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Hello, and welcome back to The Note.
We appear to be having yoyo markets in stock markets around the world at the moment.
And a bad day for the S&P it's now back negative for the year, cancelling out the very strong day it had yesterday.
However, if you take a look more broadly, you can see a couple of themes or trends that are very clearly defined, and unfortunately downwards.
Let's start by taking a look at bank stocks, and specifically at Deutsche Bank.
which I am choosing because it's such an extreme example.
This is Deutsche Bank's share price over the last quarter of the century,
denominated in constant euros, obviously it was denominated in Deutschmarks early on in this period.
And you can see that it's lower than it's ever been over that entire period.
Now, that's really, quite remarkable.
You normally only see a dive like this in periods of extreme financial stress,
such as long-term capital management crisis in '98,
or the great financial crisis of 2008.
Why are we seeing the sell-off in the bank that is far too big to fail - it's the biggest bank in Germany,
it owns the Old Bankers trust franchise here in the States,
which is one of the core franchises in Wall Street.
Well, negative interest rates in Europe.
The promise of low interest rates for a long time to come here in the U.S.
are bad for bank's profitability, bad for their bank's business model.
And that's created great concern around the banking sectors as a whole, not only Deutsche Bank.
Now if you want to see a further example of how there are limits to how much low interest rates can be used to bail everyone out
take a look at Japan.
This is the exchange rate of the Japanese yen against the Chinese renminbi.
China is its biggest competitor in export markets,
and arguably its biggest customer of the US dollar.
And you can see that in the last few months, Japan's yen has appreciated very greatly.
eroding its competitiveness.
Probably stems primarily back to the decision at the end of January,
when the bank of Japan shocked everybody
by announcing it was moving to negative interest rates,
that wasn't expected, but the response was widely taken as showing that it couldn't cut rates any further.
It had such a negative effect on markets as a whole, particularly on banks
that there is now a bet that there is nothing the bank of Japan can do to fight the markets, to force its currency down.
We've heard finance ministers, the officials in Japan saying that trading in the foreign exchange market at present is one-sided,
that has been a tell in the past that they're planing an intervention.
But the market is evidently fighting the BOJ,
and betting that it won't be able to push down the yen even if it wants to.
Now if you want to see what a kind of an effect that it has on the stock market,
you can see that, if we take a look at this next chart,
that's the yen moves remarkably in line with the Nikkei 225 with Japanese stocks.
There are plenty of stocks tradable in Tokyo, which don't rely on exports at all.
But as far as the investors are concerned, as far as the index is concerned,
the Japanese market is treated as though it's one giant exporter,
and moves perfectly, almost perfectly in line with the currency.
As a result, Japanese stocks are in a bear market down more than 20% from their peak last year.
Further pressure on the yen will mean further pressure on Japanese stocks.
All of this ultimately shows that there are constraints.
The ease from the Federal Reserve putting everyone on notice that they're really not going to raise rates as much as people were thinking,
has eased a lot of pressure in the world system.
It's eased pressure on emerging markets, in particular, it's allowed the oil price to regain. It's helped many stock markets.
But there are constrains on this, and that is shown both by the banking sector and by Japan.


低利率貨幣的窘境 (The constraints on cheap money | Authers' Note)

2139 分類 收藏
Vanessa Hsieh 發佈於 2016 年 4 月 13 日    Vanessa Hsieh 翻譯    Kristi Yang 審核
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