ECB Preview: subdued wage and core inflation prospects mean it’s too early to tone down forward guidance

This piece argues that, despite recent improved €Area inflation and activity data, Draghi is likely to reiterate a highly-acccommodative ECB policy stance at Thursday’s press conference. Contrary to growing market discussions, the ECB is very unlikely to drop it’s forward guidance text on potential further rate cuts as it remains focussed on subdued core inflation … More ECB Preview: subdued wage and core inflation prospects mean it’s too early to tone down forward guidance

Trump Towers over €Area political risks: periphery yields and € pressurised

This piece considers the macro-financial implications of the Euro Area’s political risks, in greater market focus following Donald Trump’s election win (which I argued was underpriced), focussing on the 4 December Italian Consitutional Referendum.  Overall, further politics-driven market volatility seems likely, even if political concerns eventually dissipate. The main points are: Financial markets’ previous under-pricing of … More Trump Towers over €Area political risks: periphery yields and € pressurised

ECB preview: Awaiting the credit easing bazooka but several dark clouds persist

This post dissects the Euro Area macro-financial and policy situation in advance of the 2 June ECB meeting. The main points are: Draghi will likely focus on the positive prospective effects of their imminent credit bazookas (TLTRO II and CSPP) including highlighting the positive anticipatory impact of CSPP on bond issuance and spreads. That said, … More ECB preview: Awaiting the credit easing bazooka but several dark clouds persist

Draghi fires credit-easing bazooka but undermines market impact

The ECB today vindicated my arguments for an aggressive broad monetary policy easing: rate cuts, QE expansion and credit easing at very attractive rates exceeded market expectations but were more in line with my views (I’d hoped for a 20bp deposit rate cut, accompanied by tiering of interest rates, rather than the whole rate corridor … More Draghi fires credit-easing bazooka but undermines market impact

Trading the ECB: limited EUR weakness and bund rally likely but risks

My accompanying post details how the return of EA deflation, EA inflation expectations are in the process of de-achoring plus deteriorating EA and foreign activity mean that the 10 March ECB meeting is shaping up to be make or break for EA prospects and ECB credibility. I argued that the likely downward revisions to the ECB’s … More Trading the ECB: limited EUR weakness and bund rally likely but risks

ECB confronted by tighter financial conditions, poor data and politician pressures

Today’s headlines have been dominated by the 9-0 MPC decision (which I correctly anticipated, together with the EURGBP rise, see here).  But financial market developments over the past couple of days have also made for some very uncomfortable reading for the ECB – financial conditions have once again tightened despite Draghi’s strong hints at further … More ECB confronted by tighter financial conditions, poor data and politician pressures

ECB under pressure from oil and EUR strength

The early 2016 China-induced financial market volatility, including oil prices hitting twelve-year lows below $30 and sharp equity price falls, reinforces my existing bias to eventual further ECB easing in 2016 (alongside other central banks becoming more dovish e.g. Carney’s comments today,  Bullard’s recent concerns about US inflation expectations and others like the Riksbank biased … More ECB under pressure from oil and EUR strength

Caution in Threadneedle Street: weak pay growth supportive near-term but watching the Fed carefully

This morning’s surprisingly-weak UK pay data provide further ammunition to the dovish MPC members and the growing sense that the Committee really is in no rush to start raising interest rates and want to try and differentiate themselves from the Fed. That said, the recent UK pay growth slowdown has limited implications for inflation under … More Caution in Threadneedle Street: weak pay growth supportive near-term but watching the Fed carefully

Don’t look back in anger: from ECB to Fed via oil weakness

With a week having passed since the ECB’s surprising “hawkish ease” it’s useful to take stock of what it all means for ECB monetary policy, the EA economy and financial markets.  And how this fits into an environment featuring an oil price collapse (and commodity weakness more generally) together with anticipation of the likely 16 … More Don’t look back in anger: from ECB to Fed via oil weakness

Policy Divergence 2.0 increasingly priced but further limited FX action possible

This will be a key week for determining the strength of the ECB-Fed policy divergence theme (“divergence 2.0”) which has been increasingly occupying markets in recent weeks. While Thursday’s much-awaited ECB meeting tops the billing, it will be sandwiched by two high-profile appearances by Yellen (economic outlook speech on Wednesday, address to the congressional Joint … More Policy Divergence 2.0 increasingly priced but further limited FX action possible

Draghi “we will do what we must”: keeping up the downward EUR pressure

My previous post encouraged my readers to listen the Draghi and Praet’s dovish comments rather than think of recent easier financial conditions as a reason for the ECB to ease less than expected.  So Draghi’s powerful speech today reinforces my existing view that the ECB easing on 3 December is likely to exceed market expectations (although … More Draghi “we will do what we must”: keeping up the downward EUR pressure

ECB to deliver easing despite easing financial conditions: listen to Draghi and Praet

I argue below that the ECB seems likely to at least meet market expectations for easing on 3 December, despite EA financial conditions having recently eased. While tightening financial conditions contributed to the ECB turning dovish, the reverse doesn’t apply. The fragile EA macro situation means that ECB can’t take the risk of the recent … More ECB to deliver easing despite easing financial conditions: listen to Draghi and Praet

Riksbank after the ECB: Likely QE extension but rate cut not a done deal (SEK weakest if it eventuates)

One of the major impacts of Draghi’s very strong December easing hints last week (see here) is to pass the easing baton back to other previously-dovish central banks (in addition to capping nascent EUR appreciation, being bullish for EA government bonds with likely peripheral spread narrowing and potentially supporting the recent EM FX rebound). Here … More Riksbank after the ECB: Likely QE extension but rate cut not a done deal (SEK weakest if it eventuates)

ECB after the dovish Fed: QE extension virtually a done deal, expect further efforts to forestall EUR upsides

The Fed’s apparent dovishness, with markets pricing a delay in hiking until 2016 (see my accompanying post) on balance increases the likelihood that the ECB will on 3 December announce an expansion or (more likely) and extension of their QE programme (PSPP) beyond September 2016 end-point.  As I anticipated, Draghi opened the door to such … More ECB after the dovish Fed: QE extension virtually a done deal, expect further efforts to forestall EUR upsides

ECB need to start to recognising “an unwarranted tightening of monetary policy”

A range of financial market developments suggest that the ECB should be getting more concerned that “an unwarranted tightening of monetary policy” is occurring. The euro TWI is up nearly 5% (due to risk aversion effects, looking likely to knock ¼pp off the ECB’s inflation forecast), EA real interest rates have risen sharply (more than … More ECB need to start to recognising “an unwarranted tightening of monetary policy”

More Euro Area Glass Half Empty Evidence, EUR strengthening not helpful

I’ve previously argued that likely weak credit and labour market dynamics pose downside risks to the nascent Euro Area recovery. And Friday’s Q2 GDP data were disappointing at both the aggregate and country level, adding to other recent weak/mixed data. Given the ECB’s unprecedented monetary stimulus, support to real incomes from lower oil price and nascent … More More Euro Area Glass Half Empty Evidence, EUR strengthening not helpful

Should the ECB be concerned about labour market dynamics and inflation breakevens?

Recent Euro area data have been moderately positive, albeit far from stellar: the Citi EA Economic surprises indicator has been broadly flat since mid-May. Probably the nicest recent upside surprise was the bounce in core HICP inflation from 0.8% to 1.0% in the flash July data, the highest since April 2014, beating market expectations of … More Should the ECB be concerned about labour market dynamics and inflation breakevens?

ECB preparing to fight the FED and overly optimistic on lending dynamics reinforces likely EUR downsides

The headlines from last week’s ECB press conference were dominated by the ECB’s €900m increase in Greek ELA, the potential for Greek bonds to be included in ECB QE and the apparent overall commitment to keep Greece in the Euro. But that seems to have allowed more important developments to have pass under the radar: … More ECB preparing to fight the FED and overly optimistic on lending dynamics reinforces likely EUR downsides