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Citi On Why Negative Rates Are Like Potato Chips: “No One Can Have Just One”
Citi On Why Negative Rates Are Like Potato Chips: “No One Can Have Just One”
Now that Japan has let the negative rates genie out of the bottle, or as DB put it, ‘opened the Pandora’s Box‘ and in the process unleashed the latest global “silent bank run” and capital flight, prepare to hear a whole lot more about NIRP in the coming weeks because as Citi’s Steven Englander put it, “Why are Negative Rates like Potato Chips? No one can have just one.”
This is what else Englander said:
You can admire the policy boldness of the BoJ move into negative rates, and recognise its powerful asset market effects – positive for equities and negative for JPY. Experience in other countries that have entered into this territory should sober you up on the likely economic and inflation impact. No country that has gone into negative rates has experienced major shifts in its growth and inflation profile – minor, yes; major, no. As a consequence every dip into negative rates has been followed by additional moves.
Negative rates are a powerful inducement for cash to leave the banking system, but there is little evidence that investors take the cash and build steel plants with it. They buy foreign and financial assets, which is probably more than enough for the BoJ.
Some further thoughts from Citi’s FX desk, and why the BOJ ultimately shot itself, and other central banks, in the foot:
As the dust settles on the BoJ reaction, USDJPY is somewhat higher and risk currencies have begun to rebound following an initial dip. However, the price action has not been one-sided. Partly this seems to reflect the tendency of many investors to dismiss the rate move as diluted given its tiered implementation. Of the investors I have spoken to since the decision, a significant majority were inclined to poke holes in the decision.
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Bob Janjuah Warns The Bubble Implosion Can’t Be “Fixed” This Time
Bob Janjuah Warns The Bubble Implosion Can’t Be “Fixed” This Time
As Janjuah said in September (excerpted):
I believe there is more weakness ahead – both fundamentally and within markets – over Q4 and perhaps into Q1 2016.
I repeat my view that the Fed does not need to hike based on fundamentals, but I would not be at all surprised to see the Fed hike in late 2015, in an attempt to convince markets that strong growth and inflation are on their way back. Any such hiking cycle by the Fed would I believe be extremely short-lived and quickly give way to renewed dovishness.While I think a US recession is merely possible rather than probable, the evidence is growing in my view that a global recession is more probable than possible.
Where is the Fed “put”, and what would such a “put” look like? It is very early in the process and lots will depend on global policy responses and data outcomes, but I am happy to declare my view: the next Fed “put” is not likely until the S&P 500 is trading in the 1500s at least (so more likely to be a Q1 2016 item rather than Q4 2015); and in terms of what the Fed could do, clearly QE4 has to be in the Fed’s toolkit.
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