Good morning
I bet Pres. Of the ECB Draghi must be sitting in his office thinking, when will the bad news stop!! I am afraid Pres. Draghi, not anytime soon.
What am I referring to you might be asking is the DREADED “D” word – yes my friend DEFLATION or falling prices is now stalking the EU, circling like the great white waiting to attack. As any boxer will tell you when cornered the only way to “get out” is to come out fighting and strike your opponent. Pres. Draghi, I know you are reading this before you set off to work, it is YOUR TIME to come out fighting. No more Mr. nice guy let’s wait and see. It is time to use ALL your power & “exotic” policies as a weapon against falling prices, falling inflation, stagnant wage growth, stagnant GDP and that little thorn in your side, aka Greece.
Howard Archer, chief European economist at IHS Global Insight called the recent inflation data “dire news for the ECB”. The fact is the ECB have known for months things were turning ugly and Deflation was around the corner. Well the ECB have turned the corner and run smack into Deflation. What is the point of their half-hearted measures we saw in 2014? Like his counterpart over the pond, Pres. Yellen of the FED threw everything the FED had at their problem. Needless to say look at the US today vs the EU, David and Goliath!!! As the saying goes, never send a boy to do a man’s job. Would I be correct in saying then that the root of the (EU’s) problem lies in the failure by the ECB to deliver APPROPRIATE fiscal and monetary policies?
“A bout of negative inflation could have some positive effects on the eurozone economy by boosting real incomes and spending power. But the adverse effects on inflation expectations and peripheral countries’ debt consolidation efforts are potentially greater,” said Jonathan Loynes, chief European economist at Capital Economics.
January will be make or break for the ECB. They have a meeting on the 22nd January, followed by the press conference. The ECB MUST and I cannot stress that enough, MUST deliver or face continued mutilation in the markets, not to mention the Greek vote 3 days later which could all but bury the ECB losing them any credibility they had left. It has been reported that Germany are against additional QE measures. If this is true then I think they hinting it is time to kick “members” out the EU. The Greek vote will properly complicate things if the Syriza party wins. They want to stay in the EU BUT re-negotiate the terms of the bailout. Don’t forget the Greek banks simply could not survive without the bailout. The repercussions and fall-out do not bear thinking of.
So how did the USD fair yesterday after the EU inflation numbers were published…EURUSD traded as low as 1.1803 this morning, GBPUSD (after the VERY disappointing PMI numbers) traded as low as 1.5038. This is a –ve EUR, +ve USD and –ve GBP story. Now do you see why I have said in my opening comments of 2015 that the USD will CONTINUE on its present trajectory finishing 2015 CLOSE to PARITY (1.00/1.00) EURUSD, while the GBPUSD is destined to trade on a 1.30 HANDLE. May’s UK elections are probably the most important in decades. Given the precarious state of the world’s economies not to mention whose in power in some of them, a win of any sort for Labour will set us back to 2008. No disrespect to the Labour party but I for one would not like to see Mr Balls running our economy.. Like I said, don’t send a boy to do a man’s job.
UK interest rate decision today. No change expected. In fact it is not until the 21st January and the BOE minutes that we will get anything more out of Gov. Carney.
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