The way in which a central bank communicates is of paramount importance. Both the substance of your message and your actions are critical aspects for the future of the markets. That is why the appearances of a president are measured with a magnifying glass to understand if there is a relevant change in his words that could alter prices. This is the theory.
The question is not whether or not a central banker’s speech should move the markets. It is to understand if the message goes beyond the impact on the prices that, either the stock markets or the fixed income, can reflect at a given moment.
Personally, I believe that when the president of the highest monetary institution, regardless of the country, addresses the markets, one of his objectives is to try to ensure that they do not anticipate his message too much so that his decisions have a more immediate effect on the economy. After all, its commitment is not with investors but with citizens.
Alan Greenspan first and Ben Bernanke later, we were “badly accustomed” to a non-predictive and unconventional style. Enigmatic in the case of Greenspan and rebellious in the case of Bernanke. And I have to admit that it was fun because they forced you to maintain a certain tension and it was not easy to anticipate their intentions. From Greenspan I remember that even the position of the commas was analyzed in the text that was broadcast on the day of his appearance. The Fed minutes were a must-read.
Unfortunately, first with Janet Yellen and now with Jerome Powell, This is not like this. They are two presidents submissive to the premises of the market. His script is predictable, the tone is always neutral and his intention is not to generate the slightest tremor in investors. Furthermore, if something has to be generated, it is positive for the markets.
Make no mistake, the role of the chairman of the Fed or any other central bank is not to become an animator of the stock markets. But like it or not, they are part of the game. In fact, the first Fed chairman who was clearly linked to the markets was precisely Greenspan, whose decisions were always oriented closely to investors (remember the famous put de Greenspan). But he knew how to play his role in an excellent way.
In the case of the ECB, it is something similar, although we are still living under the effects of Mario Draghi, who had that imprint of a banker that could really move the markets. Christine Lagarde, much more bureaucratic and civil servant, he does not resemble him very much.
His last appearance was in that line of predictability. We knew that he was not going to scare investors by mentioning the word tapering and so he resorted to the originality of announcing a “recalibration”. So to the term “temporary” we now have to add that of “recalibration”. The central bankers turn seems more semantic than anything else.
And what does “recalibrate” mean?
Well, simply do nothing. Or rather, not stop doing something, which in this case is to maintain the same monetary policy, only something made up to prevent bond investors from leaving the forced submission to which they are subjected.
And it is that the current situation is not the same as that of a year ago, nor is it in relation to the one that existed ten years ago when, remember, four countries, including Spain, they were rescued. Because yes, although the greatest is still being denied today, our country was rescued.
The decision to slow down the PEPP, the asset purchase program implemented by the ECB for the pandemic, comes after a strong rebound in growth and inflation in the eurozone. In year-on-year terms Germany it grows to 9.4%, with unemployment of 3.6% and an inflation rate of 3.9%. And with this outlook, Lagarde believes that monetary support should not be reduced. You have to “recalibrate” the rhythm.
While the German bond remains anchored in negative territory (Bund 10Y -0.327%), industrial prices in Germany have been rising uninterruptedly for eight months and the latest data shows a staggering 10.4% annual increase. Yes, there may still be a rebound effect, but German companies suffer on their margins the pressure of prices and costs, while an economy with levels of full employment continues to be immersed in a financial repression for its savers. And with Merkel leaving the Government in a few weeks, which anticipates a radical political change in between.
The bond watchers
There was a time when investors could punish irresponsible governments by altering prices. That is what happened in the 1980s when real interest rates rose in response to the losses they suffered in the previous decade. The so-called “bond market watchers” manifested themselves in this way when monetary policies were errant, thus trying to stop any inflationary upsurge.
Today the outlook is bleak. Neither are there bond watchers nor is there an appreciation of due responsibility in monetary policy. We have to settle for literary styles and originality of words.
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Reference-www.elespanol.com