In response to almost a decade of QE and with little discernible effect, central bankers have resorted to negative interest rates. What is the zero lower bound and will below zero rates have the desired effect?
If negative interest rates fail to halt deflationary momentum, could more extreme options such as ‘helicopter money’ be a viable next step?
• The recent uptick of Chinese demand for copper and low levels of warehouse stocks give a misleading picture of the state of the copper market.
• Taking a broader view of stocks, we suggest that there is a substantial amount of “missing copper”, large portions of which are held by the Chinese State reserve Bureau (SRB).
• The policy of the latter in 2016 is therefore key to the performance of copper.
• Does the recent weakness and volatility in the CNH spot and short-tenor forward market herald a new era of Chinese capital outflows?
• In this blog post we offer our thoughts on three strategically important questions regarding China’s macroeconomic and FX policy, for which there appears to be little consensus.
• A disaggregation of the decline in foreign exchange reserves and the balance of payments reveal some less sinister causes of reserve drawdowns and capital outflows
• Looking at the bigger picture, we believe China is stuck in an uncomfortable position within the “impossible trinity” and see further exchange rate and capital account liberalisation key factors in finding a new equilibrium.
• The labour share of GDP appears to be an important catalyst in the workings of the Balassa-Samuelson effect.
• Understanding it can allow us to better infer currency valuations and the rate at which productivity growth translates into exchange rate appreciation.