Central banking elite under one roof

November 7, 2014

U.S. Federal Reserve Chair Yellen speaks with European Central Bank President Draghi at the Jackson Hole Economic Policy Symposium in Jackson Hole

After European Central Bank chief Mario Draghi managed to mend fences and get his colleagues to sign up to his 1 trillion euros or so target to push into the ailing euro zone economy, Paris hosts its version of the Jackson Hole central bankers meeting.

The world’s central banking aristocracy will be speaking -Federal Reserve Chairman Janet Yellen, Draghi, Mark Carney of the Bank of England, Bundesbank chief Jens Weidmann, Kuroda from the Bank of Japan and Zhou of the People’s Bank of China. IMF chief Lagarde is also there.

The conference gives them a chance to discuss their increasingly divergent monetary policies as the Fed has ended its bond-buying, the Bank of Japan launches a new round of easing and the ECB agonises over whether to follow suit.

There were many notable things in Draghi’s news conference yesterday. One that didn’t grab the headlines was his emphasis on the fact that the ECB’s balance sheet was expanding while the Fed’s would now not – “significant and increasing differences in the monetary policy cycle between major advanced economies”, was how he put it.

The upshot of that should be a weaker euro against the dollar – it dropped to its lowest in more than two years yesterday – and the same goes for the yen given the BoJ’s latest gambit. Are we entering a new era of competitive devaluations?

A strong U.S. jobs report today would amplify the situation.

Markets were relieved to see a united front at the ECB and that quantitative easing remains on the table. But nothing was explicitly said that made that prospect much more likely, barring some precautionary preparatory work.

As we reported this week, up to 10 members of the 24-member Governing Council are opposed at this stage, so Draghi will have to win at least some of them over in order to avoid a damaging split.

It will be interesting to see whether the Bundesbank’s Weidmann has anything to say or stays silent. Either way, as a number of analysts noted, Draghi seems to have regained his knack of being able to influence markets with words alone.

EU finance ministers meet in Brussels with a row over hefty bills levied on Britain and Italy following revisions to national income data likely to dominate. Our sources say the finance ministers are likely to let Britain pay the 2.1 billion euros bill in interest-free instalments, but rule out any reduction in the surcharge. That may not be enough for London.

The row has Prime Minister David Cameron under pressure from Eurosceptics at home in the run-up to a national election in May and the expected loss of another parliamentary seat to anti-EU UKIP at a by-election later this month.

Cameron, who lambasted EU technocrats over the issue at a summit in Brussels two weeks ago, has the sympathy of Italy, Germany and France. But new European Commission President Jean-Claude Juncker, whose appointment Britain tried to block, is less conciliatory saying that he had no problem with Cameron but that the UK leader had a problem with his fellow premiers.

Cameron is in Helsinki today and likely to get no support for his call to limit immigration within the EU from Nordic and Baltic leaders. Finnish Prime Minister Alexander Stubb said on Thursday that freedom of movement within the European Union is sacrosanct. Cameron will speak later.

Stubb’s coalition government will face a tight confidence vote in parliament following the peeling off of two coalition parties during this year. The government has a slim majority with 102 MPs, including the speaker who is not allowed to vote, against the opposition’s 98.

After German industrial orders rose just 0.1 percent over the third quarter, adding to evidence that the economy barely grew over that period having shrunk in Q2, industrial output and trade figures for September, just out, are a little more upbeat. Output rose 1.4 percent, though that followed a 3.1 percent drop in August, while exports and imports both surged in September.
French and Spanish industry output reports follow later.

Vladimir Putin held talks with top security chiefs over a “deterioration of the situation” in eastern Ukraine. Andrei Purgin, deputy prime minister of the self-proclaimed Donetsk People’s Republic, said the Ukrainian army had launched “all-out war” on rebel positions. Ukrainian military spokesman Vladyslav Seleznyov denied this, saying the army remained in agreed positions.

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