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Norwegian Krone Rallies After Central Bank Keeps Rates Steady

The Norwegian krone climbed against the US dollar and the euro today after Norway’s central bank decided to left the policy rate unchanged. The drop in crude oil prices and new measures to halt the COVID-19 spread may yet hurt the currency but so far it is trading above the opening level. The Norges Bank announced on Thursday that it has decided to leave its key interest rate at 0%. The statement talked […]

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The Norwegian krone climbed against the US dollar and the euro today after Norway’s central bank decided to left the policy rate unchanged. The drop in crude oil prices and new measures to halt the COVID-19 spread may yet hurt the currency but so far it is trading above the opening level.

The Norges Bank announced on Thursday that it has decided to leave its key interest rate at 0%. The statement talked about the negative impact of the coronavirus pandemic on the economy:

The Norwegian economy is in the midst of a deep downturn. So far, economic developments have largely been in line with the projections in the September Report. Activity has picked up further, but the level is still lower than prior to the pandemic. Unemployment has declined, but remains high. Increased Covid-19 infection rates and more containment measures abroad and in Norway will likely put a brake on the upswing in the coming period.

As for its plans for the future, the central bank mentioned that it predicted in September that interest rates will remain at the current ultra-low levels for at least a couple of years, and added:

In the Committee’s assessment, the sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalising.

Talking about the pandemic, Norway announced that it is preparing to implement additional restrictions aimed at preventing further spread of the virus. While the government wants to avoid a full lockdown, the planned measures will nevertheless encourage citizens to stay home and leave only in case of extreme necessity. Norwegian Prime Minister Erna Solberg explained the decision:

We do not have time to wait and see if the measures we introduced last week are sufficient. We must act now to avoid a new shutdown.

USD/NOK dropped from 9.3215 to 9.1696 as of 22:32 GMT today. EUR/NOK fell from 10.9158 to 10.8050.


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Author: Vladimir Vyun

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Economics

Peter Schiff Warns Of Irrational Exuberance In The Stock Market Casino

Peter Schiff Warns Of Irrational Exuberance In The Stock Market Casino

Via SchiffGold.com,

The Dow Jones and the S&P 500 hit new all-time…

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Peter Schiff Warns Of Irrational Exuberance In The Stock Market Casino

Via SchiffGold.com,

The Dow Jones and the S&P 500 hit new all-time records on Tuesday (Oct. 26). In his podcast, Peter Schiff focused on a few speculative stocks that have had meteoric rises (and in some cases crashes) over the last few days. He said this is evidence of the speculative fervor in this massive bubble.

What we’re seeing today is just another indication of the casino-like nature of today’s stock market that is completely the byproduct of artificially low interest rates, the inflation that the Federal Reserve and other central banks have created.”

So far, this latest round of speculative excesses has not marked the top of the market. After all, the markets continue to set new records.

I don’t know that this latest iteration of the speculative fever means that the markets have topped out. But it does provide additional evidence of the bubble-like nature of this market. And eventually, it’s going to come crashing down. If not now, sometime soon. And if it doesn’t come crashing down, it’s only because the dollar came crashing down instead.”

If we end up going down the hyperinflation route, we won’t see a stock market crash in nominal terms in dollars.

But everything will crash even faster and further in terms of real money. So, if we have hyperinflation, yes, these bubbles will implode, but you won’t be able to see the implosion if your prism is the US dollar. But it will be far more visible if you’re looking at it through the lense of gold.”

The first stock Peter discussed was Tesla. The stock hit an all-time high interday Tuesday although it closed off that mark. Nevertheless, the market cap is over $1 trillion. Only four other stocks in the world have market caps of over $1 trillion. Apple and Microsoft have market caps of over $2 trillion. Google is at $1.8 trillion, and Amazon has a market cap of $1.7 trillion.

That means Tesla is the fifth most valuable company in the world even though its earnings pale in comparison to those other four companies.

None of this would be possible but for the monetary policy of the Fed.”

So, why did Tesla stock go up so much?

The stock price surged after Hertz announced it would buy 100,000 cars from Tesla. The projected revenue for the contract is $4 billion. That means even if Tesla makes a 25% margin (an unlikely scenario), the profit would be just $1 billion. Meanwhile, the value of Tesla stock increased by over $100 billion on the news.

It makes absolutely no sense. It went up by more than 20 times the added revenue of the deal, 100 times the added profit of the deal. Why is that sale so valuable to Tesla? Does the market just believe that everybody is going to give Tesla these kinds of orders, like all the rental car companies? But even if they got all the rental car companies’ orders, it still isn’t going to be worth the increase in the market cap of the stock. This is just pure speculative frenzy.”

The point to understand is the increase in the market cap of Tesla stock has no relationship to the news that drove the price up. Nobody cares. It’s “buy now and ask questions later.”

Peter discussed some other stocks with crazy valuations, including Donald Trump’s company Digital World Acquisition Corp. and Bakkt Holdings, which saw a big rise on news of a crypto partnership with MasterCard.

In this podcast, Peter also talks about Jack Dorsey’s hyperinflation warning, Stanley Druckenmiller’s failure to understand the Fed is the problem, and how politicians aim their weapons at billionaires but end up hurting the middle class.

Tyler Durden
Wed, 10/27/2021 – 11:25












Author: Tyler Durden

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Economics

A dovish ECB could weigh on euro

The euro is treading in calm waters on Wednesday, ahead of the ECB policy meeting tomorrow. Currently, EUR/USD is trading at 1.1595, down 0.01% on the…

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The euro is treading in calm waters on Wednesday, ahead of the ECB policy meeting tomorrow. Currently, EUR/USD is trading at 1.1595, down 0.01% on the day.

ECB policy meeting next

‘The times they are a changing’ are for major central banks. With the Fed, BoE and other central banks looking to tighten policy, there is pressure on the ECB, which remains in accommodative mode, to join the bandwagon. ECB President Christine Lagarde has insisted that eurozone inflation is transitory, a message we have heard often from Jerome Powell at the Federal Reserve. However, with no sign that inflation in Germany or the rest of the eurozone will ease anytime soon, it is becoming harder for the ECB to ignore the threat of high inflation, especially with the surge in energy prices only adding to inflation levels. Eurozone CPI hit 3.4% in September and is expected to rise to 3.7% in October, which would mark a 13-year high. In Germany, inflation has accelerated for three straight months and climbed to 4.1% (YoY) in September, its highest level since 1993.

Rising inflation is new territory for the ECB, as inflation has continuously fallen short of the bank’s inflation target of 2 per cent. In September, Lagarde said that the ECB was “pretty far away” from raising interest rates, but there is a growing belief in the markets that the ECB may have to raise rates in 2022 if inflation does not ease lower.

The upcoming ECB meeting is unlikely to shake up the markets, unless the bank unexpectedly veers to a more hawkish position. The December meeting should be much more lively, as policy makers may signal their plans for the Pandemic Emergency Purchase Programme (PEPP), which is set to expire in March 2022.

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EUR/USD Technical

  • EUR/USD faces resistance lines at 1.1628 and 1.1685
  • EUR/USD tested support at 1.1588 earlier in the day. Below, there is support at 1.1531






Author: Kenny Fisher

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Economics

Loonie Soars After Bank of Canada Ends QE Early, Accelerates Rate Hike Timing To Mid-2022

Loonie Soars After Bank of Canada Ends QE Early, Accelerates Rate Hike Timing To Mid-2022

Another day, another hawkish surprise from a developed…

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Loonie Soars After Bank of Canada Ends QE Early, Accelerates Rate Hike Timing To Mid-2022

Another day, another hawkish surprise from a developed central bank.

While nobody expected the Bank of Canada to hike rates today despite soaring inflation, the BOC did surprise most most traders when it announced it is ending its bond buying stimulus program, and accelerated the potential timing of future interest rate increases amid worries that supply disruptions are driving up inflation.

In a policy statement on Wednesday, Canadian central bankers led by Governor Tiff Macklem announced they would stop growing holdings of Canadian government bonds, ending a quantitative easing program that has poured hundreds of billions into the financial system since the start of the Covid-19 pandemic, to wit: “The Bank is ending quantitative easing (QE) and moving into the reinvestment phase, during which it will purchase Government of Canada bonds solely to replace maturing bonds.” Then again, one look at the BOC’s balance sheet makes one wonder just how long this QE halt will survive…

The Bank of Canada will release details of how it will implement the “reinvestment phase’’ of bond purchases in a market notice at 10:30 a.m. That will be a situation where it acquires bonds only to offset maturities, keeping overall holdings and stimulus constant. Most recently, weekly bond purchases had been C$2 billion. BOC head Macklem will also provide more insight into his policy decision at an 11 a.m. press conference.

In any case, the BOC also signaled it could be ready to hike borrowing costs as early as April, as supply constraints limit the economy’s ability to grow without fueling inflation.

Macklem maintained his pledge not to raise the benchmark overnight policy rate until the recovery is complete, but officials now believe that will happen in the “middle quarters’’ of 2022, bringing it forward from the second half of next year as previously thought.

We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s projection, this happens sometime in the middle quarters of 2022. In light of the progress made in the economic recovery, the Governing Council has decided to end quantitative easing and keep its overall holdings of Government of Canada bonds roughly constant.

The language will reinforce market expectations the Bank of Canada is poised to quickly pivot to a tightening cycle amid growing price pressures. Investors are anticipating the Canadian central bank will start raising interest rates within the next six months, with markets pricing in four rate hikes next year.

The Bank of Canada has been using two major tools to keep borrowing costs low: maintaining its policy interest rate near zero and buying up Canadian government bonds from investors to keep longer-term borrowing costs in check. The benchmark interest rate was left unchanged at 0.25% on Wednesday. The central bank has increased its bond holdings by about C$350 billion since the start of the pandemic.

“Shortages of manufacturing inputs, transportation bottlenecks, and difficulties in matching jobs to workers are limiting the economy’s productive capacity,’’ the BOC said adding that “although the impact and persistence of these supply factors are hard to quantify, the output gap is likely to be narrower than the bank had forecast.’’

The more hawkish tone at the bank on Wednesday comes even amid a less rosy outlook for the economy. The central bank cut its growth estimates for both 2021 and 2022, but officials said much of that reflects worse-than-expected supply disruptions in the global economy.

Because of those disruptions, the Bank of Canada marked down estimates of “supply’’ by more than their downward revisions to output. That means the central bank now sees less excess capacity in the economy, and less reason to accommodate demand with cheap borrowing costs.  The build-up of inflationary pressures also appears to be testing the Bank of Canada’s patience. The Bank of Canada revised higher its forecasts for inflation — to 3.4% in both 2021 and 2022.

This means that the BOC is joining the Fed in tightening into a stagflation.

“The main forces pushing up prices — higher energy prices and pandemic-related supply bottlenecks — now appear to be stronger and more persistent than expected,’’ policy makers said. “The bank is closely watching inflation expectations and labor costs to ensure that the temporary forces pushing up prices do not become embedded in ongoing inflation.”

In the accompanying Monetary Policy Report that contains the Bank of Canada’s new forecasts, policy makers also said upside risks to inflation have become a greater concern because price increases are above the central bank’s 1% to 3% control range.

In response to the surprise announcement, the Canadian Dollar soared as much as 0.6%, rising to 1.2309 against the USD…

… while the Canadian 2Y yield spiked more than 24bps above 1.00%…

… in a day defined by violent treasury moves, first in the UK and now in Canada.

Tyler Durden
Wed, 10/27/2021 – 10:16










Author: Tyler Durden

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