http://www.fxstreet.com/fundamental/analysis-reports/market-sense/http://www.fxstreet.com/fundamental/http://mediaserver.fxstreet.com/images/fxstreet-provider-logo1-en.gif7http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-11-06.htmlToday’s ECB press conference confirmed that central bankers begin to see the exit ahead, but are determined to approach it extremely slowly, to avoid the risk of derailing the recovery. It also confirmed that the major central banks are ready to sign a truce with the markets to avoid a head-on confrontation on the issue of asset bubbles—although Trichet was slightly more aggressive than Bernanke, and explicitly acknowledged that maintaining the current scope of liquidity support would pose aFri, 06 Nov 2009 05:59:14 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-11-06.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-10-28.htmlThe good news is that Central and Eastern Europe (CEE) 2009 is not Asia 1997; the bad news is that it is not Asia 2009 either, but looks more like Western Europe 2009: whereas emerging Asia is confidently leading the global recovery, most CEE countries are just beginning to break free of the grip of a severe recession, which in some cases is undermining political stability—witness the recent government crisis in Romania. Overall, the picture is much brighter than most commentators expected notWed, 28 Oct 2009 14:11:37 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-10-28.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-10-21.htmlGlobal quantitative easing has worked with a vengeance, fueling a robust asset price reflation which is supporting the economic recovery and has dissipated fears of consumer price deflation. It has worked so well, in fact, that some fear that bubbles are already back. I disagree. I do not think asset prices have run ahead of fundamentals yet, although they will if they do not slow down soon. I also do not believe that major central banks are ready to lean against the wind yet: asset priceWed, 21 Oct 2009 10:42:22 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-10-21.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-10-09.htmlIn a relevantly uneventful press conference, Trichet came under pressure on two issues: FX developments, and the situation in the European financial system in the light of the September Long Term Refinancing Operation. On FX, he tried to signal that there is serious international commitment to limit further EURUSD upside—but markets will quickly call the bluff. Coordinated intervention is clearly not in the cards, and without it the ECB has run out of ammunition on the FX front. Trichet wasFri, 09 Oct 2009 05:55:53 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-10-09.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-09-24.htmlA new G20 summit is about to start, and the omens are not good. In contrast to the policymakers’ own exhortations, G20 politics are back to business as usual, with the headline-grabbing debate on financial sector compensation epitomizing the age-old competition between the continental European and the anglo-saxon economic model. This might divert precious attention from other regulatory reforms, but most of all there is something surreal in seeing the eurozone and the US fighting for theThu, 24 Sep 2009 14:19:21 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-09-24.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-09-18.htmlOne year after Lehman’s collapse, the mood has changed across the board—the very fact that these days are dominated by analyses of the impact and lessons of the Lehman’s debacle suggests we all feel the worst has been avoided, and we can now afford the luxury to sit back and take stock of the situation. Yet policymakers are remarkably united in maintaining a very prudent and cautious stance, in large part because they have learnt the lesson of another mistake, Japan’s premature policyFri, 18 Sep 2009 06:24:10 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-09-18.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-09-04.htmlToday’s press conference bore the hallmarks of statesmanship: the ECB decided to lean against the wind of upside growth surprises to cool market enthusiasm, and to remind everyone that we have unfinished business to take care of before reaching full normalization. Set against the positive momentum of recent Eurozone data, the tone of the press conference was noticeably dovish. Trichet emphasized that prudence and caution are of the essence, as the recent recovery relies still too heavily onFri, 04 Sep 2009 05:41:15 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-09-04.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-08-19.htmlThe cautious and somewhat self-deprecating tone of Axel Weber’s comments today speaks volumes: even eurozone policymakers remain prudent in the face of the surprisingly strong 2Q growth figures, as the stronger initial rebound cannot dissipate doubts and concerns over the sustainability of the recovery. I had flagged in previous notes that near-term risks were skewed to the upside, and I believe that remains the case, as the turn-around in the inventory cycle and the stronger than expectedWed, 19 Aug 2009 13:10:07 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-08-19.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-22.htmlBernanke today outlined clearly and convincingly the Fed’s exit strategy—the problem, however, is that it is not really a strategy but rather just a set of tools. In his Testimony to Congress and in an OpEd piece on the Wall Street Journal, he argued that the Fed has all the instruments it needs to withdraw monetary stimulus when the time comes—while reiterating that monetary policy will need to remain expansionary for an extended period. I do not think this will suffice to allay the concernsWed, 22 Jul 2009 05:45:42 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-22.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-09.htmlUnimpressed by the green shoots on economic activity, central banks have grown increasingly concerned about the risk of a credit crunch. The turn-around has been especially visible for the ECB, which has recently stepped up pressure on banks to lend. All major central banks appear worried that as credit demand starts to recover, credit supply might be unable to keep up—but the moral suasion recently deployed by the ECB has been much stronger and more explicit than, for example, the Fed or theThu, 09 Jul 2009 06:49:15 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-09.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-06.htmlThe still unfolding economic and financial crisis has been hailed by some—too many—as the end of capitalism, justifying stronger, more pervasive and durable state intervention in the economy. A similar and related argument on an academic level is now gaining popularity, namely that the crisis has finally disproved the efficient markets hypothesis (EMH). The EMH, in a nutshell, asserts that markets are informationally efficient, meaning that relevant information is quickly reflected into marketMon, 06 Jul 2009 13:21:54 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-06.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-02.htmlThe ECB’s press conference, which began as US non farm payrolls dropped another 467K, turned out to be significantly more interesting than expected in at least one respect: just as economic activity begins to stabilize and financial market tensions to abate, the ECB seems to become increasingly concerned about the risk of a credit crunch. Together with its cautious view of the recovery prospects, this supports my view that interest rates will remain on hold well into next year. Mr. TrichetThu, 02 Jul 2009 16:34:19 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-07-02.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-30.htmlThe list of signs of stabilization grows by the day, today with June Eurozone economic confidence. It is still too short, however, to lead the ECB to change its cautious tone later this week. The green shoots are not a positive surprise, they are just confirmation of what most of us expected, and as such they justify relief, but not enthusiasm. In fact, the ECB’s own macroeconomic outlook would justify additional easing, but the turnaround in activity data has shifted the balance of risks:Tue, 30 Jun 2009 05:54:47 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-30.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-29.htmlThe list of signs of stabilization grows by the day, today with June Eurozone economic confidence. It is still too short, however, to lead the ECB to change its cautious tone later this week. The green shoots are not a positive surprise, they are just confirmation of what most of us expected, and as such they justify relief, but not enthusiasm. In fact, the ECB’s own macroeconomic outlook would justify additional easing, but the turnaround in activity data has shifted the balance of risks:Mon, 29 Jun 2009 15:24:45 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-29.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-19.htmlIrrationally exuberant or depressed economies are all alike; every normal economy is normal in its own way. As the global economy normalizes in the months ahead, therefore, differentiation across countries will become more and more evident and market relevant. This does not really mean that decoupling is back: should the US relapse into a downturn, it would again knock the wind out of everyone else’s sails. As long as stabilization takes hold, however, emerging markets will be able to enjoy aFri, 19 Jun 2009 10:19:19 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-19.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-12.htmlThe rapid rise in bond yields of the last few months signals a welcome normalization of inflation expectations, and not mounting fears of rampant inflation. As economic activity stabilizes and financial market stress drops back to pre-Lehman levels, inflation expectations of about 2% should come as a relief to both investors and central bankers. Markets however have over-reacted, and are pricing an unrealistically prompt tightening of monetary policy in both the US and Europe. I believe bothFri, 12 Jun 2009 15:42:38 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-12.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-11.htmlECB Governing Council member Axel Weber may have been floating a trial balloon today as he argued that precautionary rate hikes may be appropriate to prevent bubbles even when they are not justified by the inflation outlook. He acknowledged such a move would pose a “communication challenge”, but one that could be overcome—and the ECB has certainly not shied away from communication challenges in the past. My view is that this is a valuable lesson to draw from the crisis, but one that is likelyThu, 11 Jun 2009 04:49:52 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-11.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-05.htmlThe ECB kept rates on hold and all options open today, even at the cost of falling short of full clarity on key issues. In particular, Mr. Trichet indicated that the ECB expects bond purchases to be “automatically sterilized”, and would take action if they are not—but he did not explicit commit to full sterilization. It seems the Governing Council has not yet agreed on what to do if the asset purchases are not matched by lower liquidity demand at the refinancing windows. This “we will crossFri, 05 Jun 2009 05:34:58 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-05.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-04.htmlThe dollar is down but not out. I am moderately bearish on the USD for the short and medium term, but I believe the recurrent talk of an imminent end to the dollar’s reign as the main reserve currency is way too premature to be taken seriously. The weakening of the USD over the last several weeks has been broad-based and driven by optimism about the global growth outlook and concern about the US public debt prospects. A trend reversal seems unlikely over the next six to nine months, andThu, 04 Jun 2009 05:30:46 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-06-04.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-05-08.htmlThe ECB delivered the “big bang” which I had auspicated after last month’s meeting: it cut the Refi rate by a further 25bp to 1.0%, lengthened the maturity of its refinancing operations to twelve months, and announced the launch of direct purchases of covered bonds. The ECB has not ruled out extending purchases to other assets; similarly, it did not rule out further rate cuts, although it signaled that the present level is seen as appropriate in the current circumstances. Behind this lies aFri, 08 May 2009 07:04:24 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-05-08.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-05-07.htmlWe are often at our most vulnerable when the tension suddenly drops: after an important exam, at the end of an intense work assignment— the stress disappears, the adrenalin that kept us going drains away, and a simple cold suddenly knocks us out. There is a similar risk for the world economy as Q2 unfolds. Signs of recovery are becoming more widespread and convincing, bringing comfort to investors, households and policymakers after long months of stress and oppressive depression. The positiveThu, 07 May 2009 06:19:34 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-05-07.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-22.htmlStress-testing turned into a stressing test for policymakers and markets, as well as the nineteen major financial institutions being tested—and it is now coming to the crunch, with the Treasury expected to unveil the results in the next few days. The challenge is to persuade investors that the problems in the financial sector are manageable, in other words that most of the nineteen institutions can weather the recession and cleanse their balance sheets by raising a moderate amount ofWed, 22 Apr 2009 13:21:34 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-22.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-08.htmlEquity markets are taking a reality check after a month-long bullish run that lasted into the first days of this month , defying the ever gloomier mood of economists. In all likelihood, it will prove to have been a bear market rally driven by a closing of short positions. I think it will take several more months before a more durable improvement in investor confidence can emerge. Investor confidence will face some formidable headwinds in the coming months : even the more optimistic forecastsWed, 08 Apr 2009 15:50:12 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-08.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-03.v02.htmlToday’s G-20 summit brought an important positive surprise in the scale of new resources made available to International Financial Institutions, and a major disappointment on all other fronts. The agreement to commit an additional USD 1,1tn in funds to the IMF (500bn) and other institutions seems to be in part to compensate the complete lack of agreement on further fiscal stimulus at national levels. As I wrote yesterday, this raises the risk that we will have an unbalanced recovery from aFri, 03 Apr 2009 09:01:13 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-03.v02.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-03.htmlThe ECB disappointed markets today, but set the stage for a possible “big bang” move next month: it cut the refi by only 25bp, as we expected, lowered the depo to 0.25%, did not announce a lengthening of the maturity for liquidity operations. However, Trichet stated very definitely that next month the ECB will decide if and how to implement further non-standard measures. I now expect a big-bang move at the May meeting, with another (final) 25bp cut in the refi rate, a lengthening of liquidityFri, 03 Apr 2009 05:45:22 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-03.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-02.htmlFiscal stimulus is by far the most urgent and important issue at tomorrow’s G-20 meeting. Unfortunately, it is also the most contentious, and it seems depressingly unlikely that an agreement will be reached. There is a disturbing lack of consistency in some of the arguments, and a lack of clarity in the debate. Eurozone countries are still reluctant to step up fiscal stimulus, and are relying largely on automatic stabilizers (see chart). They are censoring the US and UK for trying to spendThu, 02 Apr 2009 06:55:21 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-04-02.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-03-19.htmlThe Fed yesterday delivered a major electroshock to the markets, announcing it will buy up to USD300bn in longer-term Treasury securities over the next six months. Moreover the Fed will more than double its planned purchases of mortgage-backed securities, to a total of up to USD1.25 trn, and will consider expanding the TALF to include existing impaired assets. The impact has been immediate, with 10Y UST yields dropping by about 45bp, leading a nearly 30bp flattening of the 2-10Y segment of theThu, 19 Mar 2009 10:48:57 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-03-19.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-03-10.htmlRecent statements by ECB Governing Council members Bini Smaghi and Weber and by Fed Chairman Bernanke provide some interesting food for thoughts on central banks’ current response to the crisis and the next move. The real economy continues to provide a seemingly endless stream of disappointments : today we learnt that UK industrial production contracted by 2.6% in January, more than twice as much as expected (1.2% consensus), and bringing the year on year rate to -11.4%. Industrial productionTue, 10 Mar 2009 17:53:00 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-03-10.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-03-06.htmlQuantitative Easing (QE) is emerging as the philosopher’s stone that might finally create credit at the stroke of a computer key and turn the global economy around. Sometimes it does feel like only magic will do the trick: with a precipitous decline in economic activity, a credit crunch that is now beginning to bite, and confidence in the financial sector still dangerously low, forecasts of a gradual recovery in the second half of the year start looking like wishful thinking. Even afterFri, 06 Mar 2009 08:12:56 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-03-06.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-27.htmlExpectations about this weekend’s EU summit are low, but the issues on the table are momentous: How to support Central and Eastern European economies under stress; how to react in case of a crisis in a eurozone member; whether to launch joint government bond issuance; whether to allow rapid ERM2 entry of CEE countries. These issues will not be resolved by Sunday night, but we could get a signal of what progress we can realistically expect in the coming months. The financial and economic crisisFri, 27 Feb 2009 16:28:48 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-27.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-13.htmlThe G7 leaders meet today as their economies are shrinking fast, and the latest set of Q4 GDP growth data bring painfully home the fact that this is the deepest and most synchronized recession they have faced in a long time. This should emphasize beyond doubt the need for a common response, and yet it is clear that protectionism and financial isolationism have already emerged as the next biggest threat to a recovery. Protectionism should therefore be at the top of the agenda, and the G7 needsFri, 13 Feb 2009 14:42:57 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-13.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-11.htmlUS Treasury Secretary Tim Geithner today unveiled the new Financial Stability Plan. His announcement pricked a bubble of excessive expectations, and the markets’ disappointment was clear as stocks fell, bonds rallied, and JPY and USD rose, signalling higher risk aversion. This is particularly unfortunate as Geithner had stressed at the outset that the new Administration was determined to deploy overwhelming force, in contrast to a policy strategy that had so far been reactive and behind theWed, 11 Feb 2009 10:46:26 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-11.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-05.htmlToday the Bank of England cut rates, the ECB did not. The ECB’s words, however, carried a lot of weight. The BOE cut rates by 50bp to 1.0%, and left the door open for further cuts to offset substantial downside risks to its inflation target. The ECB left rates on hold as expected, but the press conference signaled a very important step forward towards a more pragmatic and decisive policy stance: another 50bp cut in March seems all but certain, but, most importantly and surprisingly, a ZeroThu, 05 Feb 2009 17:43:17 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-05.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-04.htmlRecent data have brought a glimmer of hope that the recession may be bottoming out. The temptation to believe the worst is over is strong, but should be resisted, as the underlying recessionary forces are still too powerful and governments are still struggling to get the financial sector back on its feet. It will take at least a few more months before we can say with any degree of confidence that the recovery is at hand. The latest data simply confirm that the greatest risk we face is not aWed, 04 Feb 2009 09:25:43 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-02-04.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-01-26.htmlThe ECB has sometimes appeared to define itself in opposition to the Fed , and after the onset of the “made in the USA” subprime crisis many European politicians and policymakers have been particularly keen to distance themselves from their US counterparts. Lately, the ECB seems to have set its sights higher: its latest rhetoric sounds like a direct contradiction to US President Obama’s “Yes, we can” message. The ECB is telling us “No, we can’t” : we can’t lower interest rates to zero (forMon, 26 Jan 2009 17:25:07 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-01-26.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-01-16.htmlThe ECB cut rates by 50bp, by unanimous decision, in line with the conservative expectations of a market cowed by the bank’s reluctant attitude of a month ago. The markets’ reaction was correspondingly downbeat: investors got what they expected, but they know what they expected is much less than the economy needs. Trichet however sent a very clear message: (1) the inflation target is indeed symmetrical, that is inflation should not be allowed to stay much below 2% in the medium term; (2) whileFri, 16 Jan 2009 08:07:06 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2009-01-16.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-18.v02.htmlECB’s Weber today explicitly acknowledged that eurozone policy rates might be pushed below 2.0%. Coming quick on the heels of the Fed’s explicit adoption of Zero Interest Rate Policy and Quantitative Easing, Mr. Weber’s comments are especially important in light of previous indications of a significant split within the ECB’s Governing Council. They should not be surprising, however: the growth and inflation outlook is dramatically more downbeat than it was during 2002-05, when the ECB keptThu, 18 Dec 2008 16:26:37 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-18.v02.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-12.htmlOur latest Euro Compass, published yesterday, shows that the Eurozone is entering its Annus Horribilis, with a sharp contraction in real GDP. Moreover, our analysis of the risks of a sustained deflation in the Eurozone has shattered my confidence that Europe’s infamous wage and price rigidities can offer sufficient protection. Core inflation is on the verge of a pronounced and prolonged downturn, and if the recession proves even deeper than we expect, a sustained deflation could materialize inFri, 12 Dec 2008 15:37:56 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-12.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-04.htmlAfter taking a hard look at the substantial downward revisions in its staff forecasts, the ECB took a bolder step today, cutting the Refi rate by 75bp. The ECB has now slashed rates by a cumulative 175bp in two months. While I would have favored an earlier and even more aggressive easing, the ECB’s reaction at this stage can no longer be dismissed as timid. The ECB’s move validated market expectations, but at the same time appeared at odds with recent official rhetoric in favor of a measuredThu, 04 Dec 2008 17:32:57 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-04.htmlhttp://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-03.htmlAs Fed Chairman Bernanke dusts off his deflation-busting strategies, the ECB and the Bank of England are again called to test their mettle against the precipitous worsening in the macro environment. While the BoE seems ready for another bold rate cut, the ECB has emphasized the virtues of a measured response. I disagree, and believe the ECB should cut rates substantially this week, possibly by as much as 125bp, to bring the rate down to the previous low of 2.0%, while indicating clearly thatWed, 03 Dec 2008 09:15:32 GMThttp://www.fxstreet.com/fundamental/analysis-reports/communication@unicreditgroup.eu (UniCredit Group)http://www.fxstreet.com/fundamental/analysis-reports/market-sense/2008-12-03.html