Macro Highlights March 16th 2015

Analysis - 3/16/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

Second "Draghi put" does the job

Because of the European Central Bank’s relative youth, it is often accused of lacking visibility and credibility, compared with the US Federal Reserve. And yet, the actions of the current ECB president, Mario Draghi, and his only predecessor, Jean-Claude Trichet, are every bit as determined and effective as those of the current Fed chairwoman, Janet Yellen, and her most recent predecessors, Ben Bernanke and Alan Greenspan. It may take the markets longer to be convinced of this, but in the end they react logically.

That is what happened in late 2011, for example, when the ECB launched its long-term refinancing operation (LTRO) programme. At the time Europe’s interbank lending market was bunged up owing to the risk of cascading bank collapses. Despite the scepticism shown by financial reporters and a wide swathe of the investor community, the ECB’s low-interest loans relieved the underlying tension. The effectiveness of the LTRO programme was only really recognised a few weeks later, when credit spreads and CDS swap prices began to deflate at last. [...]

The art of juggling

Switzerland's economic growth continued to speed along in the fourth quarter of 2014, rising by 0.6% relative to the preceding quarter and 1.9% year on year. The publication largely outstripped estimates on account of a positive contribution from the public purse. Consumer spending and the trade balance did the rest.

This will be the last publication not to reflect the removal of the exchange-rate cap and the introduction of negative interest rates by the Swiss National Bank (SNB). Henceforth, the Swiss economy will have to contend with a new paradigm. Goods and services may have become cheaper but rival European firms are automatically more competitive. As the Swiss economy is driven by exports, it could face a plunge into recession, or deflation, over the coming quarters. [...]