With the markets having got it in for Spain and focusing on where the government and the banks might be heading, they are likely to keep pushing yields up. That might invite the ECB to respond via its Securities Market programme. Yields on the sovereign’s debt ended last week fractionally below 6 percent. Ahead of tomorrow’s and Thursday’s auctions they start this week just fractionally above.
So while another testing week lies ahead for equity markets, the other feature that is likely to occupy their attention is the US earnings season. This gets underway with some 86 companies in the S&P 500 reporting this week. Analysts having been warned by the pre-announcements not to expect great things because of depressed economic activity in Europe and the loss of momentum in the developing world, but more on this shortly.
In his Sunday Times column Irwin Stelzer makes the point about how history can shape attitudes towards policy. Germany’s deeply rooted fear of inflation and, in the US, fear of its antithesis serve to demonstrate a fundamental difference that lies at the heart of monetary policy.
For the ECB, the concentration on price stability contrasts the Fed’s dual mandate of employment and price stability. In its present-day context, the difference is between the ECB’s financial assistance, however bold, aimed at stabilising the banking system and the Fed’s all out commitment to a reflationary effort aimed at the broader economy. More >