Central Bankers; Better lucky than good
During the 1990’s the Chairman of the Federal Reserve was Alan Greenspan someone who has become legendary in the modern financial history of the United States. He was a man given to providing soundbites, generally entirely deliberate, which betrayed his wishes for both the market and economy.
His best remembered utterance was at the height of the dot com bubble in the late nineties which he called irrational exuberance. Although generally attributed to Greenspan, the phrase was first coined by Harvard Nobel Laureate, Robert Shiller. Using the expression to describe the housing bubble of 1994/5, it worked just as well for the stock market. Even though it took three years for the bubble to burst, Greenspan is still blamed for being the one to bring it to an end. Similar charges of irrational exuberance have been levelled against Bitcoin but that is for another day!
Central Bankers are sometimes good, sometimes bad, in the timing of their policies but one quality they need is luck. Mario Draghi is no doubt a sound and resourceful Central Banker but what he most certainly has is luck. The turnaround in just about every economy of the Eurozone has been almost due to the hands-off approach of the ECB but Draghi is receiving credit. The rise in the Euro this year which has headed off German concerns over imported inflation has been characterized by a lack of comment from the ECB.
Draghi to be listened to for what he doesn’t say
Today’s ECB meeting brings Eurozone Monetary Policy, the tapering of the Asset Purchase Scheme and the value of the common currency to the forefront of trader’s minds.
There will be no change to ECB Monetary Policy. The economy doesn’t yet warrant it, with benign inflation and growth that is described as patchy. It is hard to see how Draghi’s utopian view of consistent growth across all nineteen independent states can be achieved without further integration, particularly in the areas of personal and corporate taxation.
The Asset Purchase Scheme which amounts to Eur 60 billion has faced calls and expectation for its reduction for a few months now but Draghi has remained resolute in his determination for it to remain in place. Perhaps some advance guidance will be given today.
Finally, Draghi will be expected to address the rise and continued strength of the common currency. It is doubtful in the extreme that he will say anything given his awareness of the “Greenspan effect”. There may be a little irrational exuberance, particularly in the Euro’s value against the dollar but it is entirely justified versus Sterling which is facing unprecedented and continuing headwinds.
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Brexit debate to begin a period of further political uncertainty
Theresa May, the British Prime Minister has been in Japan recently drumming up support for a post-Brexit trade deal but being forced to provide concessions to keep Japanese businesses in the U.K. There is concern that it will be difficult for them to sell into the EU but any shortfall will have to be taken up by the Government.
David Davis, the Brexit Minister asserts that his negotiating skills are on a par with the Prime Minister’s despite his not having any bargaining power to use with the EU is determined to press home every advantage.
This is the backdrop as Parliament debates the Repeal Bill which will allow EU law to be enshrined into U.K. law and giving the Government power to alter them in the future without further reference.
The opposition Labour Party has called “foul” over the bill and intends to vote against, expressing concerns over a variety of issues the most important of which is workers’ rights, always dear to a Socialists heart.
Any wavering by disenchanted Conservative MP’s could signal the beginning of the end for both Mrs. May and the Government. Their wafer-thin majority bolstered by Irish MP’s is just about holding but as Brexit negotiations continue they will demand concessions over the question of the Irish border.
