MacroScope

Euro zone inflation falls again; economists base ECB rate cut calls on deja vu

Euro zone inflation has dipped again and some forecasters are hedging their bets on the policy response by saying the European Central Bank could either cut rates this week or sometime in the next two months.

That lack of conviction, although not a recent phenomenon, is driven by memory of the ECB’s surprise cut in November after a similar drop in inflation and a nagging belief that things have not worsened enough in the interim to warrant another.

Only two of 76 analysts - Barclays and IFR Markets – in a Reuters poll conducted before news on Friday that January euro zone inflation fell to 0.7 percent said the ECB would trim its refinancing rate below 0.25 percent this week.

Now a few more, including Deutsche Bank and RBS say they will. While many economists say the decision is a close call, most lack conviction over whether it will do any good.

Money market traders aren’t convinced either, despite the fall in bond yields in recent days and the sell-off in emerging market assets.

Not bullish enough! How predictions for stocks in 2013 are turning out

The bulls were out in force again in Thursday’s quarterly Reuters poll of around 350 equity analysts – some 91.3 percent of forecasts for 20 major stock indexes predicted gains from here until the end of next year.

That might sound incredibly optimistic – but last year, on the whole, they weren’t optimistic enough.

Most striking is how the consensus completely missed the Nikkei’s near-50 percent rise. U.S. stocks have strongly outperformed the expectations too. On the other side, the emerging markets have been a big disappointment, especially Brazil.

Is that a bailout in your pocket?

There was an awkward moment of tension at the Milken Global Conference in Los Angeles, when a buysider on one panel asked a Wall Street banker whether he had pocketed taxpayers’ bailout cash.

The tit-for-tat began when several panelists at the “Outlook for M&A” session began griping about the U.S. government’s tax policy, which they said dissuades corporations from bringing overseas profits back home because of punitive taxes.

The panelists – including James Casey, co-head of global debt capital markets for JP Morgan, Anthony Armstrong, an investment banker at Credit Suisse, and Raymond McGuire, global head of corporate and investment banking at Citigroup – predicted that the M&A market might get a big boost if the U.S. were to offer a tax holiday of sorts for repatriated profits.