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Transmitting money and other issues

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  • Fed Chair Yellen did not really add anything with her testimony yesterday. A June hike seems still to be on the schedule, but there is some uncertainty about the pace of tightening thereafter. Today we have consumer price inflation - both headline and core will be supressed by oil prices, but oil disinflation should give way to labour cost inflation as the year progresses.
  • The Euro area offers M3 money supply. For Mr Draghi's very big idea of quantitative policy to work, the monetary transmission mechanism needs to work, which means that broader monetary components need to show signs of improving.
  • Negative bond yields in Europe have been attracting media attention but should not generally be regarded as helpful for growth. These arise either because of extreme risk aversion (growth negative) or from the combination of liquidity and financial repression (a tax on the financial sector that is not helpful in encouraging the monetary transmission mechanism).
  • German unemployment data should signal economic strength, Italian retail sales data not so much. UK Q4 GDP figures are not especially relevant of themselves (the UK's ONS not being noted for its pinpoint accuracy with this data), but given the imminent election may become a political football.