All together now (altogether now)

Yes but no but…

The European Central Bank is preparing to wind down its quantitative easing programme. Oh no it isn't! The Bank of England has no inclination to normalise monetary policy. Oh yes it has! The messages have been mixed but the sense is that change is afoot. One day.

On Tuesday the euro strengthened after the ECB president apparently implied that the bank was girding its loins to bring an end to the asset purchase programme, which is currently running at €60bn a month. Yesterday the euro weakened after Reuters reported "sources familiar with the ECB chief's thinking" playing down that expectation.

On Tuesday last week the pound weakened after the BoE governor explained in his Mansion House speech why the circumstances were not yet right for higher interest rates. Yesterday it strengthened when he said he would vote for an increase if the circumstances change. Sterling was Wednesday's star performer, rising by a net average of two thirds of a euro cent and adding nearly one and a half US cents.

Meeting of the minds?

On the same panel as M/s Draghi and Carney the Bank of Canada governor Stephen Poloz added his own three ha'porth, saying low interest rates have "done their job". Investors were forced to conclude that there must be something going on here.

Sig. Draghi might or might not have been misconstrued on Tuesday. Mr Carney arguably said the same thing in two different ways last Tuesday and yesterday. Mr Poloz had already set the stage for a rate increase. The thing is that all of them seem to be throttling their inner dove and leaning towards the hawkish side. Ten days ago the chance of a BoC rate increase on 12 July was 35%; today it is 70%. In two days the likelihood of a BoE rate hike this year has increased from 7% to 50%.

As far as investors are concerned, central bankers have come to the conclusion that enough is enough. Ultra-low interest rates can do no more. The interesting thing now will be how they go about tightening policy. Don't look for anything dramatic.


The Keynesian message, writ large, is that when the facts change these central bankers will be ready to change their minds. Stephen Poloz has apparently already changed his: Mark and Mario will change theirs when the economic data allow them to do so. The ecostats matter.

There were not many yesterday from Euroland: French consumer confidence and Spanish retail sales looked alright but Italian inflation slowed to a provisional 1.2%. There was nothing from Britain beyond the 3.1% annual increase in the Halifax house price index. Today will be scarcely more fruitful, with UK mortgage approvals, German inflation and a bunch of EC confidence indices.

Of greatest interest to investors will probably be the third revision to US growth in the first quarter. Analysts look for no change to the annualised 1.2% reported a month ago.