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Déjà vu

Asking the question again

Six years ago, after much deliberation, Germany’s Constitutional Court handed off to the European Court of Justice the question of whether quantitative easing by the European Central Bank was legal. The objectors would not let it go and yesterday the court once again spoke on the matter, this time saying that the ECB was out of order. Maybe.

The top and bottom of it is that the ECB has now been put on the spot to prove to the German government and courts that its asset purchase programme is “proportionate”. Although Commerzbank chief economist Jörg Krämer, among others, believes it “should not be much of a problem”, that was not how the FX market saw it yesterday.

It cost the euro a quick three quarters of a US cent and sent it half a cent lower against sterling, only a little of which it made back. Whatever the legality of the ECB’s stimulus efforts, the necessity for a court decision provides another reminder of the economically ideological separation between the north and south of Europe. A single currency without a single fiscal policy is already tough enough to operate. Adding in the complication of a legally-hamstrung central bank makes things no easier.

 

A sort of relief

On average, Tuesday’s economic data were not as bad as expected.  They were not good, and most were lower on the month. But a positive surprise is not to be sniffed at.

Swiss inflation was not one of the positive surprises. At -1.1% it was the most negative reading in four years. The low number did not explain the franc’s position at the back of the field, down by two thirds of a cent against sterling, while the Japanese yen led the way. The franc was dragged down by the euro. Britain’s services sector purchasing managers’ index slumped, with “record declines in activity, new work and employment”. However, at 13.4 it was more than a point above forecast. The US services PMIs from Markit and ISM came in at 26.7 (a record decline in business activity) and 41.8 (ending a 122-month period of growth).

The US dollar had an average day, unchanged on average against the other majors. It got help of a sort from Federal Reserve vice chairman Richard Clarida. In a TV interview he painted an optimistic picture of the economy in H220 while acknowledging the “enormous uncertainty right now”.

 

Back to the gloom

The opening shots from Europe this morning were not particularly optimistic. German factory orders fell 15.6% in March and Spain’s services PMI could manage no better than 7.1 after an “unprecedented fall in activity”. It is quite possible that none of the remaining Euroland services PMIs will get above 20.

Antipodean data released overnight showed NZ employment remaining “steady” in March and confirmed that Australian retail sales in March were strong as a result of stockpiling.

Britain’s construction PMI is pencilled in at 22 while the services PMI from France will be lucky to make double figures. The services and composite PMIs for Euroland are estimated at 11.7 and 13.5 with retail sales for the zone are expected to have fallen 10.5% in March. At some point today the European Commission is supposed to be publishing its economic growth forecasts.

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