Mr. Santelli interviewed me today and the topic evolved into Christine Lagarde and the IMF. The conversation was based on previous blogs as we discussed IMF culpability in the Greek debt crisis. The Santelli Exchange is linked below (click on the image). Also, I would advise reading the comments on the previous blog, especially the words of wisdom from University of Illinois finance professor Kevin Waspi.
Notes From Underground: Ricky and Yra Down By the Schoolyard
***Tomorrow the ECB meets. The public pronouncement of its interest rate decision hits the wires at 6:45 a.m., followed by a 7:30 a.m. press conference (all times CST). It is highly doubtful that the ECB will change any of its current policies but we will have to listen for any hint as to how they may frontload its QE purchases as suggested by ECB Executive Board Member Couere. The French member of the ECB board advised that the central bank would purchase some excess bonds in June because of the slowdown of activity in July and August. This is a bad idea and shows how little Mr. Couere understands markets. The ECB should hold off buying in June when market liquidity is greater and utilize more firepower for the thinned out summer markets when ECB intervention can have greater impact and allow the bank to push sovereign bond yields to desired levels with much less resistance.
It could be a wonderful world if central bankers would bother to respect and understand markets rather than fear them. Today the EURO had a very sustained rally as it moved more than two percent higher versus the dollar and a significant amount against the YEN as the EUR/YEN closed above its 200-day moving average for the first time since January 2015. Did the euro rally because of possible good news from Greece or was it the above consensus rise in the CPI data out of Europe? It seems that the market wants to believe that an early end to a deflationary threat is positive for the EURO.
***Last night the Reserve Bank of Australia decided to keep its overnight interest rate at 2.0% and the policy statement was very tepid and non-committal to any type of forward guidance. What did catch my eye was this paragraph:
“The Federal Reserve is expected to start increasing its policy rate later this year, but some other major central banks are continuing to ease policy. Hence, global financial conditions remain very accommodative. Despite some increases in bond yields recently, long-term borrowing rates for sovereigns and creditworthy private borrowers remain remarkably low.”
Did Governor Stevens tip the hand of conversations with Stanley Fischer and inform global investors that there is nothing to fear of 1% rates? A FED rise will have minimal impact on global financial liquidity. Just something to keep in mind that another central bank is noting possible Federal Reserve action.