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Monday, 18 December 2017

On the NRA and the ECB

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Anthony Peters has his doubts about eurozone citizens using the weapons in their hands.

Trust me, I am no fan of the American gun culture and as such find the NRA, the National Rifle Association, to be a club I would prefer not to join. Their defence of having all and sundry running around armed to the teeth is phrased as “Guns don’t kill. People kill.” Following the ECB having done its bit yesterday by way of rate cut, it to could now step out and declare “Central banks don’t create growth. People do.”

At the beginning of the crisis the ECB did all it could to place the onus for creating a positive environment for growth and employment on the constituent governments and as we know, it strenuously resisted becoming the politicians’ stooge. It would be wrong to say that yesterday it finally threw in the towel but whatever pretence it had displayed that it was only here to help drive the process, without actually trying to drive it itself, was finally buried. To some extent, the European elections took care of that, not that anybody would ever admit it.

It was mildly funny to hear Antonis Samaras, the prime minister of Greece, that leading light and powerhouse of growth, comment on the morning after the elections that Europe needed “more competitiveness, job creation, which is the number one problem…” and “…solidarity among all our members.” Well spoken, sir. Now the ECB has done its bit. Over to you and yours. Chances of that happening? I rest my case.

Although it is obvious that although the headline grabber will be the shift to negative deposit rates, in the greater scheme of things, the policy shift is no more than a bout of tinkering around the edges. Markets are crying out for QE but, as I was reminded again yesterday, proof of its efficaciousness are thin on the ground. Japan has been at it for years and to precious little effect and the UK, although in growth, quite clearly owes this more to consumers’ pockets being filled with windfall compensation payments emanating from PPI miss-selling than from any notable increase in investment driven by quantitative easing or by a leap in productivity.

One way or the other, markets got from the ECB pretty much what they had expected but then, frankly, didn’t have a clue what to make of it when they did. Ten-year Bunds opened the day just about on 1.42%, rallied to 1.40% immediately after the announcement, then sold off as though the world were coming to an end, traded down to 1.49% and then began the climb back again to close the day at 1.405%. We open this morning at 1.375%.

Foxed

In one of my previous incarnations, I taught a course at City University Business School on “Economics for Traders” which dealt with, amongst other things, how to interpret and trade news flow. The key lesson was to grasp how the market is positioned ahead of the release which would then determine how it would trade post-factum. Yesterday’s price action, both in stocks and bonds had me foxed. The Dax also took heart, sailing through the 10,000-point mark like a knife through soft butter, only to go straight back into reversal and to close at 9,947.83, just 21.16 points higher on the day.

Anybody who wasn’t there or who can’t see the intra-day charts would be excused, if simply looking at the opening and closing levels, for thinking that nothing much had happened.

Perhaps it’s all in what Ewald Nowotny of the Central Bank of Austria expressed when he told Austrian TV yesterday that ”central banks alone can’t boost the economy, they can only create the conditions…”. Will the workers of brain and muscle now deliver their part of the bargain too? The markets don’t really appear too sure.

The Muppet Show

Meanwhile my old friend Jean-Claude Juncker, the Muppet-in-Chief, is in the news for declaring that he will not be forced to get on his knees before the British and criticised European leaders for ignoring him after his conservative grouping won the elections. When it comes to trying to get a grip on the EU’s budget and on the pervasive sense of entitlement which is holding it back, I have a strong suggestion of where to start. May I propose taking a bit of time to read around recent Luxembourg political history and how Juncker, after the best part of 20 years as PM, was brought down by a coalition of all opposition parties who had, it would seem, had more than enough of him.

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Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful week-end. May I humbly suggest taking the missus shopping, buying her a new hat for Ascot and then for a candle lit dinner – with that thingy in Brazil bearing down on us, there is no better time to build up a reserve in the “brownie points” account. Paying down credit on an overdrawn account is, in my experience, one hell of a lot more costly.

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