MacroScope

ECB aftermath; how firm is opposition to QE?

After the European Central Bank opened its toolbox and deployed pretty much everything it had left, bar printing money, the question is if and when QE becomes a live possibility.

ECB chief Mario Draghi pointedly said at his monthly news conference that all policy options had not been exhausted.
German resistance to such a move will remain, however, and Draghi’s deputy, Vitor Constancio, has already intimated that it will take until late this year to judge whether the latest gambits have made a difference before moving onto the next stage.

Bundesbank chief Jens Weidmann is already out today saying the ECB has ventured onto new ground and that governments need to treat the move as a wake-up call to continue with economic reforms. He added that there was a risk that long-term inflation expectations could be de-anchored – ECB speak for deflation.

ECB policymakers Benoit Coeure and Yves Mersch, who can be reasonably said to represent differing ends of ECB opinion, both speak later today as does Finnish central bank chief Erkki Liikanen.

One to ponder: By no longer offsetting the government bonds the ECB bought back during the debt crisis by taking in an equivalent amount in bank deposits each week -  non-sterilisation in central bank jargon – has Draghi essentially crossed the Rubicon in terms of creating money and does that mean the philosophical objections to full-on QE have been surmounted?

We need to talk about Juncker

Swedish Prime Minister Fredrik Reinfeldt will host Germany’s Angela Merkel, Britain’s David Cameron and Dutch premier Mark Rutte at his private residence over two days to discuss reforming the EU and ”achieving a more efficient EU that is focused on creating jobs and growth”. 

After EU elections delivered strong returns for far-right and far-left parties, EU leaders say they have recognized the need to refocus on what matters to their people. But at the same time, the orthodox camp is determined to keep bearing down on debt and the bloc’s heads are arguing over who should take the top jobs in Brussels which set the tone.

Cameron is publicly opposed to Luxembourg’s Jean-Claude Juncker, who he regards as an arch federalist, becoming European Commission President though as the candidate for the centre-right EPP group of  parties which came top in the election he is in pole position.

Euro needs the Fed, or QE, for the next leg down

EIt has become increasingly clear it takes a lot more than words to sink the euro.

The European Central Bank cut rates as low as they will go on Thursday and announced another round of cheap cash for banks, hoping the euro, which has helped knock down inflation in the fragile euro zone economy, will fall.

Yet the ECB’s efforts yielded little more than a lukewarm response from markets, suggesting that the only thing that will get the euro to fall any further in the very near-term is a change in the outlook for U.S. rates, and through that, a stronger dollar.

U.S. May non-farm payrolls may be a calmer affair after April shock

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The May U.S. non-farm payroll report on Friday may be a much less volatile affair than last month, when shock news of 288,000 new jobs topped even the most optimistic views.

This time, there is more certainty around a less spectacular but still solid outcome, based on an analysis of forecasts from the most accurate economists in Reuters polls on recent U.S. data.

The range of views among economists who were closest to reality in forecasting recent key releases on jobs, manufacturing activity, and the magnitude of the contraction in first quarter U.S. GDP is significantly narrower than the range in the wider Reuters poll.

India share bulls running mainly on hope, well ahead of peers

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Indian stocks have rallied sharply over the last two months, soaring to record highs, although the bull run that began with expectations that Narendra Modi will become the country’s next Prime Minister may soon run out of road.

India’s top equity index, the BSE Sensex, was trading over 24,850 on Tuesday, having shot up over 10 percent since mid-April alone, when polling began, despite economic growth languishing below 5 percent, along with high inflation and interest rates.

With growth at just 4.7 percent, only a marginal improvement from the 10 year low plumbed in the previous financial year, the market could struggle in coming months, especially if the economic data continue to disappoint.

Euro zone inflation data to set seal on ECB action

Euro zone inflation – due at 0900 GMT – is forecast to hold at a paltry 0.7 percent in May, in what European Central Bank President Mario Draghi has labelled the danger zone below 1.0 percent for the eighth successive month.

After German inflation fell to just 0.6 percent on the EU measure on Monday, well below forecasts, the bloc-wide figure could also undercut. We already know the Spanish and Italian inflation rates were just 0.2 and 0.4 percent respectively last month. If that comes to pass, any doubts about ECB action on Thursday, which are thin on the ground anyway, must surely be banished.

A clutch of senior sources have told Reuters the ECB was preparing a package of policy options for its meeting on Thursday, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs).

Signs of European dash for growth

The ripples of EU election results are being felt, no more so than in France where the National Front topped the poll.

The day after the results, Prime Minister Manuel Valls promised further tax cuts for French households. The government is already committed to a 30 billion euros cut in labour taxes to help business but insists all this can be done while meeting its EU deficit commitments.

Brussels has already given Paris an extra two years to get its deficit down to three percent of GDP. Today, the European Commission will produce updated country recommendations.

U.S. growth back in bloom: most accurate Q1 GDP forecasters

PMost are convinced, including Federal Reserve Chair Janet Yellen, that the U.S. economy has already warmed up significantly from a growth deep freeze at the start of the year.

Business inventories were run down to nearly nothing in the first quarter, and were set for a rebound. There also is no sign that consumer spending is about to veer off its recovery path, especially with the job market gradually improving. All of that is likely to underpin better economic growth.

The question is by how much. Growth in the current quarter is forecast to be anywhere from 1.4 percent to 6 percent, according to a Reuters survey of 75 economists taken last week. That is the widest forecast range for U.S. economic growth in all Reuters polls in four years, except for one survey last April.

Gas talks resume

Fresh talks between Russia, Ukraine and the European Commission in Berlin will aim to resolve a gas price dispute that Moscow has warned could make it cut off supplies next week.

Ukraine has said the price for 2014 should be agreed before it starts making any payments. Russia’s energy minister has said Moscow and the EU have proposed that Kiev pay Gazprom $2 billion, and another $500 million before June 7, as a precondition for a price discount and further talks.

Gazprom said on Thursday it had not yet received any payments from Ukraine on a debt which it says will have risen to about $5.2 billion by June 7 unless Ukraine begins to pay it off. Kiev has countered that Gazprom owes it around $1 billion for gas following Russia’s seizure of Crimea.

Juncker’s star fading?

EU leaders didn’t get far last night in addressing the voter backlash dealt to them in European elections but it seems less likely that Luxembourg’s Jean-Claude Juncker will end up with Brussels’ top job, a first indication that things are on the move.

Britain’s David Cameron has been determined to block the arch federalist from becoming European Commission president and, after the strong showing by far-right and far-left parties, others also seem to see the need for a newer broom, possibly even Angela Merkel.

Juncker is a veteran of EU politics and is a consummate deal-maker, and as head of the centre-right EPP group which topped the weekend polls should be the heir presumptive. But he is very much of the old school.