CENTRAL banker would like to meet economic scenario with obvious policy prescriptions; must have GSOR (good signs of recovery) or CIOR (clear indications of recession). Financial trader would like to meet central banker with predictable policy regime; must be willing to pay for all dates and be supportive in times of distress.
The markets feel a bit like a dating agency at the moment. On Thursday, European traders were waiting for Mario Draghi to turn up with a bottle of champagne and a dozen red roses; all they got was a box of Ferrero Rocher in the form of a 10 basis point cut. The disappointment was clear from the sharp fall in European equity markets. And it stemmed from earlier hints that Mr Draghi would cut by more and expand the quantitative easing (QE) programme (as opposed to merely extending it). Mr Draghi famously promised to do "whatever it takes" to save the euro; this time, the markets felt that he did the minimum necessary.
Over in America, the non-farm payroll increase, at 216,000, was strong enough to guaranteed a Federal Reserve rate increase on December 16, the first since 2006 (before Twitter and the iphone). Expectations are also crucial; the Fed has hinted so strongly that it will tighten that it will need a good reason not to move. Markets were braced for an increase in September; when it didn't happen, that caused some...Continue reading
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