Julius Baer: Política monetaria EEUU, bancos europeos y sector agrícola

Redacción - Martes, 30 de Agosto

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ECONOMICS Jackson Hole: The US Fed with new policy options

• The US Fed has new policy tools, aiming for higher inflation levels or targeting price indices instead of price level changes; negative interest rates or helicopter money are no options.

• We stick to our baseline scenario, expecting the next Fed funds rate hike in H1 2017. A major acceleration of US economic activity in autumn would argue for an earlier rate hike.

At last week’s annual Jackson Hole symposium, hosted by the Federal Reserve Bank of Kansas City, central bankers from across the world once again discussed their policies. Against a backdrop of major central banks appearing to be out of their depth in providing adequate growth stimulus and containing secular deflation, this year’s discussions obviously focused on the theme ‘Designing Resilient Monetary Policy Frameworks for the Future’. After pushing refinancing rates near, to or below, the zero line and embarking on major asset purchases to further increase monetary liquidity, a key question is whether the major central banks have any feasible policy options left. Based on the discussions at Jackson Hole, the US Federal Reserve is proving again to be creative, suggesting two new policy tools, targeting 1) higher inflation levels or 2) price index levels instead of price level changes. Both measures focus on increasing inflation expectations and not primarily liquidity. By setting such targets, in particular a price index level, any undershoot can be compensated transparently by an overshooting policy later on. In the end, there could be a fair chance of anchoring higher inflation expectations and containing a secular deflation trend. On the other hand, two policy options are a ‘no go’ for the Fed: negative interest rates or helicopter money. Furthermore, in her speech last Friday Fed Chair Janet Yellen left the door open for rate hike this year, repeating her mantra of data dependency for policy shifts. In consequence, rate hike expectations for December approached 70% again. We stick to our baseline scenario, expecting the next Fed funds rate hike in March 2017, unless we experience a major reacceleration of US economic activity in the coming fall, which we see as unlikely. The latest rate-hiking expectations are just a return to the pattern before the Brexit vote and thus no exaggeration.

 

Janwillem Acket, Chief Economist, Julius Baer

 

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FIXED INCOME

 

Bonds: European banks after the stress test

 

• Latest available data shows that the situation of European banks is improving. However, the build-up of capital could be larger if interest rates rose, as the pressurised net interest margin is affecting earnings and hence the capital build-up. 

 

Around four weeks after the publication of the stress test results, which showed no major surprises, investors’ attention has diverted to other areas. We remember all the concerns before the publication – investor feared nothing less than a renewed banking crisis in Europe starting with the Italian bank Monte dei Paschi. Now investors’ worries have calmed although the problem is far from being solved.

How has the situation around European banks developed after the stress test? Latest numbers from Q2 2016 results, which were not included in the stress test, show a slowly improving situation. As one can see in the table below, the core tier 1 ratios (CT1) are on an acceptable level, with the exception of Italy and Portugal. In the second column you can see the y/y change of the CT1 ratio which shows that the banks in the major European countries are building up CT1. The only exception is Switzerland where certain banks were hit hard by fines. Also the non-performing loan (NPL) situation is improving as shown in the third and fourth column. Even in Italy the level of problem loans remained stable.

 

In sum, latest available data shows that the situation of European banks is improving. However, the build-up of capital could be larger if interest rates rose, as the pressurised net interest margin is affecting earnings and hence the capital build-up. 

 

Christian Dubs, Fixed Income Analyst, Julius Baer

 

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COMMODITIES 

 

Agriculture: How low can wheat prices go?

 

Despite reduced expectations for European and Argentinian crops, wheat prices have plunged below USD 4 per bushel, a new 10-year low, on the outlook for even bigger record harvests in Russia and the Black Sea region. As harvests conclude, global wheat inventories are set to reach burdensome levels over the coming months, most notably in the United States. Consequently, trade competition between the world’s major exporters is escalating, amplifying wheat’s price sensitivity to the United States’ dollar. A stronger dollar impacts demand for US exports, increasing domestic stockpiles and reducing prices. Since wheat is also a feed grain substitute, falling wheat prices also negatively impact the demand for corn, which is currently plumbing 7-year lows. Although harvest pressure is likely to weigh on wheat prices over the short term, we remain constructive on the medium-term outlook and uphold our USD 4.50 per bushel 3-month target. That said, a stronger dollar and sluggish US exports remain a material downside risk to prices. 

Wheat prices have plunged to 10-year lows on the outlook for bin-busting harvests in the Black Sea region. Given today’s low levels, we maintain our constructive price outlook, however a stronger dollar and mediocre US exports remain material risks. 

 

Warren Kreyzig, Commodities Research Analyst, Julius Baer

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