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The Market Stabilisation Role of the Pandemic Emergency Purchase Programme (ECB Blog, 12 min read) ECB chief economist Philip Lane reviews 3 months of PEPP, concluding that this new programme provided an important market stabilization role. Q2 data are expected to show a reversal of the portfolio reallocation seen in Q1 when COVID fears triggered net selling of vulnerable country debt and net buying in those countries perceived as less vulnerable. [Bullish Euro Area Growth / Inflation]
What Price to Pay for Monetary Financing of Budget Deficits in the Euro Area (VoxEu, 18 min read) The monetisation of the deficit would be inflationary and pose legal challenges in the euro area. Nonetheless, this would be needed to avoid a ‘future sovereign debt crisis’. Additionally, the ECB is ‘one of the most independent central banks in the world’ and is equipped to prevent inflation from becoming a permanent fixture.
US Unprepared for Money Supply Boom (OMFIF, 4 min read) Over the past decade, money supply has been a ‘reliable indicator of demand and inflation’. With high money growth likely to persist and policymakers only focused on labour market aggregates (which is generating an opposite signal), the US ‘could find itself with high inflation’. [Bullish Inflation]
Japan’s Experience with Yield Curve Control (Liberty Street Economics, 9 min read) BOJ has achieved success in controlling the term structure of interest rates without having to engage in massive-scale interventions in the JGB market. Yield volatility was also much lower than Germany and the US. However, it failed to revive core inflation, and long-term inflation expectation also dropped.