Source: St Louis Fed

Don’t discuss reducing the amount of monetary-policy support for the U.S. economy while the pandemic is still raging, said two Federal Reserve officials after some of their colleagues mooted a debate later this year. “We want to get through the pandemic and sort of see where the dust settles, then we will be able to think about where to go with balance-sheet policy,” Federal Reserve Bank of St. Louis President James Bullard said Tuesday during an online interview with the Wall Street Journal.

Noting that the outlook will hinge on the successful rollout of Covid-19 vaccines and the path of the virus, Bullard said “we are going to have to see how all of that proceeds here going forward. Then we will be in a position to make a judgment.” Bullard is not a voter this year on the rate-setting Federal Open Market Committee.

The Fed last month signaled interest rates would stay near zero at least through 2023 and pledged to keep buying bonds at a $120 billion monthly pace until “substantial further progress” had been made on its employment and inflation goals.

(Bloomberg – Continue Reading)

The government of Italian Prime Minister Giuseppe Conte teetered on the brink of collapse as a junior ally renewed a threat to abandon the coalition, jeopardizing the country’s attempt to counter the pandemic and salvage its economy. Ex-Premier Matteo Renzi, leader of the Italy Alive party which is languishing at 3% in opinion polls, said his group will decide Wednesday whether to topple Conte’s government by withdrawing its ministers.

“We don’t want to be in government at all costs, if you want us to be in the government, listen to our ideas,” Renzi said in an interview with Rai state television Tuesday night. “Tomorrow morning we’ll decide and tomorrow afternoon we’ll give our decision in a press conference.” The press conference will be at 5:30 p.m., Ansa news agency reported.

A Renzi move to pull his ministers from the coalition would rob Conte of his parliamentary majority and come at the worst possible time for the country, which has been waging a battle against a worsening pandemic and a recession, while taking on the presidency of the Group of 20 nations.

(Bloomberg – Continue Reading)

Source: Federal Reserve

The past week has seen a surge in option bets which pay off as more Federal Reserve hikes are priced in, though all of them are targeted at rates two or three years from now.

Given the Fed’s mantra of lower rates for longer, traders don’t expect hikes this year and are unwilling to pay up for expensive options with long-dated expiries. The solution: a rush into so-called mid-curve options with short-term expiries but are priced off rates a couple of years out. This allows traders to focus bets on 2023 and 2024, without having to hold the options for more than a few months.

Volumes in this part of the option market have surged to the highest since November in some cases as U.S. President-elect Joe Biden prepares to release proposals for a stimulus package worth trillions of dollars on Thursday, spurring wagers on additional rate hike premiums in Eurodollar futures. This has come at the expense of conventional options, where volumes have dropped to the lowest in about three months.

(Bloomberg – Continue Reading)

FRANKFURT – Economists say the German economy likely contracted more than 5% in 2020 due to the pandemic, and the country’s Federal Statistics Office on Thursday is expected to offer comments about how the country fared in the fourth quarter when it presents the full-year data. A survey of economists predicts that Europe’s largest economy shrank 5.1% last year after growing 0.6% in 2019. Such a decline would be massive but would fall short of Germany’s 5.7% GDP contraction in 2009 following the Global Financial Crisis.

 The German economy whipsawed for the first nine months of last year as the pandemic gripped the country. Record growth of 8.5% in the third quarter followed a record plunge of 9.8% in the prior three months and a 2.2% contraction in the first quarter.

 While Thursday’s data are backward-looking, many economists are still keen to find out about the economy’s health in the final quarter of the year. The statistics office said it will probably not provide a hard number for the growth rate last quarter but could signal how the economy fared during the period. Last January, for example, officials said the final quarter of 2019 showed a “small increase”, which later turned out to be quarterly growth of 0.1% that was subsequently revised down to 0.0%.

(LiveSquawk – Continue Reading)