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Peek Ahead: Surprise! It's the central bank

Published in Automated Trader Magazine Issue 36 Spring 2015

Central banks are full of surprises. Remember when Switzerland's central bank unpegged the franc from the euro? You might have seen a little news story about it here and there. The euro and USD plunged almost 30% against the franc immediately after, causing chaos in FX markets around the world.

More hilarity ensued. In Europe, the European Central Bank, Denmark, Switzerland, and Sweden have imposed negative deposit rates, with the latter becoming the first to make its main repo rate negative.

Asian economies are dropping rates too. Thailand, South Korea, China, India, the Philippines, Indonesia - all surprised markets with rate cuts. More central banks are expected to join the party.

Before even these dominoes fell, Japan's "Abenomics" announced a bigger yen bazooka via its QE programme, as well as a major rebalance of its pension fund holdings to favour more equities, both foreign and domestic. It was the latest attempt to beat out a decades-long rout of stagflation.

A Japanese asset manager told Peek Ahead that in Japan, earthquakes may be trouble but central banks are "even more so dangerous".

Which brings us to the Fed and pressure to hike interest rates. What combination of economic figures exactly do the chicken gut diviners need to see to hit the button?

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