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An exciting day (for an economist)

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  • The ECB meets with an excited degree of speculation about whether or not they will cut interest rates. With inflation lower than anticipated and unemployment higher than anticipated, we think that there is a good chance of a 25bp easing today.
  • Anticipation of an easing has gone some way towards weaken the Euro, and would benefit variable rate mortgage payers. Otherwise, given the dysfunction of the Euro as a monetary union, any cut would have impact more as a gesture than a substantive economic change.
  • The Bank of England also meets but is clearly not expected to change policy. The issue in the UK is more how long somewhat implausible attempts at forward guidance from the governor will be maintained in the face of better than expected data.
  • The US offers up Q3 GDP, forecast at an above consensus 2.3% but with inventories driving much of that gain (thus not so positive for future growth). This justifies continued monetary policy (interest rate) accommodation, but the consumer credit data would argue against so much quantitative policy accommodation.

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