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March 2016

ECB head causes confusion

Published: Friday 11 March 2016

  • ECB head causes confusion
  • NZ data disappoints
  • Sterling hit by growth downgrades

I can't help laughing when I'm on the M25 in thick early morning fog and the signs along the central barriers say, 'Fog'. Really! Do we need to be told? I could barely see the cars 50 yards ahead of me. Did I really need to have the poor visibility explained? They don't say 'Sun' when that's out do they.
The European Central Bank's president, Mario Draghi was just playing with us yesterday. He cut the ECB's base rate to 0.0% and made it even more expensive for banks to deposit funds with the ECB rather than lend them out. He also announced a plan to subsidise banks if they do lend to businesses and suggested that interest rates could fall further. The Euro weakened. Then he announced that interest rates were not likely to change for a considerable time and the euro strengthened up again. I'm not sure if he has another trick up his sleeve but I wish he's just be clearer and more consistent. There is enough uncertainty in the world. Maybe he needs a sign next to him saying 'Fog'. This morning brought a raft of inconsequential German inflation data, so there hasn't been a follow through in early Friday trade.
Sterling weakened against the Euro for the ECB reasons but was also hit by a downgrade in the British Chamber Of Commerce's growth forecasts. They cut their 2016 forecast from 2.5 to 2.2% and took a slice out of the 2017 forecast as well. If that is the only consequence they see in the ramifications of a Brexit, then that is a positive report but I suspect they are gambling on the UK staying in the EU. Their report comes on the same day as one from the Bank of International Settlements which warned of a "gathering storm" in the global economy due to banks running out of options when it comes to stimulating growth.
I can't help think that pushing money into banks is not enough to boost consumption (which is what the global economy needs if it is to rise; phoenix-like, from the ashes of the 2007 crash. They would be better off giving £50k to every consumer on a debit card that will expire on 31st December 2016; that would force expenditure, which would create demand, which would create jobs, which would create tax, which would reduce government debt and all of that would create wealth for further expenditure.  Too radical? Maybe.
Overnight he saw figures showing a 0.6% fall in New Zealand's food prices in February. That was much worse than the forecast 0.0%. It was accompanied by a slowdown in New Zealand's manufacturing sector as. The Kiwi Dollar slipped on this double whammy and looks set to test the top of the current range at 2.16 at some stage.
Canadian employment data should show an unchanged picture this afternoon. The Canadian Dollar has gained a little on the back of more stability in energy prices but the global demand for energy and commodities is still very unsettled, so that can't be considered a sustainable pattern just yet. This strength in the CAD looks overdone and, unless the employment data is really encouraging, some weakening before the end of play today is highly likely.
The Australian Dollar has strengthened against the Pound from nearly A$2.24 in the middle of last year and A$2.10 at the beginning of this year, to just A$1.90 today. However, this exchange rate is heavily oversold at this level and there is technical room for a bounce. If you are a GBP buyer, it is worth looking at your needs to manage the risk of that event.
And finally, I love the story of Astronaut Scott Kelly who has a twin brother. It is known that astronauts grow whilst in zero gravity but having a twin to compare himself to means Scott can see that during the 340 days he was orbiting the earth in the International Space Station, he grew by 1 ½ inches. That's nearly 40mm in new money. So you age faster and you gain height. That's a quid-pro-quo some would put up with.
Some short jokes
  • Why do you never see elephants hiding in trees? Because they are really good at it. 
  • My Grandfather has the heart of a lion and the eyes of a puppy...oh and he's now got a lifetime ban from the zoo. 
  • I think I want a job cleaning mirrors. it's just something I could really see myself doing. 
  • Times are changing. I think the calendar's days are numbered. 
  • When does Sean Connery usually get to Wimbledon? Tennish. 
  • I'm really good friends with 25 letters of the alphabet... I don't know y 
  • If you put a pair of lobsters together, why don't they share their food? Because they're too shellfish. 
  • How many Californians does it take to change a lightbulb? A Mexican.