EC Is The Negativity Overdone?

Give stimulus a chance, that’s the theme being set up for this week. After relentless buying across global bond markets distorting curves, upsetting politicians and the public alike, central bankers have responded en masse. There were more rate cuts around the world in August than there had been at any point since 2009.

And there’s more to come. As Bloomberg reported late last week:

Over the next 12 months, interest-rate swap markets have priced in around 58 more rate cuts, assuming central banks maintain their current trajectories in easing. Those cuts could total another 16% in global reductions.

This week, the ECB is almost certain to join the ranks. Not just some interest rate adjustments, either, with short-term rates there already negative, very likely a restarted perhaps modified QE. Would anyone be surprised if European monetary officials did those things while at the same time pre-announcing an expanded list of eligible assets?

It has become convention (but not wisdom) that central banks must shock markets. At this point that would mean something like a hint from Mario Draghi that his successor Christine Lagarde is thinking about buying equities this time around and not just various debt products (implicitly acknowledging that buying up so many credit instruments last time around didn’t quite lead to the desired effect).

Pure overkill, many say. Things aren’t really that bad, are they?

While “stimulus” is being ramped up this summer, it hasn’t been entirely new. Starting in China, for example, the PBOC and government authorities have supposedly been prodding and nudging the reluctant Chinese economy for quite some time. Only, it doesn’t appear as if China’s economy is accepting of the invitation.

It’s not working.

The latest figures from the Chinese General Administration of Customs demonstrate the sheer stubbornness of the problem. Reporting estimates for exports and imports, it is the latter which is suffering the most rather than the other way around as anyone imagining “trade wars” as the primary cause might expect.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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