With markets on the move, big things are happening.
Big Things Are Happening
February 6 (King World News) – Peter Boockvar: As expected and part of the trade deal, the Chinese are following the US move of cutting the tariff rate in half on some imports by doing the same on our exports to them. While this was part of the deal, it’s not all out of the goodness of the Chinese heart as its reducing import tariffs on crude oil, soybeans, pork, beef and chicken. Everything they desperately need. Stocks are of course up but because this was expected, Treasury yields are actually lower.
There was self reflection from some ECB members (and an ex one too) today on the limits they now face because they’ve already spent so much emergency policy over the years on nonsensically wanting to generate higher inflation. The previous chief economist Peter Praet said:
“What worries me probably more, the sort of perception you know especially in financial markets, that central banks always have to react. Every time you get a shock in the system you get high expectations of a reaction of the central bank that’s quickly incorporated in market expectations. But there’s only so much a central bank can do.”
With respect to the damage done to bank profitability from NIRP, ECB Vice President Luis de Guindos today said that the negative side effects of NIRP and QE are becoming “more tangible” and that “These weak profitability prospects represent a significant vulnerability for the euro area banking system, which is operating with significant overcapacity.” So at least some recognition that maybe current policy is restrictive rather than accommodative…
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Lastly, from the President herself, Lagarde said:
“This low interest rate and low inflation environment has significantly reduced the scope for the ECB and other central banks worldwide to ease monetary policy in the face of an economic downturn.”
Central Bankers
I’ve argued a million times that central bankers are tone deaf in thinking that a higher inflation rate is a good thing because I believe it slows economic growth, reduces real wages and would raise interest rates in a debt dependent economy. To those Fed members in particular that want it, please read this, https://s2.q4cdn.com/437609071/files/doc_news/research/2019/financial-disruptions-survey.pdf. It is TD Ameritrade’s Financial Disruptions Survey and to the question “Which of the following disruptors do you consider a threat to your financial security and long term investing?” the NUMBER ONE worry is an INCREASED COST OF LIVING where 47% cited that.
While hopes have grown that the global manufacturing sector is showing signs of stabilization (but with now the unknown impact of the virus), the December German factory orders number said the hard data evidence will have to come in 2020. Orders fell 2.1% m/o/m rather than rising .6% as expected, partially offset by a 5 tenths upward revision to November. Orders were particularly weak within the Eurozone, falling by 14% while domestic orders and non Eurozone orders rose. The Economy Ministry said simply “Overall, the outlook for the industrial economy remains subdued.” While the virus will go away in a few months hopefully, supply chains are getting shut down in the meantime and China is Germany’s largest trading partner and the source of many parts for their auto factories. Notwithstanding the weakness, the euro is unchanged at exactly $1.10 while the 10 yr bund yield is unchanged but the DAX is rallying with every other equity market.
KWN has just released an audio interview!
Gerald Celente discusses China shutting down entire cities and industries and quarantining and rounding up people. To listen CLICK HERE OR ON THE IMAGE BELOW.
Gold & Silver
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