China, ECB ease as US decides
On Monday, China took yet another step in shoring up its slowing economy. The People's Bank of China (PBOC) has reduced its reserve ratio for the Chinese banking sector from 17.5 percent to 17 percent. Down nearly 25 percent in the last two months, the benchmark Shanghai Composite equity index will most probably breathe a sigh of relief when the market opens tomorrow. As the world slips into another global recession, China continues to do whatever it can to stop the blood-letting going on in its financial system. Massive outflows from its financial institutions may have forced the PBOC's hand, and this could be the first of many cuts to come. With equities down nearly 50 percent since their June peak, the global slowdown in demand has hit China hard.
A softening in housing prices coupled with persistent capital outflows - substantially so in the month of February - may have caused the PBOC to ease. As 17 percent is relatively very high compared to other economies, a 50 basis-point cut in the reserve ratio should have little effect on the riskiness of Chinese banks while freeing up billions of dollars of much needed liquidity to the system. In comparison the U.S. Federal Reserve (Fed) requires member banks to keep 10 percent of deposits in reserves while the Central Bank of the Republic of Turkey's (CBRT) requirement for similar reserves is 11.5 percent, but significantly below the PBOC's requirements.
The European Central Bank's (ECB) Governing Council meets in 10 days to discuss what further steps need to be taken to alleviate concerns of member countries. The eurozone experienced negative inflation in the month of February as prices contracted 0.2 percent amid fears of entrenched stagflation around the corner. Desperate to avoid such a scenario, the ECB appears headed to take major steps to further ease monetary policy, which may include new measures altogether. The current model of quantitative easing (QE), bond buying and reducing reserve requirements is clearly not working. Perhaps a ramped up bond buying scheme coupled with equity purchases or even ECB-backed loans to businesses may be needed to spur spending by consumers and help businesses stay afloat during this downturn. A prolonged downturn will only lead to further cuts in employment, which unlike in the U.S. are far slower to go into effect in Europe. Laid off employees in Europe generally only move workers off of private sector rolls and onto taxpayer funded unemployment benefits for periods several times longer than in the U.S., thus making low unemployment even worse for ECB member governments.
Across the Atlantic, the U.S. presidential race will experience its most important day of the primary season today, "Super Tuesday." With 13 states simultaneously deciding on their nominee for both parties, the race may well be decided by tonight. Coming off another victory in South Carolina, Republican candidate Donald Trump appears to be headed for victory in most states. While his challenger Ted Cruz appears to be strong in his home state of Texas, Trump is almost certain to pick up the vast majority of the remainder of the states - if not all. Current second place candidate and the Republican Party establishment's last chance at taking the nomination back from Trump, Marco Rubio, has stalled in recent days. The "Marcomentum" he experienced early on has fizzled as Trump has upped his populist game and at this point, the candidacy is Trump's to lose. While hope for a little pop in Rubio's numbers still exists, chances of its coming to fruition continue to wane.
Should the polls prove right and award Trump landslide victories across the country today, the U.S. presidential election will almost certainly be decided by tonight. I wrote in September that Trump's candidacy was unprecedented in its breath of support across the electorate, and that should he be nominated - in the absence of any last minute disqualifying scandals - Trump may be able to win the election. Despite continued remarks that are at best troubling, Trump has resonated with the American electorate. His "politically incorrect" rhetoric has drawn more supporters than it has detractors. The number of newly registered voters for Trump and his ability to generate foot traffic into polling stations is actually good for the Republican Party. Although he can only win the nomination with support of "Southern Evangelicals," his election would almost certainly mean the end of their reign as "kingmakers" in the Republican Party. Trump would move the party to the center and may end up dividing it as a result. We should know in a few hours, stay tuned.
A softening in housing prices coupled with persistent capital outflows - substantially so in the month of February - may have caused the PBOC to ease. As 17 percent is relatively very high compared to other economies, a 50 basis-point cut in the reserve ratio should have little effect on the riskiness of Chinese banks while freeing up billions of dollars of much needed liquidity to the system. In comparison the U.S. Federal Reserve (Fed) requires member banks to keep 10 percent of deposits in reserves while the Central Bank of the Republic of Turkey's (CBRT) requirement for similar reserves is 11.5 percent, but significantly below the PBOC's requirements.
The European Central Bank's (ECB) Governing Council meets in 10 days to discuss what further steps need to be taken to alleviate concerns of member countries. The eurozone experienced negative inflation in the month of February as prices contracted 0.2 percent amid fears of entrenched stagflation around the corner. Desperate to avoid such a scenario, the ECB appears headed to take major steps to further ease monetary policy, which may include new measures altogether. The current model of quantitative easing (QE), bond buying and reducing reserve requirements is clearly not working. Perhaps a ramped up bond buying scheme coupled with equity purchases or even ECB-backed loans to businesses may be needed to spur spending by consumers and help businesses stay afloat during this downturn. A prolonged downturn will only lead to further cuts in employment, which unlike in the U.S. are far slower to go into effect in Europe. Laid off employees in Europe generally only move workers off of private sector rolls and onto taxpayer funded unemployment benefits for periods several times longer than in the U.S., thus making low unemployment even worse for ECB member governments.
Across the Atlantic, the U.S. presidential race will experience its most important day of the primary season today, "Super Tuesday." With 13 states simultaneously deciding on their nominee for both parties, the race may well be decided by tonight. Coming off another victory in South Carolina, Republican candidate Donald Trump appears to be headed for victory in most states. While his challenger Ted Cruz appears to be strong in his home state of Texas, Trump is almost certain to pick up the vast majority of the remainder of the states - if not all. Current second place candidate and the Republican Party establishment's last chance at taking the nomination back from Trump, Marco Rubio, has stalled in recent days. The "Marcomentum" he experienced early on has fizzled as Trump has upped his populist game and at this point, the candidacy is Trump's to lose. While hope for a little pop in Rubio's numbers still exists, chances of its coming to fruition continue to wane.
Should the polls prove right and award Trump landslide victories across the country today, the U.S. presidential election will almost certainly be decided by tonight. I wrote in September that Trump's candidacy was unprecedented in its breath of support across the electorate, and that should he be nominated - in the absence of any last minute disqualifying scandals - Trump may be able to win the election. Despite continued remarks that are at best troubling, Trump has resonated with the American electorate. His "politically incorrect" rhetoric has drawn more supporters than it has detractors. The number of newly registered voters for Trump and his ability to generate foot traffic into polling stations is actually good for the Republican Party. Although he can only win the nomination with support of "Southern Evangelicals," his election would almost certainly mean the end of their reign as "kingmakers" in the Republican Party. Trump would move the party to the center and may end up dividing it as a result. We should know in a few hours, stay tuned.