Daily Archives: July 2, 2010

James Politi

Talf is dead ! Long live Talf !

As of Wednesday, the Federal Reserve’s main programme to prop up consumer credit markets during the financial crisis – the Term Asset-Backed Securities Loan Facility - no longer exists.

There was relatively little of it left by the end of June, since many of its components, including the programmes designed to boost credit card loans, auto loans, small business loans and student loans, had already expired at the end of March. But one of its elements, the commercial real estate portion, had been kept alive until the end of June in order to further support that troubled sector.

Talf seems to have served its purpose well, at least according to an internal Treasury email (the Fed did not put out a release to mark the occasion, but Brian Sack, executive vice-president of the NY Fed, did give this speech on the topic on June 9). Read more

Advanced economies' reserves

Advanced economie' reserves, by currency

Emerging economies reserves

Emerging economies' reserves, by currency

 Read more

The Reserve Bank of India has increased the repo and reverse repo rates by 25bp, taking them to 5.5 and 4 per cent, respectively. The principal motivation was inflation:

The developments on the inflation front … raise several concerns. Overall, WPI inflation increased to 10.2 per cent in May 2010, up from 9.6 per cent in April 2010. Food price inflation and consumer price inflation remain at elevated levels…. Significantly, two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident. Read more

James Politi

Money Supply- click for larger image

Money Supply- click for larger image

There was quite a bit of fear in the markets about what might emerge from today’s monthly jobs report. So let’s start with the good news: the US labour market is clearly not falling off a cliff. Setting aside the 125,000 jobs lost overall, which were mainly due to the firing of temporary 2010 government census workers, the private sector created 83,000 positions.

This was slightly less than economists’ expectations, and way below the 241,000 positions created by businesses in April. But then again, it marked an improvement over May, when the private sector only hired 33,000 new workers on net.  And let’s not forget that in June 2009, business shed a whopping 452,000 jobs.

So, the labour market recovery is not doomed, based on these numbers. But it is hard to dispute that the momentum is slowing, especially considering hopes in the Spring that the economy was reaching “escape velocity”, as Larry Summers, head of the National Economic Council, told the FT in early April.

Digging deeper into the labor department report, there are several troubling signs. Read more

Ralph Atkins

There is a lot going on behind the scenes in German banking circles to prepare for the publication of Europe-wide “stress test” results later this month. German banks were always the most opposed, for a mixture of principled reasons (they are a bit of a PR gimmick) and fears about what they would reveal.

But the exercise is not only a test for the banks themselves. It is also a challenge for Axel Weber, the Bundesbank president who is tipped as a possible successor to Jean-Claude Trichet, when the European Central Bank president’s non-renewable eight year term expires in November next year. Read more

Ralph Atkins

Jürgen Stark, the European Central Bank executive board member, was closely involved in drawing up the European Union’s fiscal rules when he worked in the 1990s at the German finance ministry. In the past year, he has seen how ineffective they proved - largely, he believes, because of the example Germany set in 2005 demanding their loosening after flagrantly breaching them itself (by which time Mr Stark had become a central banker). Now, he is lobbying actively for a revised, tougher rule book.

Earlier this week, Mr Stark told a Frankfurt conference that proposals put forward by the European Commission “are not the quantum leap that is needed”. Speaking in Vienna today, Mr Stark backed a series of changes along the lines set out by the ECB in their recent paper on eurozone governance. As I have written, these focus on imposing sanctions earlier and with more “automaticity”. (Is there such a word in English?)   To me, it seemed Mr Stark had been actively involved in compiling the ECB’s recommendations. Read more

Irish unemployment rose to 13.3 per cent in May, the highest rise among the 30 countries reported by Eurostat in its monthly unemployment bulletin. The previous rate, in April, was 12.9 per cent.

Hungarians, by contrast, recorded the greatest drop in unemployed, with 10.4 per cent, down from 10.9 per cent last month. Overall, six countries reported increasing unemployment, 10 recorded falling unemployment, and 14 remained static. Latvia, Spain and Estonia are still at the top of the European league with almost one in five of their labur force out of work, although two of these have not yet recorded up-to-date May figures. Read more

Irish banks might never be the same. New bank regulation legislation was passed yesterday, 69-65. The bill is now off to the upper house, the Seanad.

The Central Bank Reform Bill would merge the central bank with the regulator, giving the regulator’s consumer information roles to the national consumer agency. The new integrated central bank and regulator would be called the Central Bank Commission. Read more

The Bank of Japan is set to increase its growth forecast to above 2 per cent, unnamed sources have told Reuters. The Bank’s forecast is currently 1.8 per cent for the fiscal year, and the next rate setting meeting is July 14-15.

The Bank would be playing catch-up with the government, if it does revise its forecast up. The finance ministry changed its growth forecast from 1.4 to 2.6 per cent last month. Private economists have apparently settled on a figure close to 2.4 per cent. Uncertainty about the economic recovery is likely to temper the Bank’s optimism, which was fuelled yesterday by a better-than-expected manufacturers’ confidence survey. Read more