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Chart via BCA Research. And here is commentary from Credit Suisse: 

Draghi has clearly linked a decline in medium-term inflation expectations to ECB QE in previous speeches and the last press conference, so this is something that the ECB must be taking note of, and which the market will, rightly, expect some discussion on if it is sustained. The first opportunity for clarification will be Draghi’s speech at Jackson Hole on Friday (20.30 CET). It is unclear whether he will comment on this given that the conference is focused on the labour market. After this, the market may have to wait for the September ECB meeting (4th Sep).

(Cardiff)

Chart via BCA Research. And here is commentary from Credit Suisse: 

Draghi has clearly linked a decline in medium-term inflation expectations to ECB QE in previous speeches and the last press conference, so this is something that the ECB must be taking note of, and which the market will, rightly, expect some discussion on if it is sustained. The first opportunity for clarification will be Draghi’s speech at Jackson Hole on Friday (20.30 CET). It is unclear whether he will comment on this given that the conference is focused on the labour market. After this, the market may have to wait for the September ECB meeting (4th Sep).

(Cardiff)

Womenomics: a problem so bad we can forgive the neologism

Just one example from Goldman:

That’s female representation on Japanese company boards at a mere 1 per cent. Background here.

(David)

Barc, shuffling on the dance floor

From Deutsche:

Bank costs - Brain scans show that men think their body movements are more exaggerated than they are. Hence blokes shuffle about a dance floor but feel like John Travolta. Banks are the same when it comes to cost cutting. Many are convinced they are being radical but in reality change is fairly modest. Barclays just announced a “bold” plan to reduce 2015 costs to £16.3bn versus £18.7bn last year and headcount 13 per cent by 2016. When the 45 year old Jack Welch took the reins of General Electric, by contrast, he promptly cut his 410,000 employees by almost a third. Indeed many predicted that post crisis banks would finally rein in expenses. But in aggregate European lenders, for example, are forecast to have the same 60 per cent cost to income ratio this year as they had in 2009. Staying alive! 

Via @tracyalloway

(David)

May 9

Negative interest income phenomena

JP Morgan seeing the weird effects of negative rates:

(c) Negative interest income for the three months ended March 31, 2014 and 2013, is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this matched book activity is reflected as lower net interest expense reported within short-term and other liabilities.

How many damn arrows does this guy have again?

Abe, that is. He’s definitely got three, probably got four, and some might say five if you allow them to include the Olympics. But let’s ignore them (because it’s irrelevant) and allow Citi’s Buiter et al the use of “fourth” to discuss why “the fourth arrow of Abenomics will be fired belatedly and awkwardly, but it will hit its target, and in a way that ought not to re-open the old wounds of persistent deflation and excess capacity.”

If, as we expect, the scope for financial repression may also become more limited as Japan becomes a current account deficit country and its vast stock of private wealth is gradually diminishing because of an aging and declining population, balancing the fiscal equation will either have to come from sovereign debt restructuring or from fiscal austerity.

In our view, it is unclear whether it will be the former or the latter, or in fact a combination of the two. Our base case is that eventually austerity will do the heavy lifting. This is based on the view that, first, there is plenty of private wealth, as noted above, and, second, that the willingness to pay taxes (once they are on the statute books, that is tax compliance) will remain very high. After all, the incidence of sovereign debt restructuring is not simply a function of the debt burden, but usually requires a breakdown in social cohesion as well, and there are few signs of that in Japan.

But there are risks.

The full note makes for thorough reading.

(David)

Armed with these data, Mr. Connor is comfortable espousing some truths about global cartels. They require a limited number of market players, homogenous products, few individual conspirators, and the opportunity for face-to-face meetings every three months or so, possibly to deal with currency changes.

They rarely last longer than a decade, often torn apart by internal instability, as one firm tries to cheat the others. (The Justice Department banks on that suspicion, granting leniency to the first company to defect from a cartel.) The government also punishes price-fixing against itself more severely than such offenses against the private sector, he has found, and its sanctions result in a net benefit to national accounts.

- "An Economist Corners the Market on Global Cartels"

FT Alphaville meets mathbabe to talk Occupy Finance

After reading Occupy Finance, the book launched by Occupy Wall Street’s Alternative Banking Group on the second anniversary of OWS’ formation, we were curious about some of the motives and mechanics behind it. FT Alphaville went to our usual point of contact, Cathy O’Neil, aka mathbabe, to ask a few questions.

AV: How did the idea for the book come about?

We wanted to turn our conversations that we’d been having in our group on Sunday into something we could share with the wider world. In particular we know a bunch of people we consider “occupy friendly” who don’t have time to come to the meetings but want the understanding that we’d come to as well as the ammunition to debate the issues in a conversation about the financial system.

AV: Writing by committee and forming a consensus on the content must be very hard, how did the group manage that?

Lots of meetings, DropBox, and massively large email chains.

AV: Sometimes when I read the book I found myself wanting more evidence to be provided for some of the claims made, or for more links to original sources in the notes rather than links to popular media articles. What sorts of discussion did the group have around this?

We were pretty proud of getting in as many footnotes as we did, but it’s absolutely true that it’s not comprehensive. It’s the beginning of a much-needed conversation. We’d love you to be part of it.

AV: Some of the members of the group work in finance. Do people at their places of work know about their involvement with the group? How do they square their involvement with their employment?

Some people use pseudonyms for this reason. Also the book was authored by 25 people but nobody’s name will appear on it.

AV: What was the role of some of the group’s more famous supporters, such as Yves Smith and Neil Barofsky?

They were certainly with us in spirit, but this book was made by the humbler elements of our group. Probably the most famous contributor is Akshat Tewary of Occupy the SEC, who helped us with the chapter on the history of regulation.

AV: What are you realistically hoping for in publishing this book?

A continuing discussion of too-big-to-fail and part in the evolving understanding of how finance touches the average person.

AV: Imagine you had a budget of $1m for the third anniversary. What are some suggestions you can think of for how to use it if the group had it?

Produce educational materials on finance, including improving our web presence so that people outside New York could be more involved with the group. You know, some people have suggested we become lobbyists. That’s one thing I can promise won’t happen. But it would be nice to be able to afford to spend more time writing and promoting public commenting letters on current regulation.

AV: As I understand it, you’re also a mum and work at City Hall. What proportion of your life does being involved in the group take and why do you do it?

Yes I have three sons, ages 13, 11, and 4. I spend Sunday afternoons at the meetings, and I often work on it when I can during the week. I do it because it’s important to me. I consider myself incredibly lucky that I get to do things that are important to me essentially every minute of the day, sleep included.

Related link:
FT Alphaville’s blog post on Occupy Finance

(Lisa)

China’s July flash PMI at 47.7 vs 48.2 in June. Not much to be bullish about in the components. Press release is here.
(Kate)

Equity risk premium and term premium sound like sophisticated economic concepts, but in reality they are statistical junk yards into which economists toss stuff they can’t explain with fundamentals.

-

Greg Ip at Free Exchange

(Cardiff)

Well, *something* about this is embarrassing anyways

"It’s embarrassing," said a senior Crédit Agricole investment banker.

"We have to stay in hotels in the city’s outskirts and waste hours in the train to go to Amsterdam or Switzerland because we can no longer fly there," he said. "If I’m not taking clients out, I can barely afford an entree and a glass of wine in the evening."

"Crédit Agricole Bids Adieu to Pricey Lunch"

(Cardiff)

Brains vs beauty: Merrill Lynch edition

However, 1970s sexism in banking is best illustrated by an interview question which was then included in Merrill Lynch’s broker trainee programme. “When you meet a woman, what interests you most about her?,’’ it asked. The correct answer, for which trainees received the most marks, was ‘her beauty.’ Trainees who responded with, ‘her intelligence,’ were penalized and awarded the fewest points of all. One applicant successfully sued Merrill Lynch for sexism on this basis.

From eFinancialCareers.

(David)

Finding content on the Web is not a serious problem. It’s a leisure problem – as in, it’s only really applicable to someone who has too much leisure time. If someone ever comes to me to say, “Oh, I can’t find anything decent to read on the Internet while I’m killing time waiting for my Uber,” I’m just going to slap them.

- Enough with the news-reader apps – it’s time to support media that really matters | PandoDaily (via wonklife)

Across the five industries that are most sensitive to changes in military spending, employment fell at an annual rate of 2.5 percent in March and stayed flat in April, the latest month for which seasonally adjusted data are available. In all other sectors, by contrast, employment grew at annualized rates of about 1.6 percent in March and 1.7 percent in April.

-

Catherine Rampell on the impact of the sequestration cuts

(Cardiff)

Governor Zhou: just deal with it.
(Thanks to Melvin Backman.)(See also) - Kate. 

Governor Zhou: just deal with it.

(Thanks to Melvin Backman.)(See also) - Kate. 

Is it policy? China edition #x

From Lombard Street’s Diana Choyleva:

China’s banks are operating in an environment where overall liquidity pressures are going to mount further, not just as a result of the current policy action, as I analysed in the Note mentioned above. The likelihood is that there will be a required reserves ratio cut by the end of the year as growth slows further below trend and the authorities will have to start easing monetary policy.

Some have argued that the PBoC staying pat suggests the authorities have faith in the economy and want to show that they remain in control. But given the carnage in the corporate sector, with profits down and the squeeze on margins still on, the economy is in fact in for rising unemployment and a faster build-up of bad loans.

China has made very few meaningful reforms since the previous leadership took office in 2003, instead spawning ever bigger financial imbalances, not just in terms of overinvestment at home, but also the excessive build-up of debt abroad. But if the current PBoC response, together with Li Ke Qiang’s bold statement about capital account opening do indeed mark the start of substantial financial market reform, the long-term future of China just got brighter. Unfortunately, any long-term gain will only be possible after significant short-term pain.

More background here.

(David)