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Morgan Stanley Explains One Big Reason Why Central Planners Can't Generate Any Inflation. As China continues to weaken the Yuan, it's important to note the impact that it has on the inflation expectations of other economies, namely the US, Japan, and Europe. As central planners aggressively try to boost inflation, and in the meantime have created a stunning $11.7 trillion in negative yielding debt, China could be hindering that effort quite a bit. As Morgan Stanley points out, CNY has weakened over the last year or so versus the Euro, Yen, and Dollar and is helping to explain the continued undershoot of inflation in Japan and Europe - and we would add in the US.

From MS The RMB decline has materialized mainly against the EUR and even more so against the JPY. This may explain the continued undershoot of inflation in Europe and Japan. Moderate US growth together with overcapacity in Asia and a weaker RMB will likely result in lower export prices from Asia. MS concludes by saying that deflationary pressures are likely to remain in place as overcapacity persists. Insight into the ECB.

Exclusive: ECB Chief Economist Blames Market Exaggeration for Disappointment. The European Central Bank’s chief economist has blamed market exaggeration for the disappointment that followed its unveiling of a new round of monetary policy actions last week. “There was speculation about a package of measures that had never been up for discussion,” Peter Praet said in an exclusive interview with Handelsblatt. Mr. Praet, who is also a member of the ECB’s Frankfurt-based executive board, said the ECB had been unable to counter the speculation because it came too close to the central bank’s December 3 rate-setting meeting. The ECB has a long-standing policy of not speaking in the days running up to a governing council meeting.

“The problem was that the markets’ expectations grew ever bigger in the meantime and were persisting, even though the most recent economic data had been encouraging,” he said. “One big problem was that, during the quiet period… the markets exaggerated the situation again,” he added. Mr. Mr. “It’ll take a long time to overcome. Ecb and qe. Inflation on Flipboard. PREVIEW: ECB’s account of October meeting. FXStreet (Mumbai) - The European Central Bank’s October meeting minutes will be released today. The tone of the ECB has more dovish off late. The Governing Council reiterated the possibility of cutting the deposit rate and also stated that the "ECB balance sheet will continue to expand until we see a sustained adjustment in the path of inflation”. Before the October meeting, the ECB council member Ewald Nowotny had mentioned a possible QE expansion is something “we’ll discuss when there’s a need,” while Bank of France Gov.

Christian Noyer felt that the current bond-buying program is “well calibrated”. In the minutes to be released today investors will look for clues to know what the central bank plans to do in December. The ECB minutes is expected to speak of the downside risks to the economy particularly with respect to the recovery of inflation. The central bank’s aims to ensure price stability in the euro zone and has been struggling to move inflation closer to its 2 per cent target. The Euro Was a Bad Idea From the Start. After frantic eleventh-hour negotiations and continent-wide hand-wringing, eurozone authorities and Greece’s new left-wing government have reached a deal.

If you’re surprised, you shouldn’t be. A deal was in the cards from the beginning for one simple reason: Ultimately, neither the Greek government nor Germany and other euro member states could risk triggering a financial crisis by cutting off Greek banks. Financial stability in the 19-country currency area has been preserved — at least for now. But patching up the situation has not removed the key question of where to go from here.

Europe’s monetary union has been based on bad economics from the start. The imbalances between surplus and deficit countries in the eurozone began to build even before the 2008 global financial crisis, and they remain at the heart of Europe’s problems. And the end is not near. And here’s the worst part: None of this should have been a surprise. This option is not available for the eurozone’s member states. Fed and ECB Aware of Impact of Diverging Strategies. SharePrint The world’s top two central banks accept they will face periodic market jolts as they move in opposite policy directions, senior officials say, with such risks inevitable given the hugely differing fortunes of the U.S. and European economies. The European Central Bank and U.S.

Federal Reserve – which appear poised respectively to ease and tighten monetary policy – talk to each other regularly but do not coordinate policy or try to guess what the other may do next, the central bankers say. The banks’ strategy is to factor in financial market moves that may result from their divergent paths without trying to counter them through monetary policy, they say. The ECB surprised markets last month by raising the prospect of easing as soon as December. By contrast, with the U.S. economy in a buoyant state, the Fed delivered an unexpectedly hawkish message, boosting the chance that it will raise rates next month after keeping them near zero for almost seven years. via Reuters.

Secret "Diaries" Show ECB Board Members Met With Banks, Hedge Funds "Days" Before Policy Meetings. The Changing Dynamics of Eurozone Inflation | PIMCO. Since its inception, successive presidents of the European Central Bank (ECB) have used its Governing Council press conferences to remind fiscal partners of their responsibility to implement structural reforms. Although it is typically not the role of an independent central bank to advise the legislature on how to run government, synergies are to be had when fiscal, structural and monetary policies complement each other.

Before the outbreak of the European sovereign debt crisis, most eurozone governments were reluctant to reform. It took the loss of market access for Greece, Ireland and Portugal, which were provided bridging loans by official sector creditors conditional on implementing structural reforms, to change that. And the threat of losing market access also prompted Spain and Italy to take fiscal and structural reforms seriously. Reforms to these countries’ labour and product markets lowered nominal rigidities, while fiscal belt-tightening slowed economic growth. The Changing Dynamics of Eurozone Inflation | PIMCO.

Much ado about something important: How do exchange rate movements affect inflation? - speech by Kristin Forbes. News Release | Speech All charts and appendices related to this speech are available in the speech PDF. Shakespeare’s famous play depicts a number of comic examples when people create “Much Ado About Nothing.” People play tricks on each other out of boredom. In contrast, movements in exchange rates are very important and merit substantial attention. The magnitude of recent exchange rate movements has highlighted how important these movements are for an economy and the ability of companies to compete internationally. And this type of volatility in exchange rates is not unprecedented – or even unusual. Even though recent exchange rate movements are not particularly unusual, they have still generated a substantial amount of attention.

Sterling’s recent appreciation has generated much less fuss, but its effect on UK inflation and monetary policy has been much more substantive. We clearly need to improve our framework for understanding pass-through. 1. 2. The puzzle deepens. 3. 4. 5. 6. Much ado about something important: How do exchange rate movements affect inflation? ECB Said to Seek 645 Million Euros of Dutch, Irish Mortgage Debt. The European Central Bank is seeking to acquire as much as 645 million euros ($725 million) of Dutch and Irish mortgage bonds as it increases efforts to buy asset-backed securities, according to three people familiar with the matter.

The central bank is asking investors to sell their holdings in 15 residential mortgage-backed securities, including bonds backed by loans originated by units of Dutch insurer Aegon NV and Irish lender Permanent TSB Group Holdings Plc, said the people, who asked not to be identified because they’re not authorized to talk about it. Noteholders are requested to submit offers by 2 p.m. London time on Thursday, according to an offers-wanted-in-competition, or OWIC, document obtained by Bloomberg. The Frankfurt-based central bank is seeking to inject new energy into its purchase program for asset-backed debt after facing criticism from investors and traders disappointed by its reach. An ECB spokesman declined to comment on the ABS purchase program. Morgan Stanley: Central Banks Are Playing a Game of Chess That Results in an Endless Cycle of Easing. After the European Central Bank decided to initiate an asset purchasing program, President Mario Draghi reportedly elected to unwind with a game of chess on his iPad during the plane ride back to Rome.

According to Morgan Stanley's Marco Spaltro and Jim Caron, Draghi's choice for a game could not have been more fitting. In a new commentary, the two portfolio managers argue that diverging monetary policies and persistently low levels of inflation mean that central banks are now engaged in a global game of chess. Moreover, they say, this particular match won't end in a stalemate. Despite concerns that central banks have no moves left, the pair contends that all roads lead to competitive currency devaluations. Here's their extended analogy: At the beginning of the game, the global economy is at an arbitrary point of equilibrium, similar to a chess board, with the pieces representing policy tools that are used to achieve one’s goal—growth and inflation—the king.

However, there is some hope. ECB Preivew: Draghi to join currency wars? 4 scenarios. The European Central Bank meets on September 3rd to decide on its policy and it has a lot to digest since its last meeting in mid July. Will we hear a more dovish tone from Draghi? Or will he wait for developments in China and the Fed? Here is the preview with everything that has changed and 4 scenarios Previously on the Draghi show The ECB last met in mid-July, just after a deal was forced on Greece. The focus was on the small indebted nation. Regarding monetary policy, it seemed to go on as planned: perhaps there was some minimal front loading of QE ahead of the drier summer months, but the Bank’s bond buying program, aka QE, was going as planned: there were some signs of better monetary activity, more growth and hopes that inflation will get back on track.

The ECB continued with its €60 billion / month purchases, with September 2016 set as the intended end date. Will it change now? Trouble brewing Tools The ECB could: 4 scenarios What do you think? Follow our live coverage from 12:00 GMT here. ECB Preivew: Draghi to join currency wars? 4 scenarios | Forex Crunch. French Elite Say Either Germany Leaves the Euro or Economic Chaos is their Fate | Armstrong Economics.

The French elite are now calling for a German exit from the euro as a solution since the rest of them are heading into Marxist la-la land. The Greek crisis has set in motion severe strains within the EU economy, far worse than the press or the politicians are willing to admit. The French elites see only two possibilities: there will either be an orderly withdrawal of Germany from the euro, or an all-out sovereign debt crisis. It is clear that France is heading into the same eye of the storm as Greece. There is no solution to this nightmare for nobody is willing to even contemplate that they are possibly wrong.

We are heading into a Sovereign Debt Crisis of great magnitude.