Guest Post by Thomas Harjes and Fabio Fois (Barclays) | Despite the softer November inflation print and some likely downward revisions in the ECB’s inflation and growth outlook next week, we do not expect the ECB to announce further policy easing when the Governing Council meets on Thursday, 4 December. We believe the ECB is going to wait at least another month.
SAO PAULO | By Marcus Nunes | As soon as you mention “market monetarist”, NGDP comes to mind. While for most the all-encompassing variable is inflation, to MMs the “target” variable is NGDP being kept at a steadily rising trend level.
MADRID | The Corner | Inflation in the eurozone is not picking up. Expectations aren’t either. And the ECB’s balance sheet expansion is almost inexistent. PMI indicators (which the central bank is closely watching) are trending downwards. In this context, Barclays analysts comment, it is not strange that markets are expecting more QE from the Frankfurt. But when? Probably not this week.
MADRID | By Sean Duffy | The OECD´s economic outlook showed that voices calling for action in Europe are growing louder. With the outcomes of austerity and budgetary consolidation continuing to drag down the economy, Catherine L Mann´s arrival as its chief economist represents a significant coup for advocates of the opposite recipe.
SAO PAULO | By Marcus Nunes via Historinhas | Why? According to the “accountants”: “It’s no secret that spending cuts (and tax hikes) have retarded America’s growth for the past four years. But data from the Bureau of Economic Analysis suggests that the era of austerity may finally have ended.” See the “flagship chart” above.
MADRID | The Corner | Trading trends in the Euro today are expected to be determined by the Euro-zone’s crucial CPI data. As happened yesterday with Spanish and German data, consumer prices are expected to do down in November, due to an energy prices drop. Will the European Central Bank feel any pressure to act? Then bad news could turn a blessing for financial markets.
MADRID | The Corner | Mario Draghi: “Some form of cross-country risk-sharing is essential to help reduce adjustment costs for those countries and prevent recessions from leaving deep and permanent scars.”/ Jens Weidmann: “Fiscal policy should support the central bank with solid state finances, so that monetary policy can concentrate on its actual mandate, and sustainably secure the value of money.”
SAO PAULO | By Marcus Nunes via Historinhas | There´s absolutely nothing new on the economic front! So why there´s so much talk about “policy normalization” (i.e. increase in rates)?
MADRID | The Corner | Chairman at Bundesbank and member of the ECB’s Government Council Jens Weidmann warned -again- that more ECB measures to solve low inflation are difficult and could face legal limits. As markets await for Mr Draghi’s appearance on Thursday, ECB’s Benoit Coeure insisted in a Bloomberg TV interview they won’t “rush to a new decision without knowing.”
By Sreekala Kochugovindan, Anando Maitra (Barclays) | History highlights the importance of the business cycle in determining the effect of rising rates on asset returns, a topic we discussed in depth in Scenarios for a shifting bond landscape. We examined US data since 1925 and selected episodes where US Treasuries sold off by more than 5% in one year. The results were pretty mixed, with equity returns ranging between plus and minus 50% and providing no consistent pattern.