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Draghi Disappoints

Non-Standard measures not even discussed


It is an absolute mystery what is discussed at ECB board meetings. To even admit that they have a series of meetings that are “non-monetary policy” is baffling.


At his press conference yesterday Mario Draghi, the ECB President, when asked about the Asset Purchase Scheme, responded that it hadn’t even been discussed. The last change in “non-standard measures” was in December when the scheme was reduced in size but extended in tenor.


Central Bankers are by nature cautious souls, but with forward looking indicators starting to provide comfort that growth is now sustainable across the whole region the time has surely come to consider a return to normality.


Therein lies the problem of determining monetary policy for 19 disparate economies. I’ve said it before and I will say it again “one size does not fit all”.


Mr. Draghi was at his most hangdog yesterday, appearing almost as a caricature of himself. He has covered himself in glory and his legacy is complete having managed to negotiate the stormy waters of the financial crisis but he is now seemingly unable to loosen the reins even a little.


Sterling ending month on a high note.


April is “Sterling’s month”. Tax receipts mean that the pound has risen on average by almost 3% every April since 2000. It was looking doubtful that even an expansion in the country’s coffers was not going to do the trick this time. However, the rather extreme step of calling a general election managed to continue the trend.


Margaret Thatcher’s majority of 144 in 1987 is now firmly in the Government’s sights following a poll released yesterday which showed a 23% lead for the Conservative Party. Markets like stability so a continuation of a market friendly Government is underpinning the pound.


A speech yesterday by Angela Merkel, the German Chancellor, was hawkish in its tone but less tough over Brexit than many had feared. She trotted out what has become the “party line” that “no discussion will take place over a future relationship until the terms of Brexit are agreed”. Theresa May responded by saying that since the EU stance is now firmly entrenched the need for the U.K. to have a strong Government with a strong mandate is even more important.


Mrs Merkel, of course, needs to win here election in September to continue to have a say in Brexit negotiations. Her status at home is nowhere near as secure as Theresa May’s.


Kim response conspicuous by its absence.


Following a major show of force from the U.S. and South Korea this week, North Korea has been surprisingly quiet. There were a couple of reports this week that point to a weakening of Kim Jong Un’s position.


First it has been reported that senior officials are becoming increasingly concerned that the point of no return is fast approaching and Kim isn’t equipped with the skills or desire to negotiate or even act in a conciliatory manner.


Second were the pictures which clearly show that at least part of Kim’s vast arsenal is, in fact, fake.  


It is one thing to parade rockets in front of the world’s media, but firing them is a totally different matter. While they are not made from “fairy liquid bottles”, experts in these things can tell fake from genuine relatively easily.


The hard-line response of President Trump has been welcomed by global markets. The dollar which has fallen 6% against the JPY since Trump’s election has formed a base and as risk appetite improves, further gains are likely.


The Week Ahead.


It’s the first week of the month so that means the U.S. employment report. This month’s report will be characterized by any revision to March’s unusually weak data. The expectation for April’s headline is for 180k new jobs to have been added with the unemployment rate to have risen slightly to 4.6%.


The Reserve Bank of Australia hold a monetary policy meeting. It is still too soon for a rate hike despite the Governor, Philip Lowe commenting a couple of months ago that rates have bottomed.


Finally, there is a non-monetary policy meeting of the ECB where they will presumably discuss knitting patterns or how many points Bayern Munich will win the Bundesliga by!

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