Thursday, March 10, 2016
Surprise stimulus from ECB; Interest rates in wonderland; World's largest cruise ship sets sail on sea trial
1 Surprise stimulus from ECB (San Francisco Chronicle) European Central Bank launched an unexpectedly broad array of stimulus measures Thursday aimed at boosting a modest economic recovery in the 19 countries that use the euro and nudging up dangerously low inflation.
The steps, which ranged from interest rate cuts to cheap loans to banks, included several measures many analysts hadn't anticipated, such as expanding its monthly bond-buying stimulus program to include corporate bonds.
The ECB, the monetary authority for the euro countries, is struggling to raise inflation from a worryingly low annual rate of minus 0.2 percent toward its goal of just under 2 percent, considered healthiest for the economy.
ECB President Mario Draghi said the bank's decisions at the meeting of its 25-member governing council were the best answer to recent questions about whether central banks were reaching the limits of what they can do.
Laith Khalaf, senior analyst at stockbrokers Hargreaves Lansdown, said the use of ever more unusual stimulus measures was hard to see as positive. He said the fact the ECB is "still pursuing such extreme monetary policy paints a depressing picture of the European economy." Investors, he adds, "are beginning to question what central banks have left in the locker if the global economy slips back towards recession."
More economic malaise in Europe is the last thing the global economy needs. The region is a key market for major companies, from automakers Ford and General Motors to technology companies Apple and Samsung. Trouble in Europe would compound woes from slowing growth in many parts of the world, particularly China.
Here's what the ECB did: It cut its main benchmark rate to zero from 0.05 percent. Lowered the rate on deposits from commercial banks at the central bank to minus 0.40 percent from minus 0.30 percent, an unconventional move aimed at pushing banks to lend rather than hoard cash. Boosted its monthly bond purchases to 80 billion euros ($88 billion) from 60 billion euros, pushing more newly printed money into the economy
2 Interest rates in wonderland (Andrew Walker on BBC) The global financial system is venturing further into the bizarre world of negative interest rates. Let's call it Alice in Financial Wonderland. On Thursday the European Central Bank took additional steps to stimulate the eurozone economy, including a further cut in an interest rate that is already below zero. Why is this so odd?
Think about what interest is. The lender gets paid interest for allowing someone else to use their money. But when the rate goes below zero the relationship is turned on its head. The lender is now paying the borrower. Why would anyone do that? Some reasons below. Of course, this situation only applies to a limited number of financial relationships. No-one will pay you to spend on your credit card. But this unusual state of affairs does exist.
The ECB's deposit rate, which applies to money parked overnight by commercial banks, is now minus 0.4%. These negative rates are the policy decisions taken by a handful of central banks. But the phenomenon has also affected the bond market, where investors buy and sell the bonds or debts of governments and large companies.
Last week the bond market took a new step down the financial rabbit hole. Japan is the first government among the G20 major economies to borrow money by issuing bonds for 10 years at an interest rate of less than zero. But Japan being paid to borrow money for 10 years is nonetheless a remarkable development.
3 World’s largest cruise ship sets sail on sea trial (The Guardian) Harmony of the Seas, the world’s largest cruise ship, set off on Thursday on its first sea trial from Saint-Nazaire, western France, with just two months to go to delivery. The city’s STX France shipyards began building the €1bn ($1.1bn) mammoth for US shipbuilder Royal Caribbean International in September 2013.
Thousands of people gathered at the dock to watch as the 120,000-tonne ship was helped out to sea by six tugs. Some 500 people, mostly crew as well as officials from the owners and engineers and suppliers, were on board for the first trial, set to continue until Sunday. The ship, with a height of 70m (210 feet), has been an imposing presence in Saint-Nazaire, visible from miles away.
For months, tourists have been allowed on board to gape at the innards of the ship that has 16 decks and stretches 362m (1,187 feet), 50m longer than the height of the Eiffel Tower. Some 2,000 crew are to cater for the needs of more than 6,000 passengers on Harmony, which is a metre wider than the current twin ocean-going monsters of the pleasure cruise world, the RCI-owned Allure of the Seas and the Oasis of the Seas, which are also 362m long.