MacroScope

Britain back on board for action in Iraq

An Iraqi SWAT trooper covers his ears as he fires a mortar bomb during clashes with Islamic State militants, north of Muqdadiyah

U.S. air strikes in Syria continued overnight with a monitoring group saying at least 14 Islamic State fighters were killed.

Having sat out so far, Britain said it would join strikes against militants but only in Iraq for now – which has asked for such help – not Syria. IS holds swathes of land in both countries.

Parliament is to reconvene on Friday and, unlike last year when action to stop Bashar al-Assad using chemical weapons against his own people was voted down, all the main parties are now broadly in support. Prime Minister David Cameron’s cabinet will meet today to finalise what they will put to parliament tomorrow.

Washington has secured the support of Saudi Arabia, UAE, Jordan, Bahrain and Qatar – crucial Arab support which was largely absent for the 2003 invasion of Iraq.

Turkey appears to be inching toward greater involvement after the IS group freed 46 Turkish hostages but it remains unclear how far it will go. Its long border with Syria make it strategically vital and it is home to a major U.S. base at Incirlik.

Europe looks again to Draghi

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Surprisingly low take-up at last week’s first round of cheap four-year loans by the European Central Bank begs a number of questions – How low is demand for credit and what does that say about the state of the economy? Are banks cowed by the upcoming stress tests? Does this make an eventual leap to QE more likely?

The ECB is playing up the prospects of a second round in December after the stress tests are finished. But having pledged to add the best part of 1 trillion euros to its balance sheet to rev up the euro zone economy, it can’t have been happy to see only 83 billion euros of loans taken. ECB President Mario Draghi testifies at the European Parliament today.

After narrowly winning a confidence vote in the National Assembly in a manner that doesn’t exactly give him momentum, French Prime Minister Manuel Valls travels to Germany to compare notes on economic reform.

Margin for error

A Union Flag and Scottish Saltire fly over Britain's Cabinet Office in central London

Another day, another Scottish opinion poll and this time a different message, but only slightly.

A Survation survey last night showed 53 percent of Scots would vote to remain in the UK, 47 for independence. Ten percent of the electorate remain undecided. That counters three recent polls which have shown a dead heat or slight lead for the Yes campaign. Given the margin for error – three points either way – they all suggest next Thursday’s vote is too close to call although hitherto, Survation has consistently put support for independence higher than other pollsters.

There is a chance that the dramatic narrowing of the polls – with one giving a lead for the Yes camp – has come too early for the nationalists as it makes all Scots realize that their votes count and concentrates minds. It is easy to vote for independence if you don’t think it’s going to happen and there is a week still to weigh up the consequences.

10 days to define the United Kingdom

The Flag of Scotland, the Saltire, blows in the wind near Berwick-upon-Tweed on the border between England and Scotland

The earthquake may be about to happen. Over the weekend the first opinion poll putting the independence campaign ahead landed with a resounding thump.

That prompted the UK government to rush forward to this week plans to spell out what further devolved powers Edinburgh would get if the Scots vote to stay on Sept. 18.

With the caveat that the last two dramatic polls have both been from one group – YouGov – and others have suggested “No” remains ahead, it seems momentum is well and truly with Alex Salmond.
In response, sterling has fallen about 1 percent in Asian trade to its weakest level in nearly 10 months. The pound has now dropped the best part of three percent against the dollar this month. The banks and other business will now be seriously alarmed as well.

What’s it all about, Mario?

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It’s ECB day and after Mario Draghi’s recent dramatic utterances, expectation for fresh action has grown, expectations which are likely largely to be dashed.

Draghi told the world’s central banking elite in Jackson Hole last month that market inflation expectations were falling markedly and the European Central Bank would use everything in its power to stabilize them in order to avoid a deflationary spiral. He also ripped up central banking orthodoxy by calling for more fiscal spending by governments at the same time as redoubling economic reform efforts. How to read that?

Two possibilities spring to mind. Either Draghi (who has talked with a number of EU leaders recently) thinks he can secure fresh a  commitment on structural reform and can use that to go back to his ECB colleagues to argue they should cross the ultimate Rubicon and start printing money in return.

Nearer the brink

A man walks past cutting boards, that have been painted with images of Russia's President Vladimir Putin, at a street store in the center of St. Petersburg

Ukraine is nearer the brink with Russian forces now pretty clearly operating over the border. The past week has seen Ukrainian forces flee in the path of a new rebel advance which Kiev and its western allies says has been directly aided by Moscow’s forces.

Russian President Vladimir Putin called on Sunday for immediate talks on “statehood” for southern and eastern Ukraine, though his spokesman tried to temper those remarks, that following an aggressive public showing in which Putin compared the Kiev government to Nazis and warned the West not to “mess with us”.

The deputy leader of the breakaway east Ukrainian region said he would take part in talks with representatives of Moscow and Kiev in Minsk today but did not expect a breakthrough. Russian foreign minister Lavrov is out saying the Minsk talks will aim for an immediate ceasefire without conditions although he also said Ukrainian troops must vacate positions from which they can hit civilian targets. Meanwhile, eight Ukrainian seamen have been rescued, two are still missing, after a patrol boat was sunk by artillery.

When Mario met Jean-Claude

European Central Bank President Draghi and Eurogroup President -Juncker talk during a news conference in Nicosia, Cyprus

A day before the European Central Bank’s monthly policy meeting, ECB President Mario Draghi will travel to Luxembourg for talks with incoming European Commission president Jean-Claude Juncker. Oh to be a fly on the wall.

Some in the ECB are concerned that ultra-low sovereign borrowing costs and Draghi’s “whatever it takes” promise has relieved pressure on euro zone governments to carry on with structural economic reforms.
Juncker has signalled he is comfortable with a Franco-Italian drive to focus on growth and job creation rather than cutting debt.

ECB policymakers would probably be happy with that if it came in tandem with reforms to make euro zone economies more competitive. But it is worried about slippage.

Draghi in London

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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.

ECB: talk but no action

EThe European Central Bank holds its monthly policy meeting and after launching a range of new measures in June it’s a racing certainty that nothing will happen this time. However, ECB President Mario Draghi has plenty of scope to move markets and minds in his news conference.

We are still waiting for details of the ECB’s new long-term lending programme which is supposed to be contingent on banks lending the money on to companies and households. Last time they got a splurge of cheap money, the banks largely invested in government bonds and other financial market assets. With euro zone yields now at record lows, the ECB would not like to see a repeat.

Draghi will certainly be asked to clarify what looked like a new attempt at forward guidance. Last month, the ECB offered up new four-year loans to banks, and extended its offer of unlimited liquidity to the end of 2016.

Deflating euro zone inflation expectations

EThe euro zone is not deflating, it’s just at risk of a too-prolonged period of low inflation, says European Central Bank President Mario Draghi.

Judging by recent evidence, it might be very prolonged, which is bad news for an economy struggling to shift out of low gear.

Inflation held steady at just 0.5 percent in June, well below the ECB’s 2.0 percent ceiling, stuck in what it calls the “danger zone” of below 1.0 percent for nine straight months.