Earlier this morning, we said the following about a series of comments from Mario Draghi that sent the euro and bund yields surging:
So for one thing, it probably wasn’t a great idea to open with something like “I’m going to sum up what I think in three messages,” because that doesn’t leave a whole lot of room for interpretation. Draghi is a good communicator so he should know it’s better to ramble and obfuscate given the prevailing circumstances.
Former FX trader Richard Breslow tends to agree, noting that “Draghi went further in his comments than we’re used to [as] it’s no small item when an ECB head talks about ‘looking through’ temporary inflation factors.”
That said, Breslow goes on to say this kind of thing is necessary if central banks are going to maintain their hawkish bias in an environment where inflation probably isn’t going to stage any kind of remarkable and/or sustainable uptick.
Read Breslow’s latest below…
Is it really only Tuesday? This is shaping up to be an interesting week, after all. And for once, one that we don’t get everything back-loaded until thoughts of the weekend crowd out worrying about monetary policy. Not that Friday won’t have its payoff moments. Inflation data will be released in the U.S. and Europe. Anything price and wage level related deserve A-list treatment. You’d also better believe today’s events will be re-evaluated in hindsight.
- Earlier this morning, we got a speech from ECB President Mario Draghi that the market took to be dripping with import. Even though he probably thought he was stating the obvious. Later on, Fed Chair Janet Yellen will be speaking and hoping to influence market thinking. And everyone seems quite prepared to conclude that she probably doesn’t really mean it. Such is the life we have chosen
- And if you want to go full-circle, the Bank of England’s Mark Carney is busy trying to tell the markets that he won’t be goaded into raising rates before he is well and truly ready. Take that, you policy-error rabble-rousers. BOJ Governor Kuroda must be furiously consulting his nuance manual as he prepares for his turn. And it wouldn’t surprise me if a certain ex-FOMC Chairman hints that this is all playing out as he long expected
- It’s true that Draghi went further in his comments than we’re used to. It’s no small item when an ECB head talks about “looking through” temporary inflation factors. But think about the number he is perhaps previewing. The pan- European HICP print is forecast to fall further away from their ever-elusive target and make a new low for the year
- Before making too much of the market reaction, just have a look at where the German 2s10s or Bund/Oat spread have come from. Either the euro and bunds are having a nice position clear out within a familiar range or the yield curve and peripheral spreads have a long way to go
- Chair Yellen has been consistent in her messaging. The market has chosen to fade her comments. There’s a lot riding on what’s also expected to be a benign report. Even though the FOMC’s core players keep telling you that it’s no longer dispositive. If financial conditions keep easing every time the Fed is hawkish, it’s a free pass to do more, not panic
- The Bloomberg commodity index is trying to rally. Oil is about $1 away from all sorts of declarations of a reversal. That’s how temporary factors can get interpreted when the will is strong enough