Draghi Sees Yellen's Shadow?
Draghi gave a surprisingly hawkish speech this morning which moved markets accordingly. The EURO rallied against the USD, German Bunds sold off and Gold rallied. This is a reversal of yesterday's action. More importantly it is a turnaround in Draghi's usual dovish talk.
Speaking at the ECB's annual policy forum, he highlighted a recovering Eu in which “the threat of deflation is gone and reflationary forces are at play” . He was quick to add that if needed again, easy money is at the ready. What makes this interesting is that it comes while all the bankers are together in London.
Draghi's turnabout makes some sense when looked at in the context of our own recent FOMC behavior as well. It is becoming widely accepted now that the Fed will continue to raise rates despite the clear lack of inflation. Reasons cited by some are a need to reload for the next panic, a desire to deflate the stock bubble sooner rather than later, and a Fed that is anticipating future fiscal easing from Trump.
But whatever the reason, it seems now that Draghi is on board and toeing the line with the US stance.
From ZH
"A notion increasingly shared in the market ... is that the Fed is continuing to normalise monetary policy regardless of more muted inflation developments - this is the message which has been provided during the last week by several Fed speakers," said Manuel Oliveri, currency strategist with Credit Agricole in London.
"This suggests that the market-based rate expectations have additional room of adjusting to the upside should this notion become even a bigger one."
To us, Olivieri's remarks are warning that the bankers areall on board now with the FOMC plans and that a need to begin unloading balance sheets is now a priority for them. Watch for the BOJ's Kuroda to also echo Draghi's when he speaks in Sintra. if he does then the triad of cooperation is complete.
And then:
...suddenly risk assets may find themselves above a trapdoor as suddenly the global central bank balance sheet expansion that has been the reason for the YTD rally grinds to a halt, and may even goes into reverse.
Vince Lanci, an SKG contributor had this to say this morning on the topic of the FED, ECB, and BOJ working in unison
That is net - net not a big deal for Gold. If all 3 central bankers are going to tighten, then the yellow metal will gyrate as each Fed head talks and acts. This will not affect the potential geo-political drivers of gold. But it will create some dollar denominated volatility and shake out weak players.
Yesterday's flash crash and this morning's rally are examples of that. Just don't call it a risk off when Gold rallies after Draghi speaks hawkishly.
The Rest of the Day's Line Up
via BBG
Investors face a triumvirate of central bank talkers today, with the European Central Bank's Mario Draghi addressing the bank's annual forum in Portugal, the Bank of England's Mark Carney presenting the Financial Stability Report and Federal Reserve Chair Janet Yellen speaking on global economic issues in London. Draghi was first up this morning, giving a speech urging persistence in stimulus, with his comments lifting the euro by 0.6 percent to $1.1248. Mark Carney may flag concerns over the rapid growth in consumer lending when he answers questions following the publication of the report, which revealed the bank's plans to increase capital requirements for U.K. lenders by 11.4 billion pounds ($14.5 billion). Janet Yellen is due to speak at 1:00 p.m. Eastern Time.
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