Here is Bloomberg's Richard Breslow giving the trader's take on why the minutes from the ECB's October meeting, due imminently, are even more importantly than those released yesterday by the Fed.
Coming on the heels of the FOMC minutes, which said nothing surprising, today, we get the minutes from the ECB’s October meeting. They should be more interesting, and the nuance far less fanciful, than the Fed’s latest attempt at expectation management with a renewed debate on equilibrium real interest rates. The next ECB meeting is a mere 2 weeks away.
ECB President Draghi’s post meeting press conference was surprisingly and decidedly dovish. When he wants to make a meeting “live”, he knows how to do it. He followed up in testimony before the European Parliament with a warning that core inflation looked set for renewed weakness
Draghi is forced to lead with inflation, due to the single mandate, but, looming large and of great imminence, are enormous economic, political and geo-political tsunamis.
Anyone analyzing the European economy by using aggregate statistics is missing the growing dangers from a lost generation of highly disaffected citizens. Euro Zone numbers don’t capture a budget process that is breaking down country by country. They utterly miss a North-South divide that is getting worse. Not to mention, South is no longer just a geographical destination but one of philosophy and economic reality.
It may have taken a string of horrendous numbers out of Germany to cause policy makers realize that aggregated numbers may not be as useful as they hoped.
The ECB has real policy choices they will have to choose between, and the implications are real. A further foray into negative deposit rates, extension and enlargement of QE, even a less likely change to the main financing rate.
Each choice has externalities internally and is also likely to provoke a reaction from other affected countries. The Riksbank and SNB will be watching as closely as EGB traders.
The ECB is in easing mode. The Fed plans to tighten. Relative value trades have further to play out