As impeachment of President Dilma Rousseff grows more likely, chances are rising that Brazil’s central bank may also go under new management in a matter of months.
All the talk and the drama on trading floors may be how much the Federal Reserve has bowed to the will of financial markets in its surprisingly more cautious tone on interest rates.
It had all been going to plan until 2:56 pm Frankfurt time. The euro had dipped as ECB President Mario Draghi announced new rate cuts to record lows, promised more bond-buying stimulus and offered to pay banks to borrow cash for lending into the real economy. The big bazooka was firing once again and this time it was hitting the target. Then, in a comment which he perhaps thought would show his confidence that everything was under control, Draghi said he doubted any more rate cuts would be needed. Although many in the market might have come to a similar conclusion themselves, the effect was devastating, sending the euro higher and so effectively wiping out much of the stimulus effect he had achieved only minutes earlier. The response of the market is not wholly logical and is probably best understood in terms of a cheap Hollywood romance: “I knew it had to end sometime, Mario — but I can’t bear to hear you say it.” Whatever. Draghi’s reputation as a verbal enchanter is compromised for a second time, the full impact of this last batch of stimulus has been squandered and the secret is out that central bankers are running out of ammunition. Over to the Fed, Bank of Japan and Bank of England next week.
Three German states — prosperous Baden-Wuerttemberg in the south, the western wine region of Rhineland-Palatinate and Saxony-Anhalt in the east — hold elections on Sunday in what is widely being seen as a litmus test for Chancellor Angela Merkel and her refugee policies. Regardless of the results and despite suggestions to the contrary in some media, it seems highly unlikely that Merkel will leave office before her third term as chancellor is up in 2017. But poor results for her Christian Democratic Union (CDU) on Sunday could increase pressure on her to adopt a tougher line on refugees and raise doubts about her prospects of running for a fourth term next year.
The U.S. economy may have had a few fits and starts of late, first in manufacturing and then non-manufacturing industries, but weekly jobless claims data are likely to keep at bay speculation the job market is about to come unhinged.
A year ago today, the European Central Bank began its programme of quantitative easing — money printing to buy assets — with a view to lifting sub-zero inflation back up towards the target of just under 2 percent. One year on, it has spent over 700 billion euros buying assets — mainly sovereign bonds, but also debt issued by some European institutions, as well as asset-backed securities (ABS) and covered bonds — at a pace of 1.3 million euros a minute.
The European Central Bank is set to open its monetary stimulus taps even wider this week but the euro isn’t likely to budge very much.