A Tale of Two Central Banks: ECB Set to Ease as Fed Jackasses Itself Higher

Negative yields are persisting in Europe, with German 2yr now -0.41%. We’re seeing negative yields in most developed european nations, with Spainish and Italian yields lower than ours.

What gives?

European QE has crushed the euro and helped ease the credit crisis that was unfolding, rapidly, back in 2011. Heading into December, both the ECB and Federal Reserve are looking to make a move. The only difference is we’re looking to do the exact opposite of one another.

Speculation of further stimulus from the ECB has mounted ever since President Mario Draghi indicated in October that the Governing Council would act if needed to drive up inflation to its 2 percent target, a view echoed by several policymakers.
The ECB will next decide policy on Dec. 3, less than two weeks before a Federal Reserve meeting in which the U.S. central bank is widely expected to raise rates from zero for the first time in nearly a decade.

The likely outcome of both meetings has already been priced in by financial markets, which is why the euro has weakened over six percent against the U.S. dollar since Draghi’s comments last month.

Inflation, meanwhile, rose to 0.1 percent last month and a core measure is showing signs of strengthening over the past few months.

Still, a poll of over 50 economists taken this week showed forecasters predict an 80 percent probability of the ECB announcing further easing next Thursday – roughly the same result as the previous two polls.

“It (the ECB) cannot run the risk of disappointing markets, having raised expectations of action. Action in some form or other looks like a racing certainty; it’s merely a question of the form it takes,” said Ken Wattret at BNP Paribas in London.

How can the Fed look to tighten at a time when the ECB is set to ease further? Clearly, they’re both looking into the same deflationary vortex, one that is exacerbated by a strong dollar. It’s not like the US has some special kind of growth here, or inflationary pressures are simply too much to bear.

No.

This is sheer fuckery, largess. The only logical explanation for all this leads to an illogical conclusion: The Fed wants to expedite the crash in commodity related stocks and clear the market of weak balance sheets.