Thanksgiving might now be out of the way – my thanks to the Norfolk bunch for providing “a Thanksgiving dinner that couldn’t be beat” – and on paper we’re into the season to be jolly. But between now and the critical FOMC meeting on December 16th and then Christmas there is still plenty to play for.
Things go “big” on Thursday when the ECB meets and when decisions are expected on further QE as well as the three key rates it controls – the Main Refinancing Rate, the Deposit Facility Rate and Marginal Lending Facility Rate.
I understand that ECB watchers polled by Bloomberg delivered a 100% verdict in favour of some form of enhanced stimulus being agreed on, although not all could agree which way the change would be effected.
An increase in the quantitative easing programme to, I suppose, unlimited and open-ended looks to be the most obvious first step, although I still strongly question the efficacy of such a policy.
We know that Sabine Lautenschlaeger is not to be had on this front but I suspect that in his heart of hearts St. Mario isn’t either. He does, however, obviously see the psychological effect which high profile central bank action brings with it and if the price for visibility is expanding a useless policy measure, so be it. The post-crisis years have been littered, especially in Europe, with wrong decisions being taken for the right reasons.
The ECB has a number of options, with a cut in the depo rate being the most obvious one to accompany the probable expansion of QE. How the latter will be implemented is also a moot point as the council can either expand its volume or broaden the range of eligible assets or, of course, announce a mix of both. We will just have to wait and see.
The Swiss Franc was on everybody’s lips on Friday as it sailed through the SFr1.0200/US$ level which it had been at before the SNB lifted the floor in January. On that day, January 14th, it rallied to SFr0.84 and I well remember the weeping and the wailing and the gnashing of teeth. Switzerland was going to be destroyed and Swatch Group’s CEO, Nick Hayek, made headlines with his churlish statement. “Words fail me…Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country,” he said.
As at this morning, the franc is trading at SFr1.03 and even the sickeningly weak euro has regained half the losses – from SFr 1.20 to SFr 0.97 and back to SFr1.09 – it took on that single day in January. Maybe, for Christmas, Hayek will eat his words, perhaps with some f-f-fava beans and a fine glass of Chianti?
Meanwhile much of the weekend’s news was taken up with reports on the EU’s agreement with Turkey under which the former promises the latter the sum of €3bn per annum to help it house and feed the Syrian refugees in an attempt to discourage them from heading for Northern Europe in general and for Germany in particular. Coupled to this is a commitment to accelerate the accession talks for Turkey’s membership to the EU.
Unless my memory is getting even fuzzier than I thought, in the past the key sticking point with respect to Turkish EU admission was the issue of the role a Muslim country would play in an otherwise totally Judeo-Christian club. I can’t see what has changed other than that Turkey is now at risk of turning itself into an Islamist autocracy under the auspices of Recep Tayyip Erdogan who seems to be quite content to repeat elections until he gets the result he desires. Certainly, Turkey is becoming less secular.
From where I’m sitting, the offer of membership is a very simple and not very well disguised act of good old bribery. We’re not even allowed to take our clients to Twickenham for a spot of lunch and a game of rugby any longer while the great and the good in Brussels are throwing promises of fast-track EU membership around like confetti in order to slow the flow of migrants.
Mutti Merkel looks so like Johann Wolfgang von Goethe’s Sorcerer’s Apprentice. “Stop now, hear me! Ample measure Of your treasure. We have gotten! Ah, I see it, dear me, dear me. Master’s word I have forgotten!” At least the “Zauberlehrling”, the sorcerer’s apprentice, had the old master to bail him out.
Merkel does not enjoy that benefit and the price she appears prepared to pay in the hope of slowing the flow of immigrants seems very high indeed. And who is going to be expected to pay those €3bn? I doubt it will be taken out of those “quick-draw” politicians’ pension pot. Hans Six-Pack, show me your cheque book!
Asian markets were generally weak overnight although both the Shenzhen and the Shanghai Composites have rallied back a bit after the drubbing they took on Friday. The US will return to normal action to face some minor releases, the most important of which is probably the Chicago PMI.
Eyes will also be on the OPEC meeting but as a cartel it is something of a busted flush. I can’t see it agreeing to much and whatever it does agree to, as usual, nobody will abide by. It is plain for all to see that the attempt by Saudi Arabia to pump the US shale gas industry into the ground has failed and instead Venezuela, Angola, Nigeria and Russia have been the victims.
The proposed Saudi bond issuance programme is living proof that its production policy has blown up in its face. I’d be surprised if it were to wish to suffer the ignominy of reversing policy in front of it peers with the rest of the world watching, although stranger things have happened.
More to the point, the Climate Change Conference is convening in Paris with world leaders dripping from the ceiling. The big subject will be how to downgrade and eventually completely avoid fossil fuels. Not, maybe, the time for OPEC to be in the headlines for wanting to pump more oil than it already does and with global storage capacity at its limits. All told, there’s plenty to be getting on with. Have a good week.
