MacroScope

Draghi in London

By Mike Peacock
July 9, 2014

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European Central Bank President Mario Draghi will deliver an evening keynote speech in London – the scene for his game-changing “whatever it takes” declaration in 2012.

He is unlikely to come up with anything so dramatic this time but is clearly trying to convince that the ECB could yet start printing money if required to avert deflation.

Draghi has taken the ECB a long way in terms of radical policies which some of its members have found hard to swallow. But QE could yet prove to be a bridge too far. Shortly after Draghi held out the prospect last week of printing euros to ward off deflation, Bundesbank chief Jens Weidmann and his German ECB colleague Sabine Lautenschlaeger mounted a rearguard action.

His colleagues Peter Praet and Benoit Coeure speak earlier in the day.

The European Court of Justice will hear three separate actions brought by Britain against the ECB, each of which contains the policy that central counterparties carrying out clearing operations in euros should be located in the euro zone, thus excluding clearing houses based in London.

London is Europe’s biggest financial centre on which the whole UK economy’s prospects depend so in some respects this is a more important fight for Britain than David Cameron’s failed attempt to block Jean-Claude Juncker from getting the European Commission presidency.

If lost, it would make it that much harder for Cameron to argue that the EU is operating in Britain’s interests. Juncker, by the way, will continue consulting with EU parliamentary groupings in Brussels today.

Russia’s central bank will release data on the level of capital flight out of the country in the first quarter. In the first three months of the year, as conflict in Ukraine blew up and Moscow annexed Crimea, more than $60 billion exited the country, something which must have focused minds in the Kremlin as has the threat of tougher Western sanctions.

The central bank has forecast outflows of $90 billion over the year as a whole. Moscow has not raised any loud objection to Kiev’s fightback against pro-Russian separatists in the east of Ukraine, suggesting it may now want a face-saving way out of this situation.

The IMF is on the point of winding up its latest mission visit to Ukraine and may put out a statement as early as today.

Ukraine’s deputy prime minister said on Tuesday that a $17 billion International Monetary Fund bailout, which was expected to unlock a further $15 billion bilaterally from other sources, was not enough because of “unprecedented Russian-inspired aggression”.

Volodymyr Groysman urged international donors at a meeting in Brussels to support a “Marshall Plan” for economic recovery that the government will present at a donors’ conference expected in the autumn. The government has said the economy is likely to shrink by 3-5 percent this year and ongoing violence in the east could make that worse.

Greece is expected to issue its second sovereign bond today following a successful return to the financial markets in April, according to Greek newspaper Kathimerini which cites finance ministry sources.

Athens would likely issue a three-year bond, hoping for an interest rate of under 3 percent, to raise 2.5-3.0 billion euros. A Greece official told Reuters last month that the country planned to sell 2 billion to 3 billion euros of bonds in July.

Issuing shorter dated bonds would let Athens raise money more cheaply but could leave it on the hook for substantial refinancing before its recovery is secure. And with a coalition government holding on to a wafer thin majority it’s not certain what the political landscape will look like in three years. Despite that, investors continue to gobble up euro zone debt.

At least 20 people were killed across Gaza on Tuesday by a bombardment Israel said may be just the start of a lengthy offensive against Islamist militants. In turn, Israelis ran for cover as air-raid sirens sounded in Tel Aviv and Jerusalem, both of which were hit in the previous Gaza war of November 2012, as Hamas rockets reached deep into Israel’s interior.

Minouche Shafik, who will become Bank of England Deputy Governor on Aug. 1, testifies to parliament’s Treasury Committee on her policy views. With the UK central bank likely to be the first major one to raise interest rates, Shafik as one of three new recruits to the nine-strong Monetary Policy Committee could help tilt the balance one way or another.

The Swiss government’s economists will report on what effect the free movement of workers has on Switzerland’s labour market, following a vote to curb immigration. The vote threatens to upend a raft of treaties with the EU which stand and fall together, including trade and free movement of labour.

The IMF mission to Kenya will hold a  news conference at the end of its visit. The country has been beset by violence – most recently gunmen killed at least 29 people in two coastal areas of Kenya over the weekend — but investors appear to be undeterred.  It comfortably raised a total $2 billion with a debut Eurobond with 5-year and 10-year tranches.

Irish Prime Minister Enda Kenny has promised to reshuffle his cabinet following bruising local elections in May that led to the resignation of deputy PM and junior coalition party leader Eamon Gilmore. Finance Minister Michael Noonan is seen as certain to stay put, as is spending minister Brendan Howlin, limiting any disruption to Ireland’s deficit cutting plans.

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