ECB Cuts Rates to Record Lows and Restarts QE — Is the U.S. Far Behind?

While QE just officially came to a close in the U.S. on 7/31, the ECB announced yesterday that—in addition to a rate cut to record lows—it will relaunch its easing program in October and continue it for “as long as necessary.” Will the Fed follow suit when they meet on Wednesday? More importantly, will these measures be enough to stimulate the slowing domestic and global economies? As we can see in the charts, it can take up to eight months for rate cuts to meaningfully impact manufacturing numbers (which could desperately use the help—tanking German Industrial Production has permeated the Eurozone). U.S. Core CPI exceeded expectations to hit a one-year high though, which may indicate that state-side inflation is finally gaining some traction. Could this lead some experts to adjust their expectations of rate cuts going into next week? We’ll be keeping our ears to the ground to inform our own outlook!

1. A nice synopsis of the length and strength of both economic expansions and recessions. Stay tuned for what might be the cause of the current slow-growth expansion.

Source: Oxford Economics & Haver Analytics, as of 9/12/19

2. Yesterday the PPIs looked similar. Is inflation (finally) going to pick up steam? If so, rate cut expectations may be too high…

Source: WSJ Daily Shot, as of 9/13/19

3. Is the ECB “pushing on a string?” To protect their banks, they are exempt form the negative borrowing costs as described below. Paying your Government to hold your money over the long term is not rational…

 Source: Commerzbank Research & WSJ Daily Shot, as of 9/13/19

4. A good question. The 8 month adjustment hints at the amount of time a rate cut takes to work its way into the economy…

Source: Topdown Charts, as of 9/12/19

5. When the majority of the yield curve is negative, and the curve flattens, there is little banks can do to make money the “old fashioned way.”

Source: Pantheon Macroeconomics & Gavekal Data, as of 9/12/19

6. But bond yields have been rising in most major markets, good news for banks!

Source: WSJ Daily Shot, as of 9/12/19

7. Along with paltry growth and inflation, this is what the ECB is trying to counter:

Source: Financial Times, as of 9/12/19

8. India has been bucking the global trend:

Source: WSJ Daily Shot, as of 9/13/19

9. China is investing heavily in EM countries, one way to insert geopolitical influence…

Source: The Economist, as of 9/12/19