Wednesday, March 18, 2015

Draghi talks up the Eurozone economy | Markets quiet as we await the FOMC

At a dinner in Frankfurt organised by a German newspaper on Monday of this week, Mario Draghi is quoted as saying that an economic recovery is now underway in the Eurozone, thanks to the stimulus provided by the actions of the ECB.
(That was fast. QE only started on March 9th).

The speed of the fall of the Euro has taken many by surprise. And a weaker Euro, although exchange rates are not in the mandate of the ECB, can only assist in achieving the objectives of the central bank, which is to raise inflation. Mr. Draghi admitted also that the low and still falling price of oil is another factor in raising prospects for any region that relies on imports for its energy needs, as Europe does.

Figures out yesterday for both inflation and economic sentiment support Mr. Draghi’s words. The Core Consumer Price Index rose 0.7%, when 0.6% was expected, and the ZEW survey of economic sentiment for the Eurozone as a whole came in at 62.40, when 58.90 was expected. His other comments, calling for greater integration of the member states in order to share sovereignty and strengthen the rules governing the operation of the Eurozone, however, may not be immediately adhered to.

Markets quiet as we await the FOMC

Forex markets were quiet yesterday and are expected to be so today, at least up to the time of the FOMC monetary policy statement and press conference, which are due to take place later today. We are waiting to see if the committee uses the word “patience” in relation to its stance on normalisation, or the commencement of a rise in core interest rates in the US. It has become widely accepted that the non-use of that word in the policy statement would indicate that rate rises will start after another two meetings have taken place. But nothing is guaranteed. The recent strident moves that have been made by the US dollar against all its global counterparts, coupled with low inflation and wage growth, could be construed as placing a constraint on economic improvement Stateside, and so result in a continuation of the easing for some time longer.

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