ECB Gaining Credibility

Draghi brings new confidence.

Who would have thought, an Italian Central Banker delivering sound economic policies and a credible presence?

Following a Dutchman and a Frenchman and likely to be followed by a German, Mario Draghi has emerged as a serious presence in the global economic community. Today he will again explain to commentators why he feels that the conditions are not yet right for a rate hike in the Eurozone and they may not be conducive for some time.

He has been at pains, despite being misunderstood in Portugal recently, to explain the need to provide a stable platform to those countries still emerging from the recession in order that they may grow at something near to trend.

Draghi has brought an understanding of the complexity of providing monetary policy to nineteen diverse economies providing support to the weakest rather than aiding the strongest. The call for a rate hike to curb German inflation has been ignored to help the likes of Greece and Cyprus who were the major sufferers of the debt crisis even if they did bring on the problems themselves.

 

Euro rally to curb inflation.

Inflation data for the Eurozone will be released at the end of the month. Last month's core 1.3% increase will likely be unchanged. The Euro has risen by 12% against the dollar since its lows seen in January and it continues to gain against the pound.

Unemployment is still the major concern for the ECB remaining stubbornly close to 10% with far higher levels in a few countries. Youth unemployment is at almost 50% in Greece and 38% in both Spain and Italy. It is 18.6% for the entire Eurozone, so it is understandable that Sr. Draghi is reticent to tighten policy.

Currency weakness was noted by President Trump as providing Germany, in particular, with an unfair advantage in global trade. That advantage may have disappeared but the stronger currency will curb inflation as the economy grows.

Sterling continues to weaken against the common currency even as it holds its own against greenback. A test of 0.9000 is likely and longer-term concerns remain as Brexit talks continue There will be a review by both sides today of progress (or otherwise) made so far in talks which are beginning to be meaningful.

 

Brexit progress to be reviewed

Both sides of the Brexit negotiations will today report on how talks have gone so far. There has been very little concrete evidence of what has been taking place as the two main protagonists Michel Barnier and David Davis have left things to bureaucrats, which may not be a bad idea.

The giant invoice to be presented to the U.K. has been the major item of negotiation so far followed by citizens right and treatment of the Irish border.

Financial considerations were always going to be the major sticking point and Barnier has been very clear that progress needs to have been made before any talk about how Britain will interact with the single market in goods and services will be discussed.

Sterling continues to fall against the Euro. A test of the 0.9000 level seems inevitable given the diversity of economic growth. This will make U.K. imports more expensive but encourage exporters.

It is odd that the two sides see four days of meetings a month as sufficient to reach the necessary agreements so today will be a good test of how things are going. Since Jules Verne believed that you could circumnavigate the world in a balloon in eighty days, it should be a piece of cake to negotiate the U.K.'s departure from the EU in the same time.