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Daily Agenda: Rate Cuts and the New Currency Wars
People’s Bank of China deploys reverse purchase agreements; Greece wants its say in any ECB quantitative easing action.
The Bank of Canada surprised markets yesterday with a rate cut. This move comes on the heels of a surprise rate cut January 15 by the Reserve Bank of India and the dramatic impact of the Swiss National Banks decision to drop its cap exchange rate on the euro, global investors have come to face a higher degree of macro uncertainty. Volatility fell sharply in equity and bond markets as this constant reassurance dampened fears to the point where even geopolitical jitters could not derail positive momentum. Now all bets appear to be off, however, as policymakers begin to take aggressive action to protect their own nations in the face of deflationary pressures. The apparently leaked details on the scope of the widely anticipated announcement from the European Central Bank today may have drawn a more muted reaction in bond markets in part because of this growing sense of doubt.
All eyes on the ECB.ECB president Mario Draghi is expected to announce a new sovereign bond purchase facility today. With forecasts for a buying spree of as much as 50 billion ($58.1 billion) per month, expectations are viewed as exceedingly high by many analysts. In a note to clients today, Michala Marcussen, global head of economics at Société Générale Corporate & Investment Banking in London, warned clients of the bank that the ECBs new plan of action is unlikely to be fully pari passu.
Greece seeks a seat at the QE table. In an interview today with German business daily Handelsblatt, Greek Finance minister Gikas Hardouvelis made it clear that his nation expects to participate in any quantitative easing program embarked on by the ECB. Hardouvelis also stated that political factors should not be used by the ECB in deciding how to allocate liquidity. A national election will be held in Greece on Sunday, with the leftist Syriza party poised to secure strong gains on an antiausterity platform.
PBOC takes action. For the first time in more than a year, the Peoples Bank of China deployed reverse purchase agreements, placing 50 billion yuan ($8 billion) of seven-day reverse repos into the financial system. The bank also rolled more than 269.5 billion yuan in existing three-month loans in an attempt to keep liquidity in local credit markets.
U.S. oil and jobless figures to be released. Consensus forecasts for weekly initial jobless claims call for a moderation to 300,000 newly unemployed after an unexpected spike for the week of January 10. Separately, crude oil and natural gas storage figures from the Energy Information Administration will both be released today because of the truncated holiday week. Despite the move by some producers to curb capacity, crude oil storage levels remain near historic highs.
Starbucks reports earnings. Among the many corporate fourth-quarter earnings releases scheduled for today, the announcement by Starbucks after the market close will provide a signal to the restaurant sector about the impact of cheap gasoline on disposable income. The Seattleheadquartered coffee chain, which derives nearly half of its total revenues from sales made during the morning hours, has recently considered a set of new initiatives to boost afternoon and evening visits.