruled out a June rate hike, but given how far financial markets are from economic reality there is perhaps a desire to push that message more bluntly.

It is therefore perhaps not wise to take Fed members’ comments too literally, but instead see them as an attempt to move expectations in the markets.We'll see what today's Fed speakers will tell us.

Finally, the People’s Bank of China (PBoC) fixed today its currency the yuan at its weakest level since March 2011. Long-term investors could do well keeping an eye on it because if that weakening continues and by example the Japanese yen doesn’t weaken in the same proportions, there could be trouble brewing in the currency markets.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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Greece, after having been receiving financial support from the Euro area Member States and the IMF to cope with its financial difficulties and economic challenges since May 2010, once again, has gotten another typical Euro area compromise whereby was decided the latest cash...
fed, rate, hike, markets
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2016-50-25
Wednesday, 25 May 2016 07:50 AM
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