Sweden’s Central Bank, the Riksbank, rattled markets with a rate cut of .15%, now at -0.50%. Bank shares plunged again. Société Générale is down 13%, Deutsche Bank 7%, and Santander 6%.
US treasury yields are falling like a rock with gold flying high, up another $40. Oil fell towards $26, and US futures are at the lowest price in two years.
Despite the fact that negative rates cripple bank stocks and rob savers, cutting rates is the only damn thing many of these central banks know how to do.
Please consider Riksbank Cuts Rates Deeper Into Negative Territory.
Sweden’s central bank moved its interest rates deeper into negative territory with an unexpectedly large cut, intensifying fears that global policymakers are being forced to take more extreme action to tackle low inflation.
The Riksbank cut its main repo rate by 15 basis points to minus 0.5 per cent, despite the fact that the country’s economy is booming. The bank said it felt forced to act because of “weakening confidence” in achieving its inflation target of 2 per cent.
The move rattled currency markets, sending the Swedish krona down 1.6 per cent against the euro, while the yen hit a 14-month high of 111.39 against the US dollar.
Bank shares resumed their slide, led by Société Générale, which tumbled as much as 13 per cent. Deutsche Bank dropped 7.1 per cent, Santander lost 6.1 per cent, and UniCredit sank 8 per cent. The pan-European Stoxx 600 fell 3.4 per cent, while US markets were called to open at their lowest in almost two years.
The Swedish cut followed the Bank of Japan’s decision to lower interest rates to minus 0.1 per cent in January, a move which stunned financial markets. At the meeting to approve the cut, some members of the BoJ’s policy committee warned of a global race with other central banks to set the lowest interest rates.
“Today’s action hints at the Riksbank’s willingness to forearm itself also from the ECB’s upcoming action expected in March,” noted Marco Valli, economist at Unicredit.
The ECB lowered its deposit rate to minus 0.3 per cent in December and is expected to make another cut of at least 10 bps at its meeting next month.
Sweden is in the unusual position of having very strong economic growth currently but weak inflation, causing an acute policy dilemma for the Riksbank. It forecasts that economic growth will be 3.5 per cent this year, a little lower than the 3.7 per cent in 2015.
But inflation was just 0.1 per cent in December while core inflation, more closely watched by the Riksbank, was 0.9 per cent.
The Riksbank has been open about its desire to keep the krona weak as part of a global battle to depreciate currencies. The central bank earlier this year delegated authority to its governor and one deputy governor to intervene in the currency markets at any time, a move that has spurred some concern among politicians in Stockholm and dissent from another deputy governor at the Riksbank.
Mind Boggling Stupidity
With economic growth at 3.5%, it would make more sense for the Riksbank to thank deflation than fight it. Spain’s growth is one of the best in the eurozone and Spain too is allegedly mired in deflation.
Next month, the ECB is likely to react with a cut sending its lending rate to -0.40 or -0.50%. Japan will feel forced to act in kind.
Meanwhile, the Yellen Fed still insists the Fed will hike rates this year. I suggest a global recession has begun.
Mike “Mish” Shedlock
Well, someone up early.
At the risk of jinxing “It” …. looks like “It” may finally have arrived.
Always suspected “It” would take forever and a day … then all at once … before it appeared.
At the end of the day, international trade can only be conducted at gunpoint if settlement takes place at negative rates of interest.
Prepare for war. It is coming.
“Prepare for war. It is coming.”
It has been non stop war since 9/11. Where is the prearation for peace?
Mind Boggling Stupidity?
Time to haul out that old Forrestal line..
‘McCarthy, consistency has never been a mark of stupidity. If they were merely stupid, they would occasionally make a mistake in our favor.’
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Hi Mish,
For some reason I am not receiving your blog posts in my email. This happened in Armstrong’s blog as well. Maybe a World Press issue???
No, it is the rise in traffic. All financial sites are seeing a big increase in access requests. Armstrong’s traffic is three times normal.
It is an indicator of FEAR as more people are looking for answers.
Let see. Deflation means our money buys more goods. That’s called an increased standard of living. As we buy more goods production increases along with employment to produce those goods. The horror of it all!
Buy Amazon! No wait…..buy Twitter!!! Buy Beyoncé!!!! (no, that would be rasis….). Buy Bookface!!!
Buy income….only thing economically that will save you.
“Mind Boggling Stupidity”
Is it stupidity, or something else?
I’ve heard it said Greenspan was and is now a hard money guy. What did he do when head of the FED? He blew financial bubbles.
History is well known. Everyone knows why Glass Steagall was created. Experts warned congress not to dismantle it. It was dismantled anyway. The SEC knew that leverage above 12 to 1 was dangerous, yet eliminated leverage limits for the Big Five investment banks anyway. All five crashed, just as math said they would. The laws of math are as ancient as the Roman Empire.
It isn’t really mind boggling stupidity. What Greenspan and others have done, was willful and deliberate, in direct violation of their personal knowledge. Bernanke knew QE didn’t work for its stated purpose, yet did QE anyway. Greenspan knew the consequence of 1920’s FED policy, yet repeated it anyway.
Subprime home loans became subprime auto loans. Immediately after- no chance at all to even forget subprime home loans. They knew the consequences, yet did it anyway.
Why has nothing been fixed since 2008? They aren’t stupid. It is willful and deliberate that nothing has been fixed.
“Why has nothing been fixed since 2008?”
I know, right? We all voted for the smartest man in the world, with the most transparent administration in history….whah-happen?!?
Trump did this, didn’t he?… Somehow I just *knew* it was him.
Guess who was the head of Goldman Sachs during much of the period of that record $5.1 billion fraud settlement? Hank Paulson. A few months into his first term, and starting on the Leno show, president Obama rolled out his “the banks did not break the law” speech. What does that all tell you?
If the central bankers can’t fool Jose Canseco, they can’t fool anyone but themselves.
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The problem/danger inherent in technology is that it increases our reach, our ability to “control” banking and commerce across the globe.
Thus we no longer just make little mistakes in a little locale that slowly migrates across the global landscape, We make mistakes that mushroom like a nuclear weapon, contaminating the whole world.
And, of course, we can no longer control this huge monster that we’ve created in banking and commerce — whose name is Debt.
We can blame whom we wish, but we’re way past our ability to solve our Debt problems.
Just like we can’t solve our Climate Change problems.
Just like we can’t solve our growing Air and Water and Ground Pollution problems.
But, hey, we can talk about it since talk is cheap.
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