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Highlights
HILSENRATH'S TAKE: ROLE REVERSAL, AS CHINA EASES AND FED WAITS AT EXIT DOOR
My, how times have changed. China's central bank is launching unconventional monetary easing programs as the Federal Reserve readies for an exit from its own low interest rate policies. That backdrop shows how much the risks on the map have changed.
As my colleague Lingling Wei reports, the People's Bank of China will allow Chinese banks to swap local government bonds for loans as a way to bolster their liquidity and boost lending. The strategy--dubbed Pledged Supplementary Lending--is similar to the long-term refinancing operations, or LTROs, used by the European Central Bank.
It points to a fault line created by the credit boom that helped drive Chinese growth in recent years -- local-government debt. Borrowing by towns across China jumped nearly 50% from June 2013 and accounts for a quarter of the buildup in China's overall domestic debt since 2008. Now China's commercial banks have become hesitant about buying new local bonds and the PBOC is stepping in to bridge a funding gap.
This is evidence that China's economic slowdown is more serious than its official 7% growth objective implies. Moreover, the association with a credit buildup raises the risk of unforeseen financial shocks. World financial leaders believe Chinese officials have the know-how and resources to deal with such problems, but a credit bust can be a long and nasty thing.
Federal Reserve officials are all too familiar with such nastiness. It has been a decade since former Federal Reserve Chairman Alan Greenspan acknowledged froth in U.S. housing markets. Now Fed officials are waiting to get off the zero lower bound of interest rates, where they have been since 2008.
They begin a two-day policy meeting today that will likely by uneventful. First quarter growth was disappointing. They think it was temporary and associated with bad weather and port strikes. But they won't be ready to move rates up until they're sure. One issue that is certain to get some airing: Is the rest of the world ready for the Fed to move on from its own credit bust?
-By Jon Hilsenrath
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
Fed Regulation Has Insurers on Edge. The Federal Reserve, known for regulating the country's largest banks, has become a major overseer of insurance firms in a big shift for an industry long regulated by states. After years of delay in writing capital and other rules for the roughly one-third of the insurance industry it now oversees, the Fed is beginning to establish the new regulatory regime. The regulator is hiring new staff, training existing bank examiners to supervise insurance firms and seeking input from industry officials and state regulators about how to craft the rules and better understand insurance companies.The Fed's foray into overseeing insurers -- a power it gained in the 2010 Dodd-Frank financial law -- is prompting concern among insurance companies and state regulators, who worry the central bank will enact onerous capital rules and treat insurance firms like banks.
Get Ready For The First Fed Meeting In Six Years With No Firm Future Rate Guidance. When the Fed in March effectively ruled out any chance of a rate rise at this week's policy meeting, it drained much of the potential drama out of the gathering. But that view is a bit unfair, says Wrightson ICAP. The research firm says that gathering is a "watershed" for the Fed because it's the first time the central bank is offering no form of calendar-based guidance about rate rises, for the first time since March 2009. Wrightson ICAP says the Fed is now in a period of "controlled" uncertainty that's appropriate given the flux the economy is now in. By not offering much guidance about the outlook for rates, the firm says it could help keep markets from replaying the 2013 taper tantrum, and make monetary policy better calibrated to the economy's actual performance. --Dow Jones Newswires.
Some Investors Can't Wait for the Fed to Raise Rates. Steve Raatz is one investor rooting for the Federal Reserve to push up interest rates. Mr. Raatz, 59, said he and his wife are at the stage of their lives where they're trying to avoid the extreme ups and downs that can come with owning stocks. Like many people nearing retirement, the couple, who live in Dallas, would rather put more money in steadier investments such as municipal or corporate bonds.
China Readies Fresh Easing to Tackle Specter of Debt. China's central bank is planning to launch its own version of innovative credit-easing programs adopted by its counterparts in developed countries, according to officials with knowledge of the matter, as Beijing's flagship plan to restructure trillions of dollars of local-government debts is hitting snags.
Traders Think BOJ Won't Act, But They're on Guard Anyway. Tokyo share prices are at a 15-year high and the economy appears to be slowly shaking off last year's recession, but traders in financial markets are still on high alert over the Bank of Japan's policy board meeting Thursday.
Stark Thinks ECB Will Hit Its Balance Sheet Goal. Former European Central Bank chief economist Juergen Stark is himself not a fan of the ECB's bond-buying program, but he thinks that the central bank will carry it through to the end. He also said that an exit of Greece from the currency zone would be economically feasible, but he questioned whether this outcome was geopolitically desired. --Dow Jones Newswires.
Israeli Central Bank Leaves Interest Rate Unchanged. The Bank of Israel said Monday it would leave the benchmark interest rate unchanged at its record low level of 0.1%. Israel's annual inflation has been running in negative territory since September but the bank cited steady economic growth and raised expectations for global growth as reasons for not undertaking further action to counter the deflation ---Dow Jones Newswires.
Norges Bank Governor Says Tighter Banking Rules May Not Avert Crises. Tighter banking rules may not be enough to avert financial crises, the head of Norway's central bank said Monday. Norges Bank Governor Oystein Olsen said in a speech in London that central banks should be prepared to raise interest rates to safeguard financial stability and shouldn't rely solely on newer "macroprudential" policies aimed at curbing credit growth.
Polish Central Banker Says Rates Can Stay Unchanged for Long. Poland's main interest rate may remain at 1.5%, the lowest level on record, for a prolonged period of time because the country's economic prospects are good, rate-setter Jerzy Hausner told The Wall Street Journal in an interview.
RBA's Stevens: Australia Faces 'Nontrivial' Challenge on Retirement Incomes. Australia's central bank governor said generating sufficient retirement income in a world of chronically low yields on long-term assets like bonds will be a "nontrivial" challenge for local markets. "The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low?" Reserve Bank of Australia Gov. Glenn Stevens told a wealth management conference--Dow Jones Newswires.
Russia's Putin Reiterates Support for Central Bank Actions -- Interfax. Russian President Vladimir Putin on Monday reiterated his support for the central bank's actions during the crisis, Interfax news agency reported. Mr. Putin said he supported the actions of the country's central bank that allowed the ruble to float freely late last year amid a slump in oil prices and western sanctions, calling it "the only economically sound way" to balance the economic situation in the country at the time--Dow Jones Newswires.
Bank of Russia Opposes Forex Restrictions.The Bank of Russia said late Monday that it opposes any restrictions on using foreign currencies in Russia, addressing earlier calls from the country's security council. The inter-agencies commission of the Security Council of Russia had told the central bank and the government to work on boosting the ruble's role in international payments, while limiting the usage of foreign currencies "on the territory of the Russian Federation."--Dow Jones Newswires.
GRAPHIC CONTENT
Oil-Fund Outflows Bode Ill for Prices. Money is pouring out of a popular investment tied to the oil market, a sign that a month-long crude-price rally may be running out of gas. Exchange-traded funds that invest in U.S. oil futures, including the $3.1 billion United States Oil Fund LP, have registered about $2.7 billion of investor outflows this month, according to investment bank Macquarie Group Ltd. That reverses an inflow that started in January as oil prices tumbled. These ETFs took in roughly $6 billion this year through mid-March, when the U.S. oil benchmark hit a six-year low, according to Macquarie.
FORWARD GUIDANCE
-Federal Reserve begins a two-day policy meeting in Washington
-1730 GMT (1:30 p.m. EDT) EDT ECB's Weidmann speaks in Essen, Germany
RESEARCH
Could Machines Put Central Bankers Out of a Job? The fast-changing technological infrastructure of financial transactions, including nonbank finance, digital currencies, peer-to-peer lending and crowd-funding present a challenge to the monetary policies of the Federal Reserve and other top central banks, says Randall Kroszner, a former Fed board governor.
(MORE TO FOLLOW) Dow Jones Newswires
April 28, 2015 06:55 ET (10:55 GMT)
ECB Paper Takes Stab at Measuring 2012 Euro Break-up Fears. The risk that eurozone countries would be forced to abandon the euro and go back to their old, devalued currencies was a major factor pushing up Spanish, Italian and French bond yield spreads at the height of the euro debt crisis in 2012, according to a paper published Monday by the European Central Bank.
COMMENTARY
Fed Triggers Bank Flight From Emerging Markets. "The Fed is moving toward raising rates, and developing-nation borrowers appear less able to handle all their debt, a large chunk of which is denominated in increasingly expensive dollars (the U.S. currency's trade-weighted exchange rate has risen 13 percent since mid-2014)," Mark Whitehouse writes in a Bloomberg View column. "Hence the worry: Might investors start pulling money out, exacerbating the debt problem and possibly triggering a larger crisis? Actually, they already are taking money out."
The Coming Defaults of Greece.In a posting on Vox.EU, Charles Wyplosz writes that the European Central bank will play a key role in determining whether a default on its debts becomes a Greek departure from the eurozone. "National governments are elected by their citizens so they are most unlikely to act to prevent a Grexit. One more time, we have to turn to the ECB, whose essential mandate is to uphold the eurozone," Mr. Wyplosz writes. "It may be unfair, but the ECB's duty is to announce very soon that it will do whatever it takes to keep the eurozone whole."
China May Join The Unconventional Monetary Club. "Until now, the monetary authorities have been disinclined to react aggressively to signs of economic weakening and financial stress, seeing them as part of the solution rather than part of the problem," Gavyn Davies writes on his Financial Times blog. "There has been no precipitous reduction in interest rates, no panic cuts in reserve requirement ratios (RRRs) and, crucially, no apparent desire to weaken the exchange rate. In other words, China has been the only major country to stand aside from the global pattern of unconventional monetary easing. There are now some indications that this may be changing, with the authorities planning measures to ease monetary policy in three different ways."
BASIS POINTS
- Bank Negara Malaysia Tuesday announced the appointment of Mohd. Adhari Belal Din as an assistant governor at the central bank.
- Singapore's economy faces 'crosswinds' in its growth path amid a modest recovery in the global economy, the central bank said in a report on Tuesday.
- The U.K. economy slowed during the first quarter of 2015, official figures showed Tuesday, casting a shadow over the British government's economic track record less than two weeks before a closely fought national election.
- Sweden's Riksbank this week will unveil a new format for its Monetary Policy Report. "Following the financial crisis, it is natural to focus more on financial conditions, risks and uncertainties. This analysis will feature more prominently in the new reports. In general there will be more analysis and reasoning and less reporting of data," Marianne Nessen, head of the central bank's Monetary Policy Department, said in a statement.
- BOC Poloz Testimony Before Canada Senate Committee Thursday Cancelled because it conflicted with the funeral for a longtime Canadian senator---Dow Jones Newswires.
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(END) Dow Jones Newswires
April 28, 2015 06:55 ET (10:55 GMT)
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