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Draghi Changes the Game: Weekly May 11, 2014

18 Years ago | May 11, 2014 5/24/22, 12:00 AM

ECB's Draghi Provides Forward Guidance

We saw a rare "game changer" by ECB President Mario draghi in his post-ECB policy decision press conference on Thursday. Some say his comments were off-handed, but I saw the stilted carefully-selected language of a pre-planned remark. Draghi said that a strong Euro in the context of low CPI and low economic growth is a cause for serious concern. In other words he was warning the markets that the ECB would like to see the EUR trade weaker. When a central banker cites "serious concern", do yourself a favor and pay attention.

Mr Draghi also provided the markets with some rare forward guidance, saying that the central bank is prepared to take action to boost inflation if action is warranted by economic forecasts due at the June ECB meeting. This sounds to me like the governing council is ready to ease UNLESS those forecasts unexpectedly make the case for higher price levels. We have been warned.

Yellen Turns Cautious on U.S. Economy
Two rounds of Congressional testimony by Fed Chair Yellen send another round of dovish signals to the markets. She expressed her concerns about weak job creation. recall that full-employment is a Fed mandate, She also finally expressed worries about the weak housing market. I have been pointing out that housing data have been lousy since last October. 

Week Ahead Calendar
Major highlights of the week ahead include the German ZEW Survey and U.S. Retail Sales data on Tuesday. Wednesday key U.K. employment data. The highlight Thursday will be final April HICP data, which could figure into the June ECB decision. On Friday, markets clearly will be focused on U.S. Housing Starts and Permits after Yellen's comments. Be sure to refer daily to the Global-View Economic Calendar and the Forex Forum for key items (actual data, selected charts, etc.) as they are released.

John M. Bland

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