Key questions for the BoE FED & ECB

Written by Steve Ruffley

Will the low Eurozone inflation push the ECB to cut rates at the meeting in February?

The ECB find themselves in the same situation as the US of having the problem of too low inflation. This will be Yellen’s first take in office to help raise the rate back to the 2% target. So what do this mean for the ECB and Mario Draghi? For me personally it means he will wait and see what the US do, it’s been his style since he came to office to FED follow and hint and many ‘possible’ scenarios but in reality ends up doing a watered down version of the US’s polices.

The ECB although well used to missing targets like that of inflation have more pressing matters. Although every economist out there is talking up the Euro Zone’s situation and the making noises the recession is long gone, I don’t see it. I still have to remind readers that the world and more importantly the EU’s employment woes. 12.1% of the EU labour force is out of work. Nearly 22% is 18-24 years old. Spain is running around the mark of 27% unemployment Greece towards 27%, we only get to reasonable figures in the EU for Sweden and that is still high at around8 %. Does this spell out long term recovery chances? Inflation for the ECB will not be a key concern this time around.

Do you expect the BoE to announce updates to their forward guidance policy next week?

I think there may be riots in London if Mark Carney does not clarify his stance on rates. After, I can ensure you, immediately regretting linking rate talks with unemployment, as these target are magnetically pulling their target people want answers. By people I mean both the general public and the people that move the money markets of the world!

There is the real risk of a new housing bubble in the UK. With cheap money people are remaining to over inflate house prices and the majority of growth we have seen in the UK has been form consumer spending. People once again forgetting the lessons of 6 years ago and spending equity in their houses and borrowing cheap money. Interest rates, and the increase of rates will be the only thing to cool the housing market and to start to make people pay down their inevitable debt burdens. Carney need to make his statement clear and unambiguous, if that is possible, otherwise the markets will demand blood.

Will the NFP report for January prove that the disappointing December reading was a one-off?

After the non existent sell off in the indices we can safely say the recent NFP was a one off. The revision will be very interesting and maybe more important to trade that the actual NFP itself. There are so many factors that go into the NFP that it is a very tough figure to predict. There were many analysts, including myself, who upped their revisions on the back of market chatter last time around so this time I will be a bit more reserved. I expect job creation and a jump in the revision, but nothing too out of the ordinary this time around.

140k NFP (100k low 180 high)

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