EUR 9.38 For Business Accounts Only

The Morning Track deniability

- The Morning Track – Deniability by Bob Savage
http://track.com/articles/the-morning-track-deniability/

I have ordered Draghi his Christmas Present post his news conference performance. The ECB delivered a taper but he refuses to call it such. It delivered a cut to QE but also broadened the terms of bonds it can buy – allowing longer duration and yields below the -0.4% depo if necessary along with cash for collateral. All this conflicting effort reveals the deeper divisions of supporting Italy and Germany in the same action. The losers yesterday are the periphery and this means the banks will be the central focus going forward (The Stoxx Bank Index ETF is off 0.85% today). The EUR is the collateral damage as politics trump economics. The risk of the ECB is credible deniability, when policy tightening and a path to normalization remain off the table, but actions suggest otherwise. This conundrum hits globally. Overnight, China got inflation above expectations highlighting the need for a tighter policy or a stronger currency or both even as the credit crunch broils and the
impossible trinity makes ATM withdrawals in Macau a talking point for capital controls. Higher PPI and still below target CPI means companies have to eat higher commodity prices caused by the weaker CNY – this means less profits, more debt doubts and weaker stocks. Like the ECB, there is a deniability about inducing this state of affairs for the PBOC but it will prove difficult to project China as the new global leader if capital controls and further outward bound investments tighten to protect the CNY. Also overnight, Korea finally impeached the President – leaving the constitutional court 180 days to review the vote. BOK on call monitoring market reactions. The European news has also mattered overnight, German Trade was weaker, UK Inflation Expectations higher, French Industrial Production lower – all of which leaves the EUR as still the barometer for success in trading risk – with a lower EUR helpful in a way that the ECB can’t be – making it all about the
ability for us all to deny that a stronger USD doesn’t matter. US 5Y/5Y inflation swap broke the key 2% level today – and the FOMC has won the war on deflation in a way that Japan, Europe and others haven’t. Now to win the peace with 10Y US bonds at 2.50%.