15 June 2018 FT — Articles to Read

15 June 2018

Question: According to MoneyTalksNews, what are 19 things you should make your kids pay for?

ECB moves to pull plug on 2.4tn (euro) stimulus scheme by end of year – Pg. 1

  • The ECB has declared an end to its three-year 2.4tn (euro) stimulus programme, announcing it will wrap up the historic scheme credited with reviving a crisis-wracked Eurozone economy at the end of the year
  • The decision to end the billions of euros in monthly bond purchases, ..was balanced by leaving interest rates at record lows and signaling they were unlikely to rise before September 2019 – later than some analysts had thought
  • The dovish message on rates sent the euro falling sharply, off 1% against the dollar to $1.1672
  • The ECB will gradually taper the stimulus programme through the rest of the year, cutting its monthly asset purchases in half to 15bn (euro) after September before phasing them out entirely
  • The ECB’s move, taken at a meeting in Riga, brings it closer to the US Federal Reserve and the BoE, which have not only ended quantitative easing but also started raising rates

Powell keeps his hawkish side on a leash – Pg. 4

  • ….new chairman vowed to speak in plain English and hold more regular press conferences as he fosters “a public conversation” about what the US central bank is up to
  • …it was clear from the Fed chair’s post-meeting press conference on Wednesday that US rates would continue to be lifted gingerly, but that the Fed’s ultimate destination was uncertain
  • Unemployment is now on tract to drop to only 3.5%, the lowest since the 1960s, even as inflation remains close to the central bank’s 2% target
  • Growth this year is tipped to come in at 2.8%, above the Fed’s 2.1% median prediction a year ago
  • The median forecast from Fed officials puts rates at 3.4% in 2020, well above their estimate for which neutral rate in the longer term, which remained at 2.9%

Fed tweak hints at limits to shrinking balance sheet – Pg. 19

  • …officials raised an interest rate by just 20bps to 1.95%, rather than the customary 25bp increment
  • The change, while technical, might signal that the US central bank will not be able to shrink its balance sheet as much as commonly expected
  • The rate that was tweaked, known as the IOER, or “interest on excess reserves”, is the interest the Fed pays on money held at the central bank, and has until now acted as the upper level of its corridor, while the “overnight reverse repo programme”, or RRP, has been the defacto floor of the Fed funds range
  • The Fed funds rate has been nudged higher by the central bank, slowly draining “excess reserves” from the financial system, which has started to have a bigger than expected impact on short-term money markets
  • The Fed has historically controlled the Fed funds rate by controlling how much money sloshed around in the Fed Funds market. If it wanted to lift interest rates, the central bank sucked funds out by selling Treasuries it has in storage to commercial banks, and taking money out of their accounts at the Fed.  When it lowered interest rates, it pushed money into the market by buying Treasuries from the banks
  • But the Fed’s crisis-fighting quantitative programme entailed buying massive amounts of bonds from banks and crediting their accounts at the Fed with new money – flooding the financial system with surplus Fed funds and forcing the central bank to start using IOER and RRP to control the Fed funds rate
  • …the total assets held by the Fed has slowly dipped from about $4.5tn to $4.32tn as of this week

US tightening heaps pressure on Hong Kong mortgage rates – Pg. 19

  • Short-term interest rates in Hong Kong are rising at a lively pace and reviving concerns among analysts that tightening financial conditions will challenge the highly valued local property market
  • The relentless rise in borrowing costs has stoked concerns about pressure on borrowers as most mortgages in Hong Kong are tied to the floating rate Hibor

Answer: (1) Movies and TV; (2) Designer clothing and accessories; (3) Candy, gum, and other sweet treats; (4) College; (5) Toys and games; (6) Pets and pet supplies; (7) Gifts for friends and family; (8) Cosmetics and beauty supplies; (9) Any items freely available elsewhere; (10) Replacements for items they broke; (11) Donations to charity; (12) Snacks between meals; (13) School events; (14) Phone data plans; (15) Late fees and finance charges; (16) Unnecessary school supplies; (17) Their own rainy-day fund; (18) Yearbooks and spirit wear; (19) Cosmetic piercings and tattoos