Is the end nigh for the Euro? [vol. 3]
Discussion
Andy Zarse said:
Digga said:
...he had the look of a rabbit caught in two sets of headlights; one of his own, economically lunatic party and the other of the abyss the nation teetered on at the time.
Do you know, I'd forgotten about that. Yes he did often look scared witless, though given his predicament of being caught between the crunch on one side and an raving megalomaniac on the other, I'm not surprised.
Carney? Really, seriously? Does anybody actually take what he says at face value?
In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
DJRC said:
Carney? Really, seriously? Does anybody actually take what he says at face value?
In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
I don't think anyone really disagrees with this analysis right now. Inflation data yesterday probably sinks a rate rise between now and Christmas, and post Christmas the election is too close and I think it would / could only be a quarter point as a sign of intent and that only if the numbers are really showing a clear trend. In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
However if you go back to the noises made by Carney on his "forward guidance (part 1)" then I think there is every chance that currency investors did pile into sterling every time the unemployment data went down or the growth figure went up. Since everything MC said indicated a rise was on the cards.
I note the Euro has declined to around 80p for a Euro, from about 86p not even six months ago, so Sterlings weakness is being overdone I think....
turbobloke said:
Andy Zarse said:
Digga said:
...he had the look of a rabbit caught in two sets of headlights; one of his own, economically lunatic party and the other of the abyss the nation teetered on at the time.
Do you know, I'd forgotten about that. Yes he did often look scared witless, though given his predicament of being caught between the crunch on one side and an raving megalomaniac on the other, I'm not surprised.
Andy Zarse said:
There's a new verb in the OED; to carney. It means to totally blow your credibility in less than twelve months.
Honestly, every time the man opens his mouth something completely different comes out. And look at that clueless woman he appointed. He's reduced the position of Governor to little more than that of Court Jester, IMO. At least Merv was consistent; wrong but consistent...
Carney & Canada experiment.Honestly, every time the man opens his mouth something completely different comes out. And look at that clueless woman he appointed. He's reduced the position of Governor to little more than that of Court Jester, IMO. At least Merv was consistent; wrong but consistent...
http://www.pistonheads.com/gassing/topic.asp?h=0&a...
DJRC said:
Carney? Really, seriously? Does anybody actually take what he says at face value?
In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
That's the whole point; his hollow words. He first hung a rate rise on unemployment falling to a set low level; and it did within a few months. And on and on... The BoE forecasting has been utterly appalling, so my initial view hasn't changed. Forward guidance is/was a load of old crap. And like you say, there's an election coming and the independent central bank won't want to risk a new master.In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
My main concern is that we are quite far into the economic cycle, and when the next downturn happens how are they going to ease policy when there's nothing left to cut? Negative rates? I don't think so; the neg overnight at the ECB hasn't helped the Eurozone has it?
FT today
Draghi magic is wearing thin and feedback loop remains in place, says Trevor Greetham
The euro area has lived a charmed life in the two years since European Central Bank President Mario Draghi said he would do “whatever it takes” to save the single currency. But the magic seems to be wearing thin.
Growth is weakening, lead indicators are rolling over and a persistently weak earnings trend means European equities are making new lows relative to the US without being particularly cheap. A downside shock to European growth or an upside shock to US rates could widen peripheral bond spreads, hurt the banks and see a return of familiar vicious cycle dynamics.
Europe urgently needs policies to boost nominal growth. Japan offers a precedent here. It may take a witches’ brew of serious structural reform, unconventional monetary easing and sustained fiscal expansion to raise inflation expectations.
Two years ago the euro area was in perpetual crisis. Three words from Mr Draghi and the downward spiral swung powerfully into reverse. Those who remember the late 1990s euro convergence trade got to see it all over again as the average 10-year sovereign spread for France, Italy and Spain hurtled in from more than 4 per cent over Germany to less than 1 per cent.
Funding markets re-opened, bank balance sheets improved and economic growth returned. At one point the euro was up 15 per cent against the dollar and unhedged investors saw European equities outperform the US by a full 25 per cent.
In recent weeks it seems Mr Draghi’s spell has been wearing off. European lead indicators are weak. France is flat lining, Italy is back in recession and the conflict in Ukraine is hurting business confidence in Germany. There has been some de-rating of equity markets but it is the persistently weak relative earnings trend that has the EuroStoxx 50 index making new lows against the S&P 500.
Gradual European underperformance is starting to look normal but a more intense phase could easily return. The euro crisis has been in remission while domestic growth has been strong and the global need for income has provided ready flows into high yielding bond markets.
However, the old feedback loop remains largely in place, with banks heavily exposed to their sovereign, legacy debt excluded from discussions on banking union, and a single deposit protection scheme elusive.
A downward shock to European growth or a steady rise in US interest rates could put upward pressure on peripheral yields, hurting banks, triggering asset price falls and pushing the more fragile economies back into recession when they are already on the verge of deflation.
Worse still, economic weakness would lead to calls for self-defeating austerity when the exact opposite is required.
Europe urgently needs policies that boost nominal growth, especially in the debt-ridden South. The ECB has fired its last shot on rates and its other policies may fail to reach credit-starved small businesses and property markets.
Abenomics in Japan was designed to address just this situation. It prescribes serious structural reform against a backdrop of sustained monetary and fiscal easing to raise inflation expectations and keep them on a higher path. This is hard to do in Japan. It is a gargantuan task in Europe’s fragmented economy.
Structural reforms take time and a level of political commitment that is hard to maintain in some of the countries in Europe’s periphery. An equally heavy political responsibility rests with the core. The capacity for sustained fiscal expansion lies almost uniquely in Germany, but Berlin does not seem to appreciate its pivotal role.
German inflation is running below 1 per cent when it needs to be 3 per cent or 4 per cent if the rest of Europe is to regain competitiveness without prices and wages falling in nominal terms. It is time to abandon balanced budgets and go for growth.
In the long run, a single currency needs a single government with democratic accountability and the authority to make fiscal transfers. It was 85 years from the formation of the United States until full fiscal and monetary union, and it took a civil war to overcome objections to the pooling of sovereignty that the introduction of Abraham Lincoln’s greenback entailed.
Europe is starting from the other end, with the single currency coming first. Political and fiscal union remain unfinished business. Tensions with Russia could galvanise fellow feeling but Europe still lacks the defining event to bring it together or indeed break it apart.
The current generation of investors is likely to see the euro crisis come and go several times. The euro area is not invulnerable while internal divisions remain.
With growth weakening once more it is time to dust off the old euro crisis playbook: short the euro, short the periphery, long Germany.
Draghi magic is wearing thin and feedback loop remains in place, says Trevor Greetham
The euro area has lived a charmed life in the two years since European Central Bank President Mario Draghi said he would do “whatever it takes” to save the single currency. But the magic seems to be wearing thin.
Growth is weakening, lead indicators are rolling over and a persistently weak earnings trend means European equities are making new lows relative to the US without being particularly cheap. A downside shock to European growth or an upside shock to US rates could widen peripheral bond spreads, hurt the banks and see a return of familiar vicious cycle dynamics.
Europe urgently needs policies to boost nominal growth. Japan offers a precedent here. It may take a witches’ brew of serious structural reform, unconventional monetary easing and sustained fiscal expansion to raise inflation expectations.
Two years ago the euro area was in perpetual crisis. Three words from Mr Draghi and the downward spiral swung powerfully into reverse. Those who remember the late 1990s euro convergence trade got to see it all over again as the average 10-year sovereign spread for France, Italy and Spain hurtled in from more than 4 per cent over Germany to less than 1 per cent.
Funding markets re-opened, bank balance sheets improved and economic growth returned. At one point the euro was up 15 per cent against the dollar and unhedged investors saw European equities outperform the US by a full 25 per cent.
In recent weeks it seems Mr Draghi’s spell has been wearing off. European lead indicators are weak. France is flat lining, Italy is back in recession and the conflict in Ukraine is hurting business confidence in Germany. There has been some de-rating of equity markets but it is the persistently weak relative earnings trend that has the EuroStoxx 50 index making new lows against the S&P 500.
Gradual European underperformance is starting to look normal but a more intense phase could easily return. The euro crisis has been in remission while domestic growth has been strong and the global need for income has provided ready flows into high yielding bond markets.
However, the old feedback loop remains largely in place, with banks heavily exposed to their sovereign, legacy debt excluded from discussions on banking union, and a single deposit protection scheme elusive.
A downward shock to European growth or a steady rise in US interest rates could put upward pressure on peripheral yields, hurting banks, triggering asset price falls and pushing the more fragile economies back into recession when they are already on the verge of deflation.
Worse still, economic weakness would lead to calls for self-defeating austerity when the exact opposite is required.
Europe urgently needs policies that boost nominal growth, especially in the debt-ridden South. The ECB has fired its last shot on rates and its other policies may fail to reach credit-starved small businesses and property markets.
Abenomics in Japan was designed to address just this situation. It prescribes serious structural reform against a backdrop of sustained monetary and fiscal easing to raise inflation expectations and keep them on a higher path. This is hard to do in Japan. It is a gargantuan task in Europe’s fragmented economy.
Structural reforms take time and a level of political commitment that is hard to maintain in some of the countries in Europe’s periphery. An equally heavy political responsibility rests with the core. The capacity for sustained fiscal expansion lies almost uniquely in Germany, but Berlin does not seem to appreciate its pivotal role.
German inflation is running below 1 per cent when it needs to be 3 per cent or 4 per cent if the rest of Europe is to regain competitiveness without prices and wages falling in nominal terms. It is time to abandon balanced budgets and go for growth.
In the long run, a single currency needs a single government with democratic accountability and the authority to make fiscal transfers. It was 85 years from the formation of the United States until full fiscal and monetary union, and it took a civil war to overcome objections to the pooling of sovereignty that the introduction of Abraham Lincoln’s greenback entailed.
Europe is starting from the other end, with the single currency coming first. Political and fiscal union remain unfinished business. Tensions with Russia could galvanise fellow feeling but Europe still lacks the defining event to bring it together or indeed break it apart.
The current generation of investors is likely to see the euro crisis come and go several times. The euro area is not invulnerable while internal divisions remain.
With growth weakening once more it is time to dust off the old euro crisis playbook: short the euro, short the periphery, long Germany.
DJRC said:
Carney? Really, seriously? Does anybody actually take what he says at face value?
In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
I sort of agree with you, an interest rate rise would be difficult for the government and difficult for those with big mortgages, but the base rate can't stay at 0.5% for ever and there's a case for small rises early rather than a big rise later. There does seem to be a move towards higher rates sooner rather than later, imo, and such sentiment certainly affects the GBP in currency markets. In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
Sky news said:
Newly-revealed minutes from the Bank of England's Monetary Policy Committee show its members were split on a potential interest rate rise.
It said two of its nine members voted for a rate rise earlier this month, in the first split vote on rates since July 2011.
The split decision is the first under governor Mark Carney's tenure.
It said two of its nine members voted for a rate rise earlier this month, in the first split vote on rates since July 2011.
The split decision is the first under governor Mark Carney's tenure.
RYH64E said:
DJRC said:
Carney? Really, seriously? Does anybody actually take what he says at face value?
In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
I sort of agree with you, an interest rate rise would be difficult for the government and difficult for those with big mortgages, but the base rate can't stay at 0.5% for ever and there's a case for small rises early rather than a big rise later. There does seem to be a move towards higher rates sooner rather than later, imo, and such sentiment certainly affects the GBP in currency markets. In what context of reality has a rate rise been likely at any point of the last 12 months??? Until as such time as the phrase "cost of living crisis" vanishes from the discussion table there was never going to be even a chance of a rate rise. The economic data could show 7% and it still wouldn't happen. This is why nothing will still happen for another 6 months. Everybody will see how Xmas trading goes and then something might happen on the back of that. Even then that puts you into election territory and the govt will move heaven and earth to keep the rate rise till post election.
Sky news said:
Newly-revealed minutes from the Bank of England's Monetary Policy Committee show its members were split on a potential interest rate rise.
It said two of its nine members voted for a rate rise earlier this month, in the first split vote on rates since July 2011.
The split decision is the first under governor Mark Carney's tenure.
It said two of its nine members voted for a rate rise earlier this month, in the first split vote on rates since July 2011.
The split decision is the first under governor Mark Carney's tenure.
DJRC said:
Both wrong chaps. There hasn't been any expectation of a rate rise in the UK...
You are confusing fact and opinion. The link between the strength of a currency and rate expectations in this instance is pretty clear, as is the increase in rate expectations. Graph shows GBPUSD vs Jun15 ShtSterling (that is the June 2015 GBP LIBOR future, price = 100-interest rate). Gargamel and RYH64E are spot on.DJRC said:
and there won't be one for another 12months.
I think you're probably right, wage growth and CPI arn't there, yet. Edited by anonymous-user on Wednesday 20th August 17:37
TLandCruiser said:
At the beginning of the week it was being reported that interest rates will remain the same until next year at least, it seems every week someone is contradicting someone.
You also have to bear in mind that some people have a vested interest in keeping Sterling weak as it helps exporters and the balance of payments, there's a lot of 'they would say that, wouldn't they?'.Cunning Punt said:
fblm said:
when an independant Scotland can't meet the Maastricht criteria for EU entry
This very thread suggests that that ^ might be no bad thing.Cunning Punt said:
fblm said:
and spirals into poverty
Quite possibly. OTOH, Iceland seems to be doing ok 
Edited by anonymous-user on Wednesday 20th August 15:58
Some interesting points by Stiglitz here http://www.bloomberg.com/news/2014-08-20/stiglitz-... (it's not just about Scotland)
Andrew[MG] said:
Some interesting points by Stiglitz here http://www.bloomberg.com/news/2014-08-20/stiglitz-... (it's not just about Scotland)
Great interview, thanks.fblm said:
DJRC said:
Both wrong chaps. There hasn't been any expectation of a rate rise in the UK...
You are confusing fact and opinion. The link between the strength of a currency and rate expectations in this instance is pretty clear, as is the increase in rate expectations. Graph shows GBPUSD vs Jun15 ShtSterling (that is the June 2015 GBP LIBOR future, price = 100-interest rate). Gargamel and RYH64E are spot on.DJRC said:
and there won't be one for another 12months.
I think you're probably right, wage growth and CPI arn't there, yet.
. There is an obvious issue in not raising base rates when inflation rises to more than double its target; and then doing so when it is below it! I am not saying that you cannot do that as you might expect inflation to rise soon, but you remain with the issue of why you pick and choose when you try to hit the CPI inflation target of 2% and when you don't...
Andy Zarse said:
I have long made the case for "normalising" rates but IMO the appropriate time to do that was a couple of years ago when inflation was massively over target @5%. I made that argument then and was roundly harangued on here including by some bloke called fbrs .
There is an obvious issue in not raising base rates when inflation rises to more than double its target; and then doing so when it is below it! I am not saying that you cannot do that as you might expect inflation to rise soon, but you remain with the issue of why you pick and choose when you try to hit the CPI inflation target of 2% and when you don't...
. There is an obvious issue in not raising base rates when inflation rises to more than double its target; and then doing so when it is below it! I am not saying that you cannot do that as you might expect inflation to rise soon, but you remain with the issue of why you pick and choose when you try to hit the CPI inflation target of 2% and when you don't...
of course the bank can't target todays inflation rate, any move in rates today will only feed through to CPI many months down the line. IIRC they are really targeting their CPI central projection (those pretty fan charts in the inflation report) over a year from now. It's easy to see how they can justify hiking when we are below inflation and cutting when we are above, even if it's counterintuitive. Lets be honest though, the BoE long ago abandoned it's inflation mandate for a pro-growth and a wink strategy. IMO the UK is almost certainly better off for it.fblm said:
of course the bank can't target todays inflation rate, any move in rates today will only feed through to CPI many months down the line. Andy Zarse said:
True but our inflation was above target for over four bloody years!
What annoyed me was the pathetic pretence at compliance with the statutory aim.
I've yet to hear a convincing argument that sacrificing growth to kill inflation would have had any net benefit. By luck or judgment inflation fell back to target anyway, without growth killing and sterling strengthening interest rate hikes. With regard the pretence at sticking to their mandate, well, I knew it, you knew it and everyone with a passing interest in monetary policy knew it; IMO they played that game to deny the usual fvcktards on the treasury select commitee an open goal.What annoyed me was the pathetic pretence at compliance with the statutory aim.
Andy Zarse said:
Clearly they had a bigger picture and exercised judgement but folk with that much power really need to be democratically elected/sackable by the public.
You've gone completely mad! 
90% of the public are economically illiterate. Besides, the democratically elected chancellor used to set monetary policy and it was, unsurprisingly, a mess driven by the electoral cycle.You're quite right of course, I just wish our elected reps would do their jobs properly and had had the power to stick the boot in on Merv.
Personally I'm not sure (slightly) higher interest rates would have destroyed long term growth. Nor am I sure it's been entirely healthy to sit with comfy "emergency" low rates for all these years. We were all fine at 3.5% pre crunch; folk have gotten used to the sugar rush of 0.5%... I ask again; where do we go from here when the next downturn comes?
Personally I'm not sure (slightly) higher interest rates would have destroyed long term growth. Nor am I sure it's been entirely healthy to sit with comfy "emergency" low rates for all these years. We were all fine at 3.5% pre crunch; folk have gotten used to the sugar rush of 0.5%... I ask again; where do we go from here when the next downturn comes?
Andy Zarse said:
You're quite right of course, I just wish our elected reps would do their jobs properly and had had the power to stick the boot in on Merv.
Personally I'm not sure (slightly) higher interest rates would have destroyed long term growth. Nor am I sure it's been entirely healthy to sit with comfy "emergency" low rates for all these years. We were all fine at 3.5% pre crunch; folk have gotten used to the sugar rush of 0.5%... I ask again; where do we go from here when the next downturn comes?
I still think they should have cut taxes on vat and fuel duty to stimulate spending or would that be a crazy idea?Personally I'm not sure (slightly) higher interest rates would have destroyed long term growth. Nor am I sure it's been entirely healthy to sit with comfy "emergency" low rates for all these years. We were all fine at 3.5% pre crunch; folk have gotten used to the sugar rush of 0.5%... I ask again; where do we go from here when the next downturn comes?
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