MADRID | By JP Marin Arrese | Ever since Alan Greenspan moved at will financial markets behaviour, simply by talking up or down either expectations or exchange rates, central bankers have tried to follow suit. For all his merits, Mario Draghi lacks Greenspan’s skills. Even if he commands enough fluency in English, his messages sometimes are utterly ill placed. Yesterday’s underperformance in his press conference showed it vividly.
MADRID | By J.P. Marín Arrese | Mario Draghi’s anxious call to governments, urging them to put the house in order by implementing a combined economic and monetary policy, seems the right course of action. Deflationary risks run high as prices fall well behind the medium-term target. Once again, the Eurozone seems stuck as the growth prospects dwindle. Nothing new, as its appalling record during the crisis shows. Filling gaps through moral lessons, instead of money, hardly solves deeply entrenched problems.
MADRID | The Corner | It’s speculation day before the European Central Bank’s tomorrow meeting. Will a QE plan finally be announced? Experts at Santander bank think that, if announced too early, it could damage TLTROs. JP Morgan economists believe there is a 30% chance we’ll get a QE shot in 2014, 50% next year. And they’ve come with a proposal we find erratic: 17 different bond buying plans, one for each state member. That is exactly the opposite direction the EU needs to be heading to.
MADRID | The Corner | While bonds are considering a world without growth nor inflation, equities seem much more optimistic. On their Monday comment, JPMorgan analysts point out that, on a global level, monetary policies are still increasingly more expansionary in aggregate form.
MADRID | By J.P. Marín Arrese | Draghi’s performance in Jackson Hole has largely overshadowed other central bankers. Undoubtedly he surpasses himself in summertime. Just remember his landmark defence of the Euro back in August, 2012.
MADRID | The Corner | Although it is not part of ECB’s mandate, last Friday in Jackson Hole, President Mario Draghi spoke about what needs to be done in the euro area to address the problem of high unemployment and weak economic growth. As Barclays analysts believe, the speech “represented a significant breakthrough in the ECB rhetoric and will probably have significant implications regarding the debate just about to start between European government on policies that need to be deployed to avoid a ‘triple-dip recession’ and a fall in outright deflation.”
MADRID | By J. J. Figares (LINK) | On Wednesday, the minutes of the last meeting of the Monetary Policy Committee of the Bank of England (BoE) were published. Although 9 of its members voted to retain unchanged its program of asset purchases in secondary markets, 2 of them, Ian McCafferty and Martin Weal, they voted against the proposal to keep interest rates reference at the current level of 0.5% and advocated to increase them by a quarter percentage point.
MADRID | The Corner | 2014 is not being a good year for LatAm. All countries in the region with the exception of Colombia have experienced much softer than anticipated growth. In Brazil, the political noise and uncertainty have impacted on the confidence and private activity in 1H201, with investments and private consumption leading the way down. UBS analysts see now Brazil’s real GDP growth at 0.6% in 2014 and 1.5% in 2015.
MADRID | The Corner | Central bankers are meeting this week in Jackson Hole to talk about employment and its weakness in general terms. Unlike what is happening in Europe, US and UK are seeing improvement in employment (their unemployment rates have decreased from 10% to 6.2% and from 8.4% to 6.4%, respectively) with the curiosity that they’re not coming with wage increases. In fact, last British data shows the first fall since 2009. This circumstance means less inflationary pressures, therefore Bankinter analysts think that central banks will not start to tense its monetary policy until wages begin to invigorate, something that will take some months to arrive.
MADRID | By J. J. Fdez-Figares (LINK) | European and American stock markets closed yesterday up in a session of low activity and volatility. The good performance of Western stock markets occurred despite the set of macroeconomic figures published during the day in China, Europe and the USA, which pointed again to a global slowdown in economic growth. The only explanation we can find to the good performance of stock markets yesterday is precisely that investors have interpreted that as long as the growth of these economies remain weak, the central banks will be forced to maintain its current policy of monetary expansion, which provide liquidity to the system, something that equity markets consider positive.