May 3. A central bank guy pans negative rates

–Christopher J Waller, Director of Research at the St Louis Fed (link to blog below):

“At the end of the day, negative interest rates are taxes in sheep’s clothing. Few economists would ever claim that raising taxes on households will stimulate spending. So why would they think negative interest rates will?”

–The Caixin Manufacturing Purchasing Managers’ Index for China (PMI) fell to 49.4 in April from 49.7 in March.  It was expected 49.9.  Australia’s RBA unexpectedly cut rates to record low 1.75%.  The Japanese yen continues to strengthen, with $/yen trading as low as 105.60 today.
–From Treasury Sec’y Lew’s letter to Congress on Puerto Rico….pretty blunt: “Going forward, Puerto Rico’s $70 billion of debt is unsustainable by any measure.  It simply cannot afford to pay its debt.  And, with a shrinking economy because of people leaving Puerto Rico, further reductions in government spending will be difficult to implement.  Government expenditures, net of debt service, already have been reduced to the lowest level since 2005.”
–Remember…it only becomes a crisis when debts can’t be serviced, and bonds that were once thought to be assets evaporate.
–From BBG: “The European Commission told the euro area’s largest economies to reduce debt and modernize labor markets as it again slashed its inflation forecast…” to 0.2 for 2016.
–As of this morning, Monday’s moves in stocks and treasuries have been completely reversed, with ESM 2062.00 -12.25 (settled Friday 2059.00), and TYM 130-01.5 (settled Friday at 130-02).  Vehicle sales today expected 17.3 million unit rate, versus 16.6 last.

Posted on May 3, 2016 at 5:01 am by alexmanzara · Permalink
In: Eurodollar Options

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