ECB chief Mario Draghi returns to London next week almost 10 months on from his seminal “whatever it takes” speech to the global financial community in The City – a speech that not only drew a line under the euro financial crisis by flagging the ECB’s sovereign debt backstop OMT but one that framed the determination of the G4 central banks at large to reflate their economies via extraordinary monetary easing. Since then we’ve seen the Fed effectively commit to buying an addition trillion dollars of bonds this year to get the U.S. jobless rate down toward 6.5%, followed by the ‘shock-and-awe’ tactics of the new Japanese government and Bank of Japan to end decades.
And as Draghi returns 10 months on, there’s little doubt that he and his U.S. and Japanese peers have succeeded in convincing financial investors of central bank doggedness at least. Don’t fight the Fed and all that – or more pertinently, Don’t fight the Fed/BoJ/ECB/BoE/SNB etc… G4 stock markets are surging ever higher through the Spring of 2013 even as global economic data bumbles along disappointingly through its by now annual ‘soft patch’. Looking at the number tallies, total returns for Spanish and Greek equities and euro zone bank stocks are up between 40 and 50% since Draghi’s showstopper last July . Italian, French and German equities and Spanish and Irish 10-year government bonds have all returned about 30% or more. And you can add 7% on to all that if you happened to be a Boston-based investor due to a windfall from the net jump in the euro/dollar exchange rate. What’s more all of those have outperformed the 25% gains in Wall St’s S&P 500 since then, even though the latter is powering to uncharted record highs. And of course all pale in comparison with the eye-popping 75% rise in Japan’s Nikkei 225 in just six months!! Gold, metals and oil are all net losers and this is significant in a money-printing story where no one seems to see higher inflation anymore.
But with both Fed and BoJ pushes getting some traction on underlying growth and the euro zone economy registering it’s 6th straight quarter of contraction in the first three months of 2013, maybe Draghi’s big task now is to convince people the ECB will do whatever it takes to support the 17-nation economy too and not only the single currency per se. Last year’s pledge may have been a necessary start to stabilise things but it has not yet been sufficient to solve the economic problems bequethed by the credit crisis.
Coincidence or not, Draghi speech on Thursday is flanked by keynotes from his monetary allies. Fed chief Bernanke speaks on Saturday and then to testifies to the congressional Joint Economic Committee on Wednesday, BoJ head Kuroda holds a press conference after the bank’s policymaking meeting ends on Thursday and outgoing BoE governor King speaks Friday. G20 sherpas meet in Russia this weekend, while EU leaders meet in Brussels on Wednesday. The big economic data set-piece of the week will be critical flash global PMI readings for May – is business finally pulling out of the early year funk or is confidence still evaporating?
Main economic events and data releases for next week:
G20 sherpas meeting in St Petersburg Sat/Sun
Fed’s Bernanke speech on long-run economic prospects Sat
Italy March Industry orders Mon
Irish PM Kenny in Boston Mon
Japan 40-yr JGB auction Tues
UK April inflation Tues
Japan April trade Weds
BOJ news conference after latest policy meeting Weds
BoE minutes Weds
EU summit Weds
German 10-yr bund auction Weds
US April existing home sales Weds
Fed’s Bernanke testifies to Joint Economic Committee of Congress Weds
FOMC minutes Weds
Global May flash PMIs Thurs
Spain govt bond auction Thurs
UK April retail sales/Q1 GDP revision Thurs
ECB’s Draghi speaks in London Thurs
EZ May consumer confidence Thurs
US April new homes sales/March house prices Thurs
SAfrica rate decision Thurs
German May Ifo sentiment Fri
French May business climate Fri
Italy May consumer confidence Fri
US April durable goods orders Fri
BoE’s King speaks in Helsinki Fri