Is the end nigh for the Euro? [vol. 3]

[stongle]

isaldiri said:

As above, that 20bps spike wasn't wholly caused by the ECB announcement and a decent chunk was retraced in the afternoon as well...

@ open they were 3.37, when I last checked @ 16:00 they were @ 3.59% so 22 bps. The highest point was 3.622 @ around 15:30 (25bps higher). Checking back they did drop a bit towards the close. They were whippy all day, as the 50bps WAS doing the rounds as a distinct possibility (forward guidance was never a given); and lets not forget Draghi went pre-ECB (forget about that one?).

[YankeePorker]

Earthdweller said:

Surely the rise in the $ v € could become a major problem if investors get the willies ?

The flight to the $ raises all sorts of problems both sides of the Atlantic - US trade imbalance is already at a record level, less exports and cheaper imports from the EU won’t help. The only people laughing are the tourists from the US.

Presumably US companies will go on buying sprees in Europe if businesses start to look super cheap.

[stongle]

Strength of the $ is where a lot of the inflation is coming from - oil is priced in it. Grrrrrr.

This is classic for showing up Rishi's ineptitude. Rather than taking off more from fuel duty, they went around on a vote buying spree for wallies. The German's did much larger fuel duty cuts. Sure, everyone is still suffering, but at least they made an effort on imported inflation.

[isaldiri]

stongle said:

isaldiri said:

As above, that 20bps spike wasn't wholly caused by the ECB announcement and a decent chunk was retraced in the afternoon as well...

@ open they were 3.37, when I last checked @ 16:00 they were @ 3.59% so 22 bps. The highest point was 3.622 @ around 15:30 (25bps higher). Checking back they did drop a bit towards the close. They were whippy all day, as the 50bps WAS doing the rounds as a distinct possibility (forward guidance was never a given); and lets not forget Draghi went pre-ECB (forget about that one?).

Where were you seeing that open...?



Well 50bps was pretty much dropped in by a leak to the press earlier in the week as a distinct possibility... and given what the Fed did earlier it was not all that much of a surprise anymore that the ECB came up with 50bps yesterday with forward guidance only holding if there wasn't an emergency pre-meeting leak.....

[stongle]

isaldiri said:

Where were you seeing that open...?

My own pricing app / tool (which should be pulling from BBG amongst others). Somehow it looks to be referencing the prior day close. We need to check that one out, it looks off (but correct for rest of day per screenshot).

But real world application of this stuff...

MDP (Monte Del Pashi), what happens next? For those wondering, its been part state aided, but the govt needs to divest itself (in brief). You think the 2.5bn capital raise is doable - given what happened (Draghi mainly)? I think they should go the ECB and ask for the extension or relief. It has to be better to break the rules than the alternative....

[Murph7355]

Digga said:

....
EU and ECB will force delinquent Eurozone economies into order and also ensure the costs - TPI, higher average interest rates - are borne by the stronger nations too. Bail out and bail in....

Weaker nations get told they cannot spend as much.

Stronger ones get told they are picking up the current tab.

What could possibly go wrong.

[stongle]

Murph7355 said:

Digga said:

....
EU and ECB will force delinquent Eurozone economies into order and also ensure the costs - TPI, higher average interest rates - are borne by the stronger nations too. Bail out and bail in....

Weaker nations get told they cannot spend as much.

Stronger ones get told they are picking up the current tab.

What could possibly go wrong.

The ECB has no option, but play for time. This was almost certainly sketched on a napkin when the hardmen forced through a hike. Pretty much all economists thought it SHOULD be 50bps, just few believed they would do it, because fragmentation risks.

They are increasingly hoping that things start going correct, and the economic position starts raining growth with cherries on top.

What you are advocating, IS the other solution - debt support or mutualisation. The ECB might be fairly insulated from blame here. Either the economic picture improves dramatically in the next 18 months and inflation gets back in the box (UK survey of CFOs 90% believe its persistently high for next 2 years), and all sorts if other stuff go well (Putin snuffs it, Europe has a balmy winter etc); or they are going to have very serious federalisation type discussions.

The inflection point us coming, and it's the point where the EU might come good on all its ambitions, but with transparency.

The EUs fundamental problem, is the ambition and righteousness are correct, but a good chunk of the participants are too deluded or greedy to get there. Its a bit like wanting to be a supermodel (or worse using filters and cropping on insta to do it) but raiding the sweetie jar at night - you fat . Now, attitudes have changed a bit - money is cheap, you can run more debt. But that's just the "body positive" excuse.

If everyone actually started to pull together, help out: it's a great thing. But they are not, and there is no control. The EU believers think the construct is holier than holy, really believe all the hype, or rely on 1 clock google-fu; need to wake up. They can't control it, as there is no agreement on the rules that should bind them.

The controls are fked. The ECB said - "you cannot access TPI; IF you are subject to an Excessive Deficit Procedure". This is part of the Stability and Growth pact (being redrafted and the finance ministers will be knocking 7 bells of st out if each other on), but it is calibrated currently (something the ECB ducked out of with "dynamic and as the situation arises" language). Excessive Debt Facility is supposed to kick in at 3% annual deficit to GDP OR 60% total debt to GDP. If actually applied only 3 Eurozone members would be eligible for TPI. 3. Netherlands, Denmark and Ireland (explains Motherboards cocksureness or the usual attemp by him to make the debate just about Ireland).

If countries like Italy start flirting with loons for a government and reasonable or reforming leaders like Draghi (ish) get binned, the entire project just stays in a constant state of internal conflict - and doubt. The Europhiles think this is a great place to be, others are more circumspect or suspect. Certainly its subject to speculative attack. The new macro outlook of persistent high inflation and post Covid debt loads are going to add massive pressure. States that want or need to control inflation, or FX are going to struggle because other states are drowning in debt servicing costs. Expectations for the terminal rate are dropping all the time.

It's going to be entirely dynamic. It will be abused.

Edited by stongle on Saturday 23 July 07:37

[Digga]

stongle said:

Strength of the $ is where a lot of the inflation is coming from - oil is priced in it. Grrrrrr..

Yes and no. Yes most imported stuff is priced USD, but saying there currency is the problem is an oversimplification.

We, the world, shut down supply chains for 3 years - factories, ports, shipping, personnel - a network that’d taken 30 odd years to build was broken. What people outside of industry fail to realise is, very little of this could be switched off and back on again without severe difficulties.

Take containerised shipping. Last year the trade experts forecast a return to normality by June or July this year. The China 2022 lockdown happened. Is shipping running better, are container prices abating?

[DeejRC]

Lead times and sea shipping prices still suck Digga
EEE long lead times are still 6-12months for so much stuff. It is my number 1 risk in dealing with every single one of my suppliers.

[isaldiri]

Digga said:

stongle said:

Strength of the $ is where a lot of the inflation is coming from - oil is priced in it. Grrrrrr..

Yes and no. Yes most imported stuff is priced USD, but saying there currency is the problem is an oversimplification.

Agreed. Inflation is still a very major issue in the US after all so $ strength or not, it isn't the main underlying cause of inflation here nor in the US and pre energy spike due to Russia, 'transitory' inflation levels were already consistently running high and creeping up.

[Pastor Of Muppets]

Interesting article. Self-hating Remainers are blind to the EU's flaws.

https://12ft.io/proxy?q=https%3A%2F%2Fwww.telegrap...

[stongle]

isaldiri said:

Digga said:

stongle said:

Strength of the $ is where a lot of the inflation is coming from - oil is priced in it. Grrrrrr..

Yes and no. Yes most imported stuff is priced USD, but saying there currency is the problem is an oversimplification.

Agreed. Inflation is still a very major issue in the US after all so $ strength or not, it isn't the main underlying cause of inflation here nor in the US and pre energy spike due to Russia, 'transitory' inflation levels were already consistently running high and creeping up.

Agreed, perhaps my "a lot" should not be read as majority - just large contributor (which is a lot - in a way).

The COVID opening - with problems, of course has set a big chunk of backdrop - but the policy tools fiscal or monetary are going to have focus on money supply, fx, credit (availability of) etc.

It's also that very opening up and that have caused policy instruments problem. They are possibly too blunt, to much unintended consequence. To really debate this, the thread would be 100 of 1000's times longer.

Edited by stongle on Saturday 23 July 11:07

[Digga]

stongle said:

It's also that very opening up and that have caused policy instruments problem. They are possibly too blunt, to much unintended consequence. To really debate this, the thread would be 100 of 1000's times longer.

Completely agree. Sure, it is the role of the hopeless fool to say “this time it’s different”, but actually, it really is.

In the same way as the post war periods of WW1 and 2 were themselves very different, so the situation we find ourselves in today, post Covid is. The tools at the disposal of central banks and governments are not set up for mid to long term challenges like this - as you say, too blunt. Couple to this an abject lack of understanding of both macro and micro businesses and commercial issues among most politicians, governments and even financial institutions and you have a very serious deficit of oversight.

As just one single example; who knew, understood and predicted car production and sales would be so badly hit?

[Mortarboard]

stongle said:

The ECB has no option, but play for time. This was almost certainly sketched on a napkin when the hardmen forced through a hike. Pretty much all economists thought it SHOULD be 50bps, just few believed they would do it, because fragmentation risks.

They are increasingly hoping that things start going correct, and the economic position starts raining growth with cherries on top.

What you are advocating, IS the other solution - debt support or mutualisation. The ECB might be fairly insulated from blame here. Either the economic picture improves dramatically in the next 18 months and inflation gets back in the box (UK survey of CFOs 90% believe its persistently high for next 2 years), and all sorts if other stuff go well (Putin snuffs it, Europe has a balmy winter etc); or they are going to have very serious federalisation type discussions.

The inflection point us coming, and it's the point where the EU might come good on all its ambitions, but with transparency.

Finally you put a time frame on it. So if the above doesn't happen in two years, will you admit that they might actually know a teeny bit more than you do?



M.

[Murph7355]

stongle said:

The ECB has no option, but play for time. This was almost certainly sketched on a napkin when the hardmen forced through a hike. Pretty much all economists thought it SHOULD be 50bps, just few believed they would do it, because fragmentation risks.

I don't really understand what any central bank rate rises really hope to achieve, without concerted efforts in other areas of fiscal policy.

A large chunk of the issues we are currently seeing are not driven by factors that rate rises can readily control. They might help cut discretionary spending so people can shovel more of their disposable into keeping warm/feeding themselves I guess. But are people really spaffing on fripperies right now?

Maybe they are in summer, with Rishi's free money coming in holiday season when the central heating isn't on. But unless something additional isn't done to help alleviate the supply side issues, when it starts getting colder again there's going to be pain.

This is where size really does count against, IMO. It's hard enough doing this for a pretty consistent country like the UK (no matter what WJK might try and say). But the EU is made up of very disparate nations, in many different ways that politics cannot hope to bridge effectively.

Kicking the can down the road just makes the ultimate problem bigger. This has always been my concern with their approach. They need to piss or get off the pot, because can kicking is going to hurt people very badly when the music stops.

This is a very big part of why I have a massive dislike of politicians these days. And as I think you've said recently, and I've definitely said in the past, anyone who thinks the variety in the EU construct are better than most is, frankly, deluded. Ditto the idea that having more layers of ste is somehow "better".

[Mortarboard]

Murph7355 said:

I don't really understand what any central bank rate rises really hope to achieve, without concerted efforts in other areas of fiscal policy.

A large chunk of the issues we are currently seeing are not driven by factors that rate rises can readily control. They might help cut discretionary spending so people can shovel more of their disposable into keeping warm/feeding themselves I guess. But are people really spaffing on fripperies right now?

Its the standard response. Fed raised rates, BOE rasied rates, ECB raised rates. All as expected.

It's not just at the retail consumer spending though don't forget. It's business loans, and government spending too (not directly funded by lending, but indirectly)

It focuses monetary policy on making improvements in order to improve the overall state, e.g. expect many governments in the west to start looking at boosting housebuilding, etc.

M.

[GlenMH]

Mortarboard said:

Finally you put a time frame on it. So if the above doesn't happen in two years, will you admit that they might actually know a teeny bit more than you do?



M.

The world has changed dramatically since Feb 24th this year so who has any idea what the world is going to look like in 2 years time...

[anonymous-user]

Central banks are doing what they are doing because they have to be seen to be doing something to control inflation.

Their actions are idiotic and will drive all the major Western economies into recession.

You don't fix supply side inflation by making money more expensive and taking money out of the pockets of the population. You need to fix the problem causing the inflation, not pile more st on top.

They are making the same mistakes as the politicians did with austerity cuts to public finance, it does the oposite of the intention.

[Earthdweller]

Murph7355 said:

stongle said:

The ECB has no option, but play for time. This was almost certainly sketched on a napkin when the hardmen forced through a hike. Pretty much all economists thought it SHOULD be 50bps, just few believed they would do it, because fragmentation risks.

I don't really understand what any central bank rate rises really hope to achieve, without concerted efforts in other areas of fiscal policy.

A large chunk of the issues we are currently seeing are not driven by factors that rate rises can readily control. They might help cut discretionary spending so people can shovel more of their disposable into keeping warm/feeding themselves I guess. But are people really spaffing on fripperies right now?

Maybe they are in summer, with Rishi's free money coming in holiday season when the central heating isn't on. But unless something additional isn't done to help alleviate the supply side issues, when it starts getting colder again there's going to be pain.

This is where size really does count against, IMO. It's hard enough doing this for a pretty consistent country like the UK (no matter what WJK might try and say). But the EU is made up of very disparate nations, in many different ways that politics cannot hope to bridge effectively.

Kicking the can down the road just makes the ultimate problem bigger. This has always been my concern with their approach. They need to piss or get off the pot, because can kicking is going to hurt people very badly when the music stops.

This is a very big part of why I have a massive dislike of politicians these days. And as I think you've said recently, and I've definitely said in the past, anyone who thinks the variety in the EU construct are better than most is, frankly, deluded. Ditto the idea that having more layers of ste is somehow "better".

And they are still obsessing with Net zero

Latest here in Ireland on top of the (attempted) ban on cutting and burning turf which almost brought the Govt down is to deal with farting cows by reducing the national herd by 30% (putting countless number of small rural farmers out of business) to reduce the CO2 emissions

Now the minister for the environment and transport is saying if they can’t do that they’ll ban households in rural Ireland from having more than one car!

Cows or cars

Next week there’s a vote and a good number of rural TD’s are threatening to collapse the Govt if they go ahead ( they already had a vote of confidence last week )

They are just lunatics running the asylum and in a country that contributes less than 0.1% of global emissions

They are just barking mad

[Mortarboard]

GlenMH said:

Mortarboard said:

Finally you put a time frame on it. So if the above doesn't happen in two years, will you admit that they might actually know a teeny bit more than you do?



M.

The world has changed dramatically since Feb 24th this year so who has any idea what the world is going to look like in 2 years time...

Stongle's an economic savant, dontcha know.

M.