Recap 3-06-14


The market thinks the ECB inflation forecasts are optimistic. 3y EUR inflation swaps are trading at ~1.05% vs ECB forecast of 1.27%. And the 5y5y forward measure has been trending down as well, and is at the lowest level since 2012:

At ~2.1%, the ECB can still claim that inflation expectations are anchored. It falls another 20bps, however, that claim will no longer be easy to make. Given past ECB behavior, (and the ‘island of stability’ comment today) further easing may not occur until this metric falls below 2%. Markets have a history of ‘forcing’ policy changes, however…

Miscellaneous Links:

This is pretty sweet: (h/t Jess)

Also, in case you haven’t read it already, the inventor of Bitcoin has been revealed:

Finally, if you still think you can trust the CIA, read this.

The CIA Inspector General’s Office has asked the Justice Department to investigate allegations of malfeasance… The criminal referral may be related to what several knowledgeable people said was CIA monitoring of computers used by Senate aides to prepare the study… White House officials have closely tracked the bitter struggle, a McClatchy investigation has found. But they haven’t directly intervened, perhaps because they are embroiled in their own feud with the committee, resisting surrendering top-secret documents that the CIA asserted were covered by executive privilege and sent to the White House


  • ECB kept policy rates unchanged as exp. When asked whether the Governing Council had considered an end to the sterilization of SMP liquidity, Mr Draghi said that the Governing Council saw no need for such a measure at this point. Draghi highlighted several times during the press conference that the exchange rate – while not a specific target – would influence the Governing Council’s thinking on the growth and inflation outlook. For example, the appreciation of the Euro, according to Mr Draghi, subtracted around 0.4% from the inflation rate in 2012 and hence the exchange rate remains one factor that “might influence our price stability mandate”. Staff Forecasts were not surprising:
  1. 2014 GDP 1.2% vs 1.1% prev
  2. 2014 Inflation: 1.0% vs 1.1% prev
  3. 2015 Inflation: 1.3%, unchanged
  4. 2016 Inflation: 1.5%.
  5. The aggregate euro area general government deficit is expected to have declined to 3.2% of GDP in 2013 and is projected to be reduced further to 2.7% of GDP this year. General government debt is projected to peak at 93.5% of GDP in 2014, before declining slightly in 2015.

BoE kept policy unchanged as exp

US Jobless Claims declined to 323k last week vs 336k exp and 348k prev

Australia January Trade Balance A$1.4bn vs A$100mn exp (2yr high); exports +4% m/m; imports -1%; shipments to China -12.5% m/m; exports of iron ore -10%.

Upcoming Data:

  • Fri: US Employment, Canada Employment, Dudley Speaks, Bernanke Speaks
  • Weekend: China Trade Balance, PPI
  • Mon: Japan Current Account, Eco Watchers Survey, Canada Housing Starts, USDA Report, NAB Business Confidence
  • Tue: UK IP