India's central bank is taking action to cut its interest rates to the lowest level in five years in response to slowing inflation. The interest rate was lowered to 6.5% from 6.75%. This is the first cut that India has put in place since September. In addition, the cash-reserve ratio was raised from 90% to 95%. Recently, the Royal Bank of India has been purchasing back bonds from banks.
The decrease in inflation can be attributed to a slowdown in global food prices. Inflation is projected to remain around 5% into next year for India. The RBI would like to continue easing monetary policy even further. Also, India's factory output fell by 1.5% in January from December. Many economists agree with India's move to cut interest rates. Indonesia and China have also recently eased their monetary policy.
http://www.wsj.com/articles/indias-central-bank-cuts-main-interest-rate-1459836063
Tuesday, April 5, 2016
Janet Yellen Will Be Watching Corporate Earnings
Investors gearing up for a downbeat earnings season will have some company this quarter.
We now know that Federal Reserve Chairwoman Janet Yellen will be keeping an eye on results after she said during a speech last week that “foreign economic growth now seems likely to be weaker this year than previously expected, and earnings expectations have declined. By themselves, these developments would tend to restrain U.S. economic activity.”
Though it’s not entirely clear what she’ll be watching within the reports, it’s nothing to shrug at, according to Ed Yardeni, president and chief investment strategist at Yardeni Research Inc., who pointed out the reference Tuesday.
“Just the fact that she mentioned it for the first time that I can recall I think is important,” he said.
Traditional Keynesian macroeconomics holds that monetary policy drives the business cycle, which in turn drives corporate profits. But Ms. Yellen’s reference to earnings may be a sign she’s starting to think the causality works the other way as well, Mr. Yardeni said.
Alcoa begins reporting next Monday after the closing bell, unofficially ushering in the start of corporate earnings. Earnings among S&P 500 Index companies are seen falling 8.5% in the first quarter from a year ago, according to FactSet, marking the first time earnings have fallen for four straight quarters since the financial crisis.
That means the Ms. Yellen may not like what she sees.
http://blogs.wsj.com/moneybeat/2016/04/05/janet-yellen-will-be-watching-corporate-earnings/
Greece's ongoing economic crisis
This article is centered around lack of consumer confidence in the Greek economy. After one year of slow-down, people are unwilling to trust the banking system, fearing their houses will be taken away.
55% plus Greeks signalled pessimism in the economy, which I am guessing will cause a fall in consumer expenditure. Unemployment is rising and disposable income has fallen rapidly in the past year.
Should the government pump in more money to boost the economy? If so, why has it not done so already?
http://www.theguardian.com/business/2016/jan/04/greeces-economic-crisis-goes-on-odyssey-without-end
55% plus Greeks signalled pessimism in the economy, which I am guessing will cause a fall in consumer expenditure. Unemployment is rising and disposable income has fallen rapidly in the past year.
Should the government pump in more money to boost the economy? If so, why has it not done so already?
http://www.theguardian.com/business/2016/jan/04/greeces-economic-crisis-goes-on-odyssey-without-end
Monday, April 4, 2016
Poor economics
“From April 1st Britain’s minimum wage is to be rebranded as
the “national living wage” (NLW) and made more generous. The legal wage floor
for those aged 25 or older rises from £6.70 ($9.60) an hour to £7.20; by 2020
it will be worth roughly £9 an hour. Touted as a measure to help the lowest
paid, whom globalisation has not treated kindly, Britain’s new NLW is being
watched closely by other countries.” The article from the Economist talks
heavily on how an increase in the minimum wage is not as a nation is not all
that beneficial. Though, roughly 1.8 million people will be paid a higher wage,
economists argue that the assumption that companies will bare this extra cost
burden is illogical. This gross-assumption does not anticipate the amount of
people who will lose jobs to cut company costs. Furthermore as argued in the
article “…whereas many poor Britons do not work at all. According to the
Resolution Foundation, a think-tank, a household in the seventh income decile
(ie, nearer the richest) will benefit three times as much as someone in the
bottom decile.” This basically says this policy will help the upper-middle class
(slightly above actually) far more than it will help the lower classes. Sounds
mildly counter-intuitive to what Britain’s try to prevent? That’s because it
is. Furthermore, The Economist argues that many car facilities will go bust if
there minimum wage is raise to what it predicted at the chart above. Does this
raising of minimum wage fit into the voodoo economics?
P.S: unable to place chart into blog, but if you look at the article online it will help with making sense of what I have written.
http://www.economist.com/news/britain/21695959-who-benefits-introduction-national-living-wage-poor-economics
New York Increases Minimum Wage
New York Governor Andrew Cuomo recently signed into legislation a law that will increase the minimum wage in the state. The bill will make minimum wage in New York City $15 per hour and there will be a lower minimum wage in less costly areas. The current minimum wage in New York is $9 an hour while the federal minimum wage is $7.25, which it has been since 2009. The minimum wage law will be in effect by the end of 2018. After the new minimum wage is in affect, state budget officials will monitor the effects of the wage on regional economies and determine if the changes should continue to be in effect.
The governor of California also recently signed a bill that will raise the minimum wage in the state from $10 to $15 by the year 2025.
I have concerns for these minimum wage hikes. While these are places with high costs of living, I don't know that this is the right solution for the issue of low wages. Because the wage increases have to come from somewhere, companies will have to raise the prices of their goods and services in order to be profitable. A solution that I see as viable is to provide better educational programs so that people can learn the skills that they need to advance into higher paying jobs.
Revealed: the $2bn offshore trail that leads to Vladimir Putin
It was recently discovered in a massive leak of documentation that loans worth as much as 2 billion dollars were hidden by the Russian president, Vladimir Putin. He did this by giving his friend, Sergei Roldugin, a renowned cellist in Russia, millions of dollars. Then using a bank and the 4th biggest offshore law firm, Mossack Fonseca, to make the money disappear to benefit Putin and others involving. Even Katerina, his youngest daughter, used this money to rent out a private ski resort for her 2013 wedding.
Corruption is a serious issues when doing international business in our increasingly globalized world. When companies consider doing business overseas, corruption is something that is seriously considered because it can increase the cost of doing business within that foreign market. The recent news of Putin's unlawful actions goes to show that corruption may be a serious problem within the country of Russia. Therefore, it is possible that this might deter multinational companies from doing business with Russia, which could have negative implications for the economy of Russia as well.
California has enacted the nation's highest statewide minimum wage of $15 an hour to take effect by 2022
On Monday, April 4, 2016, Governor Jerry Brown signed a bill into law that will increase the state of California's minimum wage to $15 per hour by 2022. California will have the highest statewide minimum wage by 2022.
Republicans and business groups warn that this move could reduce thousands of jobs. This wage increase could have a strong impact on small businesses in California. Currently, California's minimum wage stands at $10 per hour and will increase by a minimum of 50 cents next year and to $11 in 2018. Hourly wages will then increase annually by $1 every January until 2022. However, this is subject to change if the governor imposes a delay during an economic recession.
The article mentions that about 2.2 million Californians currently earn the minimum wage, but with this new wage increase that number could drop between five to ten percent.
California and Massachusetts currently have the highest statewide minimum wage at $10. There are many cities planning to raise their minimum wage over the next couple of years such as Los Angeles, Seattle and New York.
Do you think this is going to influence other states minimum wage rates over the next couple years?
http://www.usnews.com/news/business/articles/2016-04-04/california-governor-set-to-approve-highest-minimum-wage
Republicans and business groups warn that this move could reduce thousands of jobs. This wage increase could have a strong impact on small businesses in California. Currently, California's minimum wage stands at $10 per hour and will increase by a minimum of 50 cents next year and to $11 in 2018. Hourly wages will then increase annually by $1 every January until 2022. However, this is subject to change if the governor imposes a delay during an economic recession.
The article mentions that about 2.2 million Californians currently earn the minimum wage, but with this new wage increase that number could drop between five to ten percent.
California and Massachusetts currently have the highest statewide minimum wage at $10. There are many cities planning to raise their minimum wage over the next couple of years such as Los Angeles, Seattle and New York.
Do you think this is going to influence other states minimum wage rates over the next couple years?
http://www.usnews.com/news/business/articles/2016-04-04/california-governor-set-to-approve-highest-minimum-wage
Oil Markets Muddied by Corruption
Link for the curious: http://www.bloomberg.com/news/articles/2016-04-04/world-leaders-hid-wealth-via-shell-companies-report-alleges
A possible worldwide oil corruption scandal could be revealed in the near future by what are being called the "Panama Papers". A panama-based law firm held files that were leaked and which show involvement in a number of shell corporations by world politicians, criminals, and celebrities. Vladimir Putin has already been tied to a number of the upwards of 200,000 offshore shell companies.
The leaked files were uncovered by the International Consortium of Investigative Journalists, who say they have obtained more than 11.5 million records of these shell companies. It has already been reported that 12 current or former world leaders as well as 128 politicians and celebrities have been linked to the leak.
Since the financial crisis, the United States has put greater emphasis on offshore banking practices, as they are often found in conjunction with corruption and tax/trading fraud. There is a prediction that this latest scandal will draw together nations in order to put an end to this dark and often illegal practice.
In an already heavily-watched market, this latest scandal may spell trouble for the oil market, as well as markets as a whole. Dropping prices have made oil a highly-publicized market, and this news is sure to cause some sort of disruption.
A possible worldwide oil corruption scandal could be revealed in the near future by what are being called the "Panama Papers". A panama-based law firm held files that were leaked and which show involvement in a number of shell corporations by world politicians, criminals, and celebrities. Vladimir Putin has already been tied to a number of the upwards of 200,000 offshore shell companies.
The leaked files were uncovered by the International Consortium of Investigative Journalists, who say they have obtained more than 11.5 million records of these shell companies. It has already been reported that 12 current or former world leaders as well as 128 politicians and celebrities have been linked to the leak.
Since the financial crisis, the United States has put greater emphasis on offshore banking practices, as they are often found in conjunction with corruption and tax/trading fraud. There is a prediction that this latest scandal will draw together nations in order to put an end to this dark and often illegal practice.
In an already heavily-watched market, this latest scandal may spell trouble for the oil market, as well as markets as a whole. Dropping prices have made oil a highly-publicized market, and this news is sure to cause some sort of disruption.
US durable goods orders fall as dollar strength lingers
This February, the manufactured goods sector continued to struggle, ultimately causing new orders for long-lasting manufactured goods in the U.S. to fall. This decrease in new orders was mostly the due to the lower oil prices and a strong dollar. Surprisingly durable goods orders (ranging from aircrafts to toasters) declined 2.8 percent in February, while they actually increased 4.2 percent in January. The biggest drop in durable goods last month was led by a 27 percent decrease in civilian aircraft orders (68 orders in January and just 2 in February). However, in several recent reports this past March, factory activity has shown a pick-up in production. Because of this, there is more optimism that the broader manufacturing sector will expand for the first time since last September.
This article interested me because it examined the recent the drop in oil prices earlier in 2016 to the effects it had on the manufacturing sector of the United States. In addition, the article mentioned how the strong US dollar played a key contribution to the struggling manufacturing sector. It will be interesting to see if the manufacturing sector fulfill's its expectations to expand in the next months ahead.
Full article at: http://www.cnbc.com/2016/03/24/us-durable-goods-orders-fall-as-dollar-strength-lingers.html
This article interested me because it examined the recent the drop in oil prices earlier in 2016 to the effects it had on the manufacturing sector of the United States. In addition, the article mentioned how the strong US dollar played a key contribution to the struggling manufacturing sector. It will be interesting to see if the manufacturing sector fulfill's its expectations to expand in the next months ahead.
Full article at: http://www.cnbc.com/2016/03/24/us-durable-goods-orders-fall-as-dollar-strength-lingers.html
Sunday, April 3, 2016
New evidence on what drives central banks to decide to change rates
CENTRAL banks are supposed to target inflation and in some cases,
economic growth or full employment. As the “lender of last resort”, they
also have responsibility for safeguarding the financial system. But do
they in fact target asset prices as well?
That has been the suspicion from the late 1980s onwards, when the Federal Reserve began cutting interest rates when equity markets wobbled. This approach became known as the “Greenspan put” (Alan Greenspan was the chairman of the Fed from 1987 to 2006, and the put option is a form of insurance against falling prices). The implicit guarantee from central banks became a bit more explicit in the era of quantitative easing (QE)—the creation of new money to buy assets. Central banks hoped that QE would have a “portfolio rebalancing effect”, with investors being forced out of low-yielding government bonds and into corporate debt and equities.
However, the relationship between market movements and central banks may have an even longer history. That is the implication of new research by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School for the latest Global Investment Returns Yearbook, published by Credit Suisse. They looked at the historical relationship between movements in interest rates and in financial markets, with particular reference to America and Britain.
Unsurprisingly, they found that markets performed much better when
rates were falling than when they were rising. Since 1913 (when the Fed
was founded) American equities have returned an average of 9.3% a year
in real terms during easing cycles, defined as the period between the
first cut and the first increase. In contast, real returns during
tightening cycles were just 2.3% a year. Government bonds returned 3.6%
during easing cycles and 0.3% in tightening ones.
This rule applied in most of the 21 countries covered by the trio’s data, going back to 1900. On average, equities earned 8.4 percentage points more in real terms in the year after a rate cut than in one following an increase. Alternative assets such as houses, art and gold also did better when rates were falling.
Link: http://www.economist.com/news/finance-and-economics/21692927-new-evidence-what-drives-central-banks-decide-change-rates-slaves?zid=295&ah=0bca374e65f2354d553956ea65f756e0
That has been the suspicion from the late 1980s onwards, when the Federal Reserve began cutting interest rates when equity markets wobbled. This approach became known as the “Greenspan put” (Alan Greenspan was the chairman of the Fed from 1987 to 2006, and the put option is a form of insurance against falling prices). The implicit guarantee from central banks became a bit more explicit in the era of quantitative easing (QE)—the creation of new money to buy assets. Central banks hoped that QE would have a “portfolio rebalancing effect”, with investors being forced out of low-yielding government bonds and into corporate debt and equities.
However, the relationship between market movements and central banks may have an even longer history. That is the implication of new research by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School for the latest Global Investment Returns Yearbook, published by Credit Suisse. They looked at the historical relationship between movements in interest rates and in financial markets, with particular reference to America and Britain.
This rule applied in most of the 21 countries covered by the trio’s data, going back to 1900. On average, equities earned 8.4 percentage points more in real terms in the year after a rate cut than in one following an increase. Alternative assets such as houses, art and gold also did better when rates were falling.
Link: http://www.economist.com/news/finance-and-economics/21692927-new-evidence-what-drives-central-banks-decide-change-rates-slaves?zid=295&ah=0bca374e65f2354d553956ea65f756e0
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