On the heels of the Dow tumbling more than 1,000 points in another wild day of trading, look at what is happening with the Bank of England’s gold.
Gold Being Leased To Cover Shorts
March 11 (King World News) – Alasdair Macleod: Since the middle of last month 662 tonnes of paper gold has gone from Comex to London through Exchange for Physicals. Through the BoE gold is being leased to cover shorts. It’s book transactions because the gold never leaves the BoE’s vaults. That’s 12% of BoE’s vaulted gold.
Bank of England
Peter Boockvar: So the Bank of England not only cut interest rates by 50 bps to just above zero at .25% but they also surrounded it with direct steps to provide liquidity and funding to banks which hopefully in turn will help those businesses that need it. For the next year they will provide 4 yr term funding for small and medium sized businesses that could total up to 100b pounds at the base rate. They also said it was cutting the Counter Cyclical Capital Buffer for banks to zero from 1%. Previously they planned on raising that to 2% by year end.
This could unleash about 190b pounds of extra capital that banks could in turn lend to businesses. These moves are expected to be combined with an announcement possibly from the Chancellor of the Exchequer Rishi Sunak today on the fiscal side where they might let companies defer tax payments and could guarantee emergency loans for some. There also could be some spending plans announced today.
This is all about buying time and providing life boats for the economy until this virus goes away. The BoE said:
“Although the disruption arising from Covid-19 could be sharp and large, it should be temporary.”
And it will be but the economic pain in between is large and profound as we are all seeing real time…
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While the Fed just panicked last week telling us the 50 bps rate cut would ease financial conditions and help business and household confidence where the exact opposite happened, the BoE move combined with the other steps was at least well thought out it in terms of what left they have to do and can do. Thus, we should now expect similar Fed steps next week instead of just another knee jerk rate cut.
On hopes that this will help the UK economy in this time of challenge, the pound is higher as is the FTSE 100, and the yield curve is steepening with the 10 yr yield up by 6 bps after jumping by 8 bps yesterday which in turn is helping the bank stocks.
We’ll see what ECB head Lagarde will announce tomorrow when they meet. Cutting rates further below zero makes no sense and they are already doing QE. What we’ll likely see maybe instead is more targeted lending programs like the current TLTRO in order to get capital in the hands that need it.
“Embrace The Chaos”
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