Christine Lagarde, President of the European Central Bank, is used to holding the line. As a former member of the France National Synchronised Swimming Team, she knows a thing or two about maintaining formation.
In the US, the Fed remains committed to maintaining interest rates at the zero bound and continuing the $120 billion per month asset purchase programme.
In the UK, despite noises of debate on the MPC, there really is no real prospect of an increase in rates as yet. The NHS isolation App is making sure of that. Rishi Sunak's £1 trillion pound bank note, may yet be filled before the end of the financial year. Borrowing may be falling but not yet to levels within the purchase capacity of the private sector. Trapped on Planet ZIRP, the process of Gross Asset Inflation continues.
Bond yields were unchanged during the week. Markets moved higher in The US and Europe, the DOW, NASDAQ and S&P closed at new highs, following the early week flutter. Markets are playing "What time is it Mr Wolf". Each step closer to the time to run but pushed ever nearer by peer group pressure and the fear of missing out. Expect more volatility as experienced at the start of the week. The Dow dropped 4% before recovering at close.
At its latest meeting, the ECB governing council said it would allow inflation to rise above target without corrective action. European Central Bank pledged to maintain monetary stimulus for even longer. As Phil Aldrick, writing in the Times explained. "The change in emphasis was likely to mean no rate rises until 2023 at the earliest. It reflected the ECB’s new “symmetrical” inflation target. The previous target, circa 2003, had been to keep inflation below but close to 2 per cent."
The ECB governing council stated the plan to get inflation back to 2 per cent “may also imply a transitory period in which inflation is moderately above target”. Christine Lagarde, the ECB president, said the comment “underlined our commitment to maintain a persistently accommodative monetary policy”.
Sound familiar? Yes even in Europe, inflation is always and everywhere a transitory phenomenon. Fortunately for the Europeans, CPI inflation is just 1.9% for the moment ... The Pandemic Emergency Purchase Programme continues, Pepping the markets in the process ...
The Saturday Economist
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