20150121 – TO QE OR NOT TO QE?

High Low High Low
EUR/USD 1.1589 1.1540 USD/INR 62.18 61.67
GBP/USD 1.5180 1.5135 USD/ILS 3.9497 3.9273
EUR/GBP 0.7638 0.7617 USD/ZAR 11.6133 11.5518
USD/JPY 118.85 117.29 GBP/ZAR 17.60 17.52
EUR/CHF 1.0140 1.0067 USD/RUB 66.14 64.55
USD/CHF 0.8776 0.8706 USD/NGN 187.05 189.55


Stunning ZEW Economic Sentiment data out of Germany yesterday, with the index up to 48.4 versus 34.9 previously, the forecast had been 40.0, so that’s quite an outperformance and also an 11 month high. Eurozone economic sentiment data also improved to a 6 month high. Meanwhile it looks like there’s been some serious buying of peripheral debt with a very successful Spanish debt auction yesterday. Perhaps some smart guys are getting in to the trade in anticipation of the ECB conducting quantitative easing. The lines are being drawn by politicians on both sides of the divide. Some recent comments by Greek and Italian politicians are clearly supportive of the concept of Eurozone QE, while Frau Merkel in Germany made comments that while not directly critical of the ECB can never-the-less be read as not exactly keen on the idea. Her point was valid in my view, as moral hazard is a serious issue. Why would countries with structural problems reform if the pressure is eased on them? Eurozone stocks, of course, care nothing about the finer points, they continue to rally in anticipation of central bank largesse.

The Bank of Japan kept rates unchanged, not a huge surprise, but they have cut their inflation forecast as oil prices are countering their efforts to increase inflation. They also increased their loan schemes in an attempt to boost lending, and perhaps they also did it to stave off criticism that they’re not doing enough to reach their inflation target. You could almost feel sorry for them if they weren’t embarking on a monetary project more reminiscent of the South American monetary policies of the 70s and 80s…

In the wake of the gloomy forecasts I brought to your attention yesterday, a number of leading economists, Nobel laureates among them, have voiced their optimism about global growth prospects on the back of lower energy prices. Glad to see that we at ParityFX are in good company! Interestingly some also voiced our concerns about overleveraged oil producers being a significant risk to financial markets, but the bottom line is consumers will benefit from having to spend less on energy this year.

Later on this morning we get the minutes of the Bank of England’s monetary policy committee. This should give us some insight into the voting patterns of officials, but no one really expects much of a change. In recent times there’ve been 2 members pushing for hikes, with the rest happy to keep things as they are. We will also get unemployment data for the UK, which should be interesting, and surely, given the proximity of the election, there will be some political sport made of the data. On a side note, I think it’s interesting that the former Governor of the Bank of England, Mervyn King has recently suggested that QE might not be the answer. Remember that the UK did a substantial amount of QE on his watch? Wow…

There really isn’t much else on the data front today. It wouldn’t surprise me if we see a lot of calm in the markets in this session. Save your firepower for the big event tomorrow.

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