Saturday December 10, 2016 - 12:55:53 GMT
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Draghi: When Is A Taper Not A Taper?
John M. Bland, MBA
ECB Announces A reduction In Asset Purchases
What might have been a conflicted European Central Bank surprised the Forex Markets Thursday by announcing a policy "tapering" which was NOT a "tapering". As widely anticipated, key interest rates were left unchanged, but the central bank announced that it would reduce its monthly asset purchases starting in April 2017 to EUR 60bn from the current EUR80bn level. Asset purchases will continue at the new monthly EUR60bn level until the end of 2017. ECB President Mario Draghi indicated that the ECB is prepared to INCREASE asset purchases should economic conditions warrant a reversal of the reduction in the support of the European economy. Furthermore, he said the governing council had not even discussed tapering asset purchases further if the economy exceeds their expectations.
Draghi went to great lengths in the press conference to say that the policy decision had not been a "tapering". However, when it looks like a duck, walks like a duck and quacks like a duck, its a duck. Draghi said it ws not a tapering because the ECB could increase asset purchases if needed. Common sense suggests it is not the plan of the ECB to increase asset purchases. I think Draghi is worried about the word "taper" because of the initial adverse reaction of U.S. markets to a Fed "taper" a couple of years ago. He is playing a game of semantics. Additionally, this was not a unanimous decision at the ECB. German Bundesbank President Weidmann said afterwards that he had not agreed with the decision to extend bond purchases, while reportedly Southern European central banks had opposed any reduction in monthly asset purchases.
Fed To Hike Rates
I remain confident that the Fed will raise rates by 25bps on December 14. Monthly Job statistics and inflation are the two top items on which the FOMC monetary bases its policy decisions, and these statistics are running close enough to Fed targets to justify them pulling the trigger on a rate hike. The latest U.S. November employment data came in roughly in line with street estimates. The unemployment rate fell to 4.60% from 4.90%, but average Hourly Earnings unexpectedly fell. I have my doubts generally about the U.S. employment statistics, but agree generally with the notion that the usefulness of exceptionally low interest rates is well past its expiration date.
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The week ahead sports a full calendar with several end of year releases pulled forward by the end of year holidays.
WEEKLY HIGH IMPACT NEWS:
No Major Data
09:30 GB- CPI/RPI
09:30 GB- Employment
13:30 US- Retail Sales
13:30 US- PPI
14:15 US- Industrial Production
15:30 US- Crude Oil
18:00 US- FOMC Decision
00:00 All-Day- flash PMIs
00:30 AU- Employment
08:30 CH- SNB Decision
09:30 GB- Retail Sales
10:00 DE- ZEW Survey
12:00 GB- Bank of England Decision
13:30 US- CPI
13:30 US- Current Account
13:30 US- Weekly Jobless
10:00 EZ- final HICP
13:30 Housing Starts/Permits
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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