Will ECB initiate QE again?

The next ECB meet is to be held on September and that would be the last meeting for Mr. Mario Draghi, the present ECB president whose term is coming to an end in this October. In the earlier meet which was held on July 25, Mr. Draghi hinted for a stimulus package to be introduced again in the next meet. The factors for QE are:

Manufacturing and Inflation:

Mr. Draghi is totally frustrated with the manufacturing output. It’s declined in July from 45 to 43.1. It indicates that the economy is nearing to recession.  The reason for fall in manufacturing data is because of China as they are the largest importers for automobiles from Europe. The new orders also tumbled down to 2012 levels. The services and construction output in Eurozone is also falling down. The inflation rate is still below 2%, it is stable between 1.2 to 1.3%. To boost up the inflation to reach 2% annually and to improve manufacturing ECB has to initiate the stimulus package again.

What are the key factors to decide central bank rate?

 

Global factors:

The global factors like trade war and the Brexit in which the Britain will move out of European Union without an agreement and the global economy is slowing down as global central banks looking for rate cuts including U.S. This makes the ECB to think for stimulus package.

What affects the global market?

Bonds:

The German 30 year bond yield was down to a record low of 0.167%. The 10 year bond also fell down below  -0.4%. This is because of the deposit rate of commercial banks to central bank is -0.4% and their cash borrowing rate from central bank is zero. Draghi is will to purchase bonds as stimulus package but some of the members are opposing for bonds. German politicians, industrial chiefs has moved to court against ECB for fresh bond purchase. They say that the ECB’s move of bond purchase is illegal. Earlier in 2015, when ECB introduced the Outright Monetary Transactions the German politicians and industrial chiefs also challenged the ECB in court but it was ruled out by judges and favored the ECB.

How bond markets plays a vital role in economy?

So, ECB’s chances of re-introducing the QE in the next meeting is highly visible.

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What happens if Fed cuts interest rate by 50bps?

The Fed meet is to be held on 31st July 2019. Most of the experts expecting for 25bps rate cut but some more analysts expecting a rate cut for 50bps. Now what will happen if Fed cuts the interest rate by 50bps? Here we see:

Inflation:

The Fed members are very much worried about the inflation rate which is much below the expected target of 2%.  So no need of rate cut and if there is a higher rate cut then the inflation will grow higher which the Fed doesn’t want to happen.

What are the key factors influencing Forex Markets?

 

 

Bond Markets:

The long term bond yields are not satisfactory for the investors as the short term bond yields gives better returns than long term yields. The investors are not in a mood to pay higher premium for long term yields. This also makes the investors that a rate cut will occur.

How bond market related to economy?

Employment rate:

The employment rate had a growth and is much more than expected by the analysts. It is not a worry even if the Fed is announcing 50bps point cut.

How Non-Farm payroll plays an important role for the economy?

Economy:

The economy is strong for U.S when comparing to other countries. If the Fed has a bigger rate cut a threat for financial market bubble may be visible. Moreover the debt will increase and move for a beginning of recession phase.

Why monetary policy important for a country?

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How does the central bank determine interest rate? What is affected by the Central Bank interest rate?

What is Central Bank Interest Rate?

The levies applied on loans as an interest rate by Central Bank is called Central Bank Interest Rate. It is also known as the price of money that is borrowed or saved.

How it is determined?

The interest rates are determined by the following:
Reserves:

The interest rate is determined by the reserves held by the Central Bank to show their economic growth. If the reserves are down the economy is slowing down and therefore they raise the interest rate or else vice versa.

What is Interest Rate?

 

 

Inflation and Unemployment:

It is one of the key factors to decide the interest rate. The spending power of the people increases the interest rate will be increased to stablise the inflation and the job rate also determines to apply the interest rate. Increase in job number is good for economy.

What are the key factors for interest rate?

Bonds:

Bonds which gives a considerable yields will boost up the central bank to decide the interest rate.

Loans and Home Prices:

The banking industry providing the Loans for consumers which helps the consumers to purchase home, vehicles will also helps the central bank to decide the interest rate.

What are Bond Market?

What are affected by the central bank interest rate?
The commercial banks are the most affected by central bank interest rate. When central bank increases the interest rate, the commercial banks will tighten all types of loan by increasing the interest rate for loans. As the commercial banks increase the rate the consumers purchasing of homes and vehicles will go down and spending power of consumers will be reduced and therefore the business people will get affected. The consumer and business people are unable to repay their loans and so the commercial banks are affected. Because of these factors the economy is getting affected as there is no business and there is no spending by people. When business is affected the currency value and stock price will move down and the country will fell into crisis.

So, the central bank interest rate plays major role for a nations development.

Which determines the interest rate?

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Will U.S replicate 2008?

Will U.S replicate 2008?

It’s hardly a decade over!!! Will there be another Lehmann Brothers collapse? The answer will be yes. Why?

Economy:

The US economy under Trump is doing just fine. The president has overseen a slow but steady economic expansion.  But this only benefited the wealthy Americans not the average labours. In a poll 48% of Americans believe economy is going towards bad shape. Even the GOP’s signature economic Policy achievement, the Tax Cuts and Jobs Act, did little to boost wages and business investment.

 

However, the economy isn’t contracting, so things could be a lot worse. And it’s possible they might get that way. Wall Street banks are already preparing for the US economy to slow down in 2019. Economists do believe the tax bill helped boost overall economic growth — for a little while, at least. The economy was growing at about 2.2 percent a year since the end of the recession in 2009, and then hit 4.2 percent in the second quarter of 2018, right after the tax cuts went into effect. The third quarter was also strong, with a 3.5 percent increase. By the end of 2018, however, annual economic growth fell to 2.6 percent.

What is Economy? Why is it important?

Stock Markets and Trade War:

After Trump has become President in 2017 the stock market was started moving up and in January 2018 the DOW has breached 25,000 points and many stocks have shown good growth. The investors had also good returns for their money. But before the end of 2018 the stock markets has faded and investors lose their investments. Trump also picked stock market as a favourite tool to measure the economic growth.

Again in January 2019, the DOW reached 25,000 points and did some favour for investors. Now the investors  and analysts are expecting a crash in stock markets as the markets are overvalued and the trade war which has been emerged between U.S and China. Initially, after Trump sworn in as President he promised to upend free trade, which he blamed for the loss of well-paying manufacturing jobs.

He definitely disrupted international trade, but his restrictions have done more harm than good. Over the past year, America has placed about $200 billion in tariffs on Chinese goods, in part to make Chinese products more expensive so Americans don’t buy them. The administration has also placed steep tariffs on all imported steel, angering other major US trade partners.

What is market analysis? How it helps traders?

The idea was to level out the trade deficit with China and make China buy more US goods, but, as expected, China responded by slapping its own tariffs on American imports.

Trump’s protectionist trade agenda ended up hitting American farmers the hardest. A total of 84 farms in the Upper Midwest filed for bankruptcy between July 2017 and June 2018. Farms that produce corn, soybeans, milk, and beef were suffering due to low global demand and low prices, according to economists, and Trump’s trade war is making the problem even worse.

What is trade war? Will trade war come to an end?

Bond Market and Unemployment rate:

The 10-year US bond yield has fallen below the 3-month bond yield. In simple terms, this means that long-term bonds are offering lower returns than short-term bonds and is seen as an indication of economic uncertainty. The yield inversion has raised fears that the US economy may be headed for a recession.

Will bonds benefit investors? Will yields affect growth of the country?

The US unemployment rate has been on a steady downward trend since the end of the Great Recession, dropping from 9.8 percent in January 2010 to 4.8 percent when Obama left office. Under Trump, unemployment hit a low of 3.7 percent in September, though it has started to tick up in recent months.

In September, the black unemployment rate fell to 6 percent for the first time, setting a new record that suggests progress is being made toward closing a longstanding employment gap between black and white workers. The black unemployment rate has since ticked up to 6.8 percent, but that’s still low by historical standards.

What is GDP? How it affects the economy?

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What occurs if dollar depreciates?

We all know the dollar is the king of all currencies and also known as the universal currency. The major currency transactions depend on the dollar, especially during exports and imports to other countries. The investors also consider the dollar as a key currency for their investments.

What are the Main key Reason USD is King of All Currencies ?

Economy:

When the dollar declines exports will grow, manufacturing raises and the employment rate will improve. More foreigners will visit the country and therefore the economy will increase marginally. On the other hand, the imports will be sluggish and the consumer purchase will increase on U.S products than foreign products. This impacts a slight decline in the economy.

What is Monetary Policy? What are its importance and impacts?

Stock Markets and Treasury Bonds:

The stock markets bell clings up when the dollar depreciates. The reason behind this is the company’s production will increase as the demand for their product raises.

Top 12 Stock Major Stock Exchange Market

The Treasury bond yields will rise when the dollar falls. This implies that the Fed has to take some steps to improve the economy.

How bond yields affect currency markets?

Gold and Oil:

The Gold and Oil prices are coined in dollars. So, when dollar tumbles down the gold shines and the oil spills in a higher note. But gold can rise even if the dollar rises which depends on the demand for gold.

GOlD or Oil ? Which is more Precious ?

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How bond yields affect currency markets?

What are Bonds?

Bonds are loans made to large organizations. These include corporations, cities, and national governments. An individual bond is a piece of a massive loan. That’s because the size of these entities requires them to borrow money from more than one source. Bonds are a type of fixed-income investment. The other types of investments are cash, stocks, commodities, and derivatives.

What are Bond Yields?

Bond yields are a measure of the profit you will make from your bond investment. The less you pay for a bond, the greater your profit will be and the higher your yield will be. Conversely, the more you pay for a bond, the smaller your profit will be and the lower your yield will be.

How it affects currency markets?

Bond yields differentials usually move along with currency pairs. This phenomenon occurs because capital flows are attracted to higher yielding currencies. As the rate of one currency increases relative to another, investors are attracted to the higher yielding currency. Additionally, the cost of owning the lower yielding currency increase as the bond yield differential moves in favor of the currency that is sold. For example, the cost to owning the Euro and selling the dollar will increase as US bond yields increase relative to European bond yields.

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