The central banker who cried "Dove"

Posted by: Paul Donovan

07 Jun 2019
  • The US employment report has some uncertainty. The ADP payrolls were weak, but have a very mixed record of prediction. The Beige Book signaled labor market strength, but is necessarily vague. Companies' hiring decisions for this report were probably made before the latest round of trade taxes.
  • Mexico and the US resume talks on trade taxes today, to try and stop disrupting one of the US economy's most important supply chains. US Vice President Pence stated that taxes would start on Monday absent a deal. Even with a deal there is damage – trust can take years to build, and moments to destroy. Trust in the trading system may have been hurt.
  • ECB President Draghi was dovish (of course) at the ECB press conference. The ECB signaled action if trade taxes did more damage. It is clear that central banks cannot do this alone. Markets did not react much. The problem with repeatedly, needlessly crying "dove" is that markets may ignore renewed cries of "dove" when it is time to be dovish.
  • Japanese wage data was weak, but better than expected. German industrial production was weaker than expected in April – Germany makes and exports a lot of investment goods, making it vulnerable.