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Welcome to our latest post covering finance and property news with a distinctively Australian flavour. Given the current market gyrations, we are going to examine the latest critical data each day, because a week is a long time in politics but a lifetime on the markets at the moment…
March Live Q&A: https://youtu.be/Vh2AkFwg7z0
Welcome to our latest post covering finance and property news with a distinctively Australian flavour. Given the current market gyrations, we are going to examine the latest critical data each day, because a week is a long time in politics but a lifetime on the markets at the moment…
March Live Q&A:
As Australia’s financial system adjusts to the coronavirus (COVID-19), financial regulators and the Australian Government are working closely together to help ensure that Australia’s financial markets continue to operate effectively and that credit is available to households and businesses. (Refer to earlier Council of Financial Regulators’ (CFR) press release.) Australia’s financial system is resilient and it is well placed to deal with the effects of the coronavirus. At the same time, trading liquidity has deteriorated in some markets.
In response, the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system. The Bank will also be conducting one-month and three-month repo operations in its daily market operations until further notice to provide liquidity to Australian financial markets. In addition the Bank will conduct longer term repo operations of six-months maturity or longer at least weekly, as long as market conditions warrant. The Reserve Bank and the AOFM are in close liaison in monitoring market conditions and supporting continued functioning of the market.
The Bank will announce further policy measures to support the Australian economy on Thursday.
DFA is expecting a 0.25% rate cut, and formal QE to go alongside the repo operations already in train.
The Fed has just cut rates to 0- 1/4 percent.
In addition the Federal Reserve on Sunday announced it would purchases $700 billion in bonds and securities to stabilize financial markets and support the economy.
The emergency rate cut and push to flood the Treasury bond market with liquidity comes as the coronavirus pandemic forces businesses across the U.S. and world to shutter, likely plunging the global economy into a recession.
This is part of a coordinated global response, the Fed says.
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.
These central banks have agreed to lower the pricing on the standing U.S. dollar liquidity swap arrangements by 25 basis points, so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 25 basis points. To increase the swap lines’ effectiveness in providing term liquidity, the foreign central banks with regular U.S. dollar liquidity operations have also agreed to begin offering U.S. dollars weekly in each jurisdiction with an 84-day maturity, in addition to the 1-week maturity operations currently offered. These changes will take effect with the next scheduled operations during the week of March 16.1 The new pricing and maturity offerings will remain in place as long as appropriate to support the smooth functioning of U.S. dollar funding markets.
The swap lines are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.
The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected. Available economic data show that the U.S. economy came into this challenging period on a strong footing. Information received since the Federal Open Market Committee met in January indicates that the labor market remained strong through February and economic activity rose at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending rose at a moderate pace, business fixed investment and exports remained weak. More recently, the energy sector has come under stress. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective.
The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Randal K. Quarles. Voting against this action was Loretta J. Mester, who was fully supportive of all of the actions taken to promote the smooth functioning of markets and the flow of credit to households and businesses but preferred to reduce the target range for the federal funds rate to 1/2 to 3/4 percent at this meeting.
In a related set of actions to support the credit needs of households and businesses, the Federal Reserve announced measures related to the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements, and—in coordination with other central banks—the U.S. dollar liquidity swap line arrangements. More information can be found on the Federal Reserve Board’s website.
In a statement, the Reserve Bank of New Zealand says New Zealand’s financial system is sound, with strong capital and liquidity buffers, but faces significant uncertainties from the impacts of COVID-19. The Reserve Bank is announcing additional measures to support the provision of credit and market functioning.
Reserve Bank Deputy Governor Geoff Bascand says the situation around COVID-19 is evolving rapidly, and there is much uncertainty.
“To support credit availability, the Bank has decided to delay the start date of increased capital requirements for banks by 12 months – to 1 July 2021. Should conditions warrant it next year, the Reserve Bank will consider whether further delays are necessary.”
“We are taking this action now to help support lending in the economy at time when there is a lot of uncertainty. The Reserve Bank’s expectation is that banks will utilise this flexibility to maintain lending to households and businesses. Banks have significant buffers above current regulatory minimums, and we encourage them to use them,” Mr Bascand said.
“Deferring the capital framework implementation provides banks with significant capital headroom. We estimate that this headroom will enable banks to supply up to around $47 billion more lending than would have been the case, had the decisions been implemented as planned.”
Mr Bascand said the Reserve Bank is currently identifying other regulatory initiatives that can be deferred, to reduce the burden on financial institutions at this time of uncertainty. These will be announced in coming days. The Reserve Bank is working closely with the Council of Financial Regulators and international regulators.
Assistant Governor Christian Hawkesby said the Bank is also ensuring there is sufficient liquidity in the financial system, through regular market operations.
“The Bank has a number of operational tools at its disposal to support liquidity and market functioning in New Zealand. This has helped the domestic cash market and foreign exchange swap market to continue to function effectively over recent weeks,” Mr Hawkesby says.
“Banks currently have robust liquidity and funding positions and can manage short-term disruptions to offshore funding markets. We will continue to monitor developments closely and engage regularly with market participants to ensure we are ready to provide support if needed.”
The Reserve Bank also announced the following changes to the pricing of its standing facilities and ESAS accounts, in part to assist cash market functioning at a lower OCR:
The Reserve Bank has a number of tools to provide additional liquidity, and support to market functioning, should these be required in the future:
Mr Hawkesby says the Reserve Bank continues to monitor developments, and is ready to act to ensure markets and the financial system operate in a stable and efficient manner.
The Reserve Bank New Zealand announced today that following an emergency meeting yesterday, the Official Cash Rate (OCR) is 0.25 percent, reduced from 1.0 percent, and will remain at this level for at least the next 12 months. The also signalled the likelihood of QE to follow.
The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus.
Since the outbreak of the virus, global trade, travel, and business and consumer spending have been curtailed significantly. Increasingly, governments internationally have imposed a variety of restraints on people movement within and across national borders in order to mitigate the virus transmission.
Financial market pricing has responded to these events with declining global equity prices and increased interest rate spreads on traditionally riskier asset classes.
The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand’s goods and services will be constrained, as will domestic production. Spending and investment will be subdued for an extended period while the responses to the COVID-19 virus evolve.
Several factors will continue to assist and support economic activity in New Zealand.
New Zealand’s financial system remains sound and our major financial institutions are well capitalised and liquid. The Reserve Bank is also ensuring that the banking system continues to function normally.
The Government is operating an expansionary fiscal policy and has imminent intentions to increase its support with a fiscal package to provide both targeted and broad-based economic stimulus.
The New Zealand dollar exchange rate has also depreciated against our trading partners acting as a partial buffer for export earnings.
And, the Monetary Policy Committee agreed to provide further support with the OCR now at 0.25 percent. The Committee agreed unanimously to keep the OCR at this level for at least 12 months.
The Committee also agreed that should further stimulus be required, a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions.
The members discussed the broad range of Official Cash Rate (OCR) settings that would be suitable. Staff briefed the Committee on the scale of policy stimulus required given deteriorating global conditions and the impact of travel restrictions. The Committee discussed the relative contributions of planned fiscal and financial stability measures in consideration of the monetary policy response. Staff also advised that an OCR of 0.25 percent was currently the lower limit, given the operational readiness of the financial system for very low or negative interest rates.
Subsequent Committee discussion focused on two scenarios:
Members noted that lower interest rates would likely support the soundness of the financial system – in the context of the Committee’s Remit.
Given views on the required level of stimulus given the economic impact of COVID-19, the committee agreed a 0.75 percentage point reduction in the OCR would be a more suitable option.
Overnight we got news that due to the market disruptions, the Fed is buying more Treasuries across the yield curve.
To address temporary disruptions in the market for Treasury securities, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has updated the current monthly schedule of Treasury purchase operations.
Today, the Desk will conduct purchases in each of five maturity sectors below at the times indicated, subject to reasonable prices.
These purchases are intended to address highly unusual disruptions in the market for Treasury securities associated with the coronavirus outbreak. These purchases are part of the $80 billion of planned monthly purchases, including both $60 billion of reserve management purchases and $20 billion of reinvestments of principal payments received from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities. In these purchases, the Desk will include securities that are cheapest to deliver into active Treasury futures contracts as eligible securities for purchase. The Desk intends to further bring forward remaining purchases for this monthly calendar and adjust terms of operations as needed to foster smooth Treasury market functioning and efficient and effective policy implementation. A revised schedule will be posted.
And the Repo operations continue to grow:
Net effect is to continue to grow their balance sheet. What else will they buy to try to shore up the markets? And what is the cost of all this?
The latest update from Economist John Adams and Analyst Martin North, as the financial system continues on life-support.
Central banks are in a desperate rush to keep interest rates down in order to prevent a default of a major bank or financial institution.
In order to support the continuous functioning of financial markets through the provision of liquidity, the Bank of Canada announced two measures on Thursday.
First, acting as fiscal agent, the Bank will broaden the scope of the current Government of Canada bond buyback program. This is intended to add market liquidity and support price discovery. Until further notice, buybacks will extend across all benchmark maturity sectors and will be conducted at least weekly. Regular weekly operations will be conducted on a switch basis. Cash buybacks will be conducted following nominal bond auctions.
The first operation will be a $500 million switch operation in the 30-year sector held on Monday March 16. Additional program details are forthcoming, including the timing of the first operation.
Second, to proactively support interbank funding, the Bank of Canada will temporarily add new Term Repo operations with terms of 6 and 12 months. These operations will occur bi-weekly starting with the first operation on Tuesday, 17 March 2020. Details of the first Term Repo operation are as follows:
| Amount | Auction Date | Settlement Date | Term (Days) | Maturity Date |
|---|---|---|---|---|
| $4 billion | 17 March 2020 | 19 March 2020 | 168 | 3 September 2020 |
| $3 billion | 17 March 2020 | 19 March 2020 | 350 | 4 March 2021 |
Regular 1-month and 3-month Term Repo operations will remain in effect but could change with regards to size, frequency and term depending on prevailing market conditions.
Term Repo terms and conditions remain in effect. The results of the 6- and 12-month operations will be announced on the Bank’s web site by Market Notice.
The Bank of Canada continues to closely monitor global market developments and remains committed to providing liquidity as required to support the functioning of the Canadian financial system.
Given the current market gyrations, we are going to examine the latest critical data each day, because a week is a long time in politics but a lifetime on the markets at the moment…
