Follow Paul Donovan

Let the can kicking commence

| Tags: Paul Donovan

  • The German Bundestag is expected to pass the can-kicking extension for Greece - can kicking is the standard Euro area response to all problems. Euro area problems are not over. There is a question as to whether Greece runs out of money anyway, reforms still need to be implemented, and there is the minor issue that the Euro does not work.
  • Several Euro economies will produce consumer price data today, which in some cases will be negative. This is not deflation (someone tell Mr Draghi). Deflation is a general decline in prices, and is economically negative. What the Euro has is a relative decline in a price (oil) which is economically positive.
  • US inflation yesterday showed some positive pressures in the core number. Fed vice-Chair Fischer is speaking on central bank balance sheets. The Fed is "organically" tightening quantitative policy now (balance sheet to GDP ratio falls as GDP increases), but has to decide whether to be more aggressive as bond holdings mature in 2016.
  • US GDP is expected to be revised lower in Q4, but not in a way that should worry the rest of the world. Domestic demand is expected to stay strong (the US consumer is resolute in their intention to visit the mall). Imports are expected to be higher, implying of course that that US is offering a more positive impulse to the rest of the world.