Mario Draghi’s nonsense is a compost heap as he tries to continue his efforts to build the ECB‘s balance sheet to the point of no escape. The ECB president danced around inflation questions by generally holding to the view that inflation across the entire euro zone would have to rise to the 2% level for the central bank’s mandate to be met. Currently, Draghi holds to the view that the recent elevated levels of inflation are transitory due to higher energy costs. It was noted that there has been a decline in service sector costs, which could put downward pressure on inflation once the energy prices pass through the data. Draghi also emphasized that with the current unemployment levels in some EU countries there was far too much slack which keeps wages from rising. A positive point for the ECB is that it does not follow NAIRU as a major gatekeeper of wage levels. In his typical effort to elevate his position, Draghi applauded the ECB for saving the EU financial system and economy, but until the politicians make the needed structural changes there will be continued “substantial monetary accommodation” so the ECB can meet its inflation mandate.
Posts Tagged ‘ECB’
In an interview with the Wall Street Journal, the tweeter-in-chief was reported to have said, “The DOLLAR IS GETTING TOO STRONG.” As some pundits discussed, instead of Trump calling China a currency manipulator it seems he wants to use the dollar as a cudgel to pressure others into not embarking on policies to weaken their currencies. As I wrote on April 2:
“The Trump Administration’s efforts to curb the U.S. trade deficit may see the executive branch try to depreciate the U.S. dollar if Secretary Mnuchin and Secretary Ross fail to persuade certain global actors to embark upon policies to adjust their current account and trade surpluses. The Fed’s recent tightening has not rallied the dollar–it actually closed lower on the quarter–so if the political status quo is sustained in Europe and no new political crisis emerges, the DOLLAR will become a barometer of Trump’s policies on trade.”
The biggest news in a very slow week of news is the beginning of the Brexit plan as Prime Minister May sent a six-page memo to Brussels as Article 50 begins and the two-year time period allotted for extrication from the EU starts the clock ticking in a very formal fashion. I SAY THIS TO ALL MY READERS: Two years is a very long time. There are many political and economic events (unforeseen by the static minds of entrenched power elites) that can dynamically change currently perceived outcomes. The fragility of global politics can wreak havoc with the certainties laid down by the likes of Jean Claude Juncker. The current position of the Brussels bureaucrats is the desire to punish Britain for the temerity of its citizens to vote to exit the “UTOPIAN” construct of the European Union.
In reviewing the March 9 ECB and March 15 FOMC meetings, the press conferences emceed by President Mario Draghi and Chair Yellen revealed little but raised questions about serious issues confronting the world’s two key central banks. The ECB maintained its current policy and will scale pack monthly QE activity to 60 billion euros starting April 1 while keeping its deposit rate at NEGATIVE 40 basis points. Draghi bowed deep and heaped praise upon himself and his fellow board members by proclaiming that they saved the EU and the euro. Draghi said “without a single currency there could not be a single market.” It was Draghi’s July 2012 speech of “we will do whatever it takes” to preserve the euro, which saved the currency and logically means the ECB saved the EU.
Please Donald, will the POTUS STFU, PLEASE. This is not a political statement. It is free advice because the more you communicate the less impact you will have. You may be trying to use the bully pulpit to jawbone the DOLLAR lower but every tweet diminishes your influence. Peter Navarro tried to create a weaker dollar but you have lessened the impact of his misinformed missives. Historically, jawboning has had a short-term market effect, but your late-night 140 character references are losing the power to persuade. You must learn that words are like your campaign sexual references, less is more. SO PLEASE, STFU.
Notes From Underground has been concerned that 2017 would be the year of Europe as the ECB’s quantitative easing policy and NEGATIVE interest rates would be an issue for many of the elections taking place this year. The Dutch, French and Germans will hold parliamentary elections. Those following the mass media will be focusing on immigration while NFU will continually seek to underline the importance of the repressive financial policies of the ECB. It is this narrative we will use to take the pulse of potential upheavals to the status quo. There is no doubt that the opposition to President Draghi is growing. In a threat to the Empress of Europe, Angela Merkel, received news that her coalition partner, SPD, has overtaken her party in the polls.
The inauguration is over. Davos is behind us. Let’s start examining the impact of policy and politics as we move forward. The first three weeks has brought stasis for equity markets as the S&Ps have not set new highs since the December exuberance. Investors are beginning to comprehend that the slow-moving legislative process will impede Trump’s efforts for an expedited deregulation and tax reform program. But, if you follow the proliferation of stories about a possible dissolution of the EU, my prediction with Rick Santelli about Europe being the main focus of 2017 is coming to fruition. One wonders what was discussed in the backrooms of Davos that led so many global executives to suddenly express concerns about the increased populism in the Netherlands, France and even Germany. It seems that the Dutch elections have gained a prominent position as a severe test for Brussels-based eurocrats.
Oh yes, we got trouble right here in Frankfurt City! It rhymes with T and starts with G and is spelled Germany. Today (and of no genuine market surprise), the ECB made no adjustments to its current QE and negative rate policy. The press conference was where all the potential market moving “tweets” would take place, but Professor Mario Draghi danced around the very fine questions from the European financial cognoscenti. Draghi was sharp as he insisted that “we need lower interest rates to get higher rates.” Also, when one inquisitor asked if the ECB was ready to DO LESS if inflation reached close to the MAGIC 2% level, President Draghi admitted that we only considered doing more QE (never LESS). Thus, the ECB allowed us a look at the asymmetric BIAS of all central banks. The ECB is far more worried about low growth, low inflation that the main concern is always more. And Draghi’s ultimate fallback position for the construction of counterfactual policy formation is the ongoing deleveraging process in Europe.
I’m still nursing a New Year’s hangover. It takes a long time for the mind to rid itself of all the news the mainstream media deems fit to read. But as the third rock keeps spinning, markets will keep moving and we will strive to untangle the ball of confusion. After today’s tepid ADP data the market has settled into a consensus for 175,000 nonfarm payrolls. Again, I would love to see a number greater than 250,000 just to test the recent market action. BONDS rallied, currencies rallied against the DOLLAR, precious metals are showing early year strength and commodities have held support levels in the age of TRUMFLATIONARY EXPANSIONARY EXPECTATIONS.
This year has been a year of surprises as conventional wisdom-based forecasts have proven to be like oral agreements: not worth the paper on which they are written. The coming year promises to bring more confusion and volatility as the markets are preparing for the U.S. to be a Trumpian utopia of wealth creation. I caution against blindly accepting this narrative for it will not be a U.S.-centric year. Attention will turn to Europe as the political cycle brings elections in the main players. France and Germany are the EU and the rest just the trimmings (so stated Charles De Gaulle). The EU is fraught with problems, so the more uncertainty raises the profile of the ECB President Mario Draghi. Senator Charles Schumer once said to Fed Chair Ben Bernanke, “You are the only game in town.” Well, an ECB with a printing press and no political accountability provides a central bank on steroids. Mario Draghi perceives himself as the savior of the EU project so expect him to be hyperactive in response to any major political changes in France. Greece, Italy and Spain still remain an economic issue so the entire EU financial system will be subject to paroxysms within its debt and equity markets.