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1994 (not really)

| Posted by: Paul Donovan | Tags: Paul Donovan

  • It is not quite the great bond bear market of 1994, but the process of correction continues at the longer end of yield curves – particularly in Europe. The ECB's Draghi declared that investors will just have to get used to volatility. All very well, but volatility can hurt bank balance sheets and thus impact the real world.
  • The Greco-German crisis continues – the Greek Prime Minister declaring that the Greek proposals not the creditor proposals were the only basis for negotiation. Despite this unofficial creditor briefings are hinting at optimism (presumably on the basis that the Greek PM does not mean what he says).
  • The Bank of England meets, and is generally expected to exhibit masterful inactivity on policy. The time is coming for the Bank to consider raising rates, but international uncertainty probably suggests caution for now, and temporarily low inflation offers a fig leaf of cover.
  • Labour cost data is due in the US (unit labour costs and productivity). Sadly the cost data will be distorted by the weak GDP of the first quarter – but the rising trend in labour costs (ULC account for just under two thirds of inflation, ultimately), is likely to prompt the Fed to act this year.