Europe
Mario Draghi will not stop until he gets close to 2% inflation even though he admits it will be the prices of oil and food and the direction of wages that will mostly be needed to get him there. How QE helps that I don’t know but he is one determined man and will stop at nothing to get there. On one hand he said the “lack of core inflation is mostly due to subdued wages” but then admitted that “wage growth is damped by structural changes.” Then again why does he continue to believe that QE changes that? I don’t know. “The ECB will be in the market for a long time… The ECB governing council trusts the strength and power of its purchase program.” ‘A long time’ includes reinvestments even when enlarging the balance sheet is complete likely sometime next year. As for a potential taper announcement in September, Draghi said they didn’t discuss it but that is still 3 months away and they will have to discuss it because the current plan is still to end QE in December even though that won’t happen.
At the same time, Draghi acknowledged the better economic data and improved labor picture (even though he said “many new jobs are low quality) which combined have lowered downside risks. He even said that “the labor market is tightening and the output gap is closing.”
Bond yields in the region are all lower with Italy outperforming but that was happening well before Draghi spoke on the Italian bank bailout news. The euro remains in a tight range, down modestly.
FXE 1 yr
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.