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Sentiment clouds

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  • The Euro area sentiment data was not terribly encouraging, although care should be used in interpreting some of the absolute levels. Nonetheless we think that the ECB will avoid full quantitative policy and seek other methods to expand its balance sheet.
  • Japanese wages rose, but before becoming too jubilant it is worth observing that they rose in nominal but not in real terms. The decline in Japanese living standards seems to be mirrored by the decline in the government approval rating (a key barometer for the possibility of further reform).
  • The Reserve Bank of Australia left rates unchanged, balancing some pointed concerns about the impact of weaker Chinese housing with more optimism about the performance of the domestic economy. We see a Q2 2015 hike.
  • Geopolitical risk lingers in the Russo-Ukrainian crisis - markets yesterday reacting to posts on Facebook. The Russian rouble has weakened with investors appearing to price in an escalation of European Union actions.