Fed meeting but ECB is now what matters

For the next two days we’ll sit and wait for what the Fed will tell us they’ll do next as patience and sitting still are not virtues of theirs. But, Mario Draghi and the ECB last week stole the thunder and took the microphone away from the Fed making Thursday’s ECB meeting much more relevant to markets. Verbal intervention has taken the Spanish 10 yr yield to 6.61% from 7.61% and we’ll see what actual intervention can further accomplish. In order to avoid a debt spiral, a country must reach nominal GDP growth at least in line with average financing rates. Nominal GDP in Spain averaged 5.2% over the past 15 years, thus Spain’s 10 yr must come down at least another 140 bps to matter (speaking generally as not all financing will come from 10 yr paper). Germany’s July unemployment figures were in line and June retail sales unexpectedly fell. The June EU unemployment rate held at 11.2%. The July euro zone CPI held at 2.4% y/o/y. While most of Asia continued to rally, the Shanghai index is still standing out like an ugly thumb, falling again to fresh multi yr lows. We can only assume Chinese officials will continue to ease.

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