Birthday boy retains stomach for the fight.... which is maybe just as well

Friday 4th September 2015

Birthday boy retains stomach for the fight.... which maybe just as well

Ref : "Markets jump as Draghi hints at more stimulus" , The Times, p.39

Even on his 68th birthday European Central Bank president Mario Draghi, who famously said back in 2012 that the ECB will do "whatever it takes" to stimulate the Eurozone recovery, let the markets know in clearer terms than was expected that he was still very much of the same frame of mind. Recent economic forecasts for the Eurozone show why :

 Growth :

2015 : 1.4% , down from 1.5%

2016 : 1.7% , down from 1.9%

2017 : 1.8% , down from 2.0%

Inflation :

2015 : 0.1% , down from 0.3%

2016 : 1.1% , down from 1.5%

2017 : 1.7% , down from 1.8%

 

Pointing out that this data was compiled before the recent rout in stock markets, some analysts are suggesting that even these downgrades may prove too optimistic. Whatever the case, Mr Draghi announced yesterday that the ECB was tweaking the current arrangements of its Quantitative Easing programme, allowing the central bank to purchase up to 33% of any issue, up from 25%, unless such a holding represented a market-distorting "blocking minority". More significantly, he made it clear that the ECB was ready, willing and able to expand its QE programme if required. Stronger language than the markets had been expecting, and it provoked a predictable market reaction : Weaker Euro, stronger stocks and bonds.

Perhaps equally predictably, this morning those moves are looking ..... well, short-lived. Why ? Well, perhaps Mr. Draghi gave us the answer to that himself. In highlighting the dangers to the ECB plan, he pointed out that they came from outside of Europe and therefore out of his control (notably China and oil). He's right .... they are both a big danger and outside his control. What's more, they will remain so. Maybe that's why the markets are still nervous, despite Mr Draghi's obvious determination.

DON'T FORGET : US Jobs data for August, out this afternoon :

Non-Farm Payrolls  : Consensus forecast +220,000, last 215,000

Unemployment Rate :         "               "       5.2% , last 5.3%

Average Hourly Earnings :  "               "      +0.2% , last +0.2%

Any strong data, which would probably include data matching consensus forecasts, will have those rooting for a September hike getting all noisy again. This interminable saga of "Will they? Won't they ?", or more accurately "When will they ?", sometimes makes one hope they'll just get it over and done with. More seriously though, some are suggesting that after all the Fed's signalling of what's to come, this wavering risks damaging the Fed's credibility. We can see their point ... though one might also argue that an ill-timed rise that provokes market turmoil would be judged equally injurious to the Fed's street-cred.