Tags: ecb | draghi | protectionism | tax

Hans Parisis: US Protectionism Will Eventually Tax American Consumer

Hans Parisis: US Protectionism Will Eventually Tax American Consumer
(Dollar Photo Club)

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Thursday, 09 March 2017 07:01 AM Current | Bio | Archive

The main news for financial markets should come out of the Euro area where the European Central Bank’s (ECB) Governing Council will announce its decision on its monetary policy.

There is a hint of excitement about the event, but not about the expected decision, of course.

ECB President Mario Draghi has maneuvered the Governing Council into pre-announcing monetary policy for the whole of the year with the added bonus of being able to break the so-called capital key and because of that has purchased disproportional numbers of bonds from some countries like Italy, to take a country as a purely hypothetical random example.

However, euro area inflation is now above its target. No one knows what the target actually is, but it’s definitively below 2 percent and CPI (Consumer Price Inflation) is at 2 percent.

Draghi’s argument is that the core inflation rate is low, so that the headline inflation rate can be ignored.

The problem what that rationale is that on the way down, Draghi spent all of time saying that the headline inflation rate is what mattered and the core inflation rate could be ignored.

It seems that Draghi’s intellectual honesty is not part of his script these days, which, of course, doesn’t mean that the hawks on the ECB’s Governing Council will agree with Draghi’s rationale and we could expect they are likely to hold Draghi to account on the basis of his earlier remarks that referred to completely the opposite of what he is saying today.

Yes, this could make the press conference really interesting.

Will the Bundesbank (German central bank), which is the most influential member of the European System of Central Banks (ESCB) and the Nederlansche Bank (Dutch central bank) have ganged up on Draghi before today’s decision on monetary policy?

Last week, Jens Weidmann, president of the German central bank, made an interesting statement: “Inflation this year is likely to be well in excess of the figure projected to date. The projection for Germany could be raised by half a percentage point and this might also be the case for the euro area as a whole.”

Will there be a change in tone?

We know that the ECB is likely to revise up its inflation forecast, but that’s already been leaked, but will that change things?

Draghi will probably cling to the pre-announced easing as he stated on January 19: “The Governing Council confirms that it will continue to make purchases under the asset purchase program (APP) at the current monthly pace of €80 billion until the end of March 2017 (Here we will see what finally comes out today!) and that, from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

On the subject of inflation, China’s consumer price inflation came in lower than expected, but producer prices hit an 8-year high.

Please keep in mind that Chinese export prices on which the PPI has some influence, but are of little importance to the rest of the world because so much happens to the goods leaving a Chinese port before they reach, for example, the consumer somewhere in the United States.

Besides that, the EU heads of government get together today for a summit meeting in the wake of the UK’s “So long, farewell” budget preparations. Neither the summit nor the budget offer much entertainment value.

On the data front, today we got French business sentiment that came in higher than expected at 107, which was the highest reading since June 2011.

Sentiment data are not reliable, but markets seem to like these data very much these days.

Often, sentiment data are looked to during political campaigns, but that probably doesn’t apply during the current French Presidential election campaign.

The incumbent President Hollande is not standing for reelection and the incumbent’s party, the French Socialist Party is languishing in the polls, but business sentiment doesn’t necessarily resonate with the anti-establishment nature of the campaign.

Finally, U.S. import prices are due. This is not a number to look at for the time being, but it will become more pertinent in the future as protectionism will start to tax the American consumer.

Investors could do well keeping that in mind.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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US import prices will become more pertinent in the future as protectionism will start to tax the US consumer.
ecb, draghi, protectionism, tax
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2017-01-09
Thursday, 09 March 2017 07:01 AM
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