The ECB did exactly as expected, which was less than its deposit rate (if that’s even possible). President Draghi answered questions for an hour and said absolutely nothing except that risks were now weighted to the downside. The structural theme of his composed narrative was the concept of persistence and assessment. Draghi laid the need for continued ECB monetary ease on many factors inhibiting growth:

  1. German auto production slowing;
  2. actions are creating greater uncertainty due to tariff threats;
  3. China slowdown; and
  4. Brexit

One reporter criticized the ECB for being so far off on its economic assessments. President Draghi pointed to the four points above as hampering the ECB’s work because of the persistence of these uncertainties. The ECB research staff and members blamed the failure to boost inflation on lower energy and food prices. Draghi warned that if this downward price momentum were to last it would take longer to meet the self-imposed inflation target. The central bank assured the media and the world that it has a full toolbox in which it can create the liquidity to boost prices.

The bottom line is that the ECB will maintain a very accommodative  monetary policy until the persistence of the uncertainties stated above is ameliorated and business can ramp up capital investment.

The continued geopolitical problems coupled with the lack of a coordinated European  fiscal stimulus package is making economic assessment difficult. In his effort to obfuscate, Draghi did make a mistake: He blamed the slowdown in Europe on lack of fiscal stimulus while invoking the adherence to the growth and stability pact, otherwise known as the Maastricht strait jacket. Draghi tried to appease the Germans while criticizing individual governments (more magic).

Another Draghi misstep was the statement that European yield curves were flattening in response to the slowdown. I am posting three charts: They’re the French, German and Italian 2/10 yield curves over the last five years. Please, Mario, show me the flattening.

France 2/10 yield curve

Germany 2/10 yield curve

Italy 2/10 yield curve

The EURO currency weakened against all its major counterparts, which should have satisfied Draghi. Now it is time to do your work and watch the GOLD/CURRENCY ratios as another central bank has capitulated to the fear of Volcker’s non-existent deflation.

***This will be the last Blog for ten days as a I take a much-needed break. But as we saw Thursday, the White House sent out two of its advisers, Larry Kudlow and Wilbur Ross. The messages were antithetical to each other. Ross maintained that a China deal was not close, which undermined Kudlow. The Kudlow message on Wednesday was that a deal was possible while Thursday’s noise was about January jobs report being up a significant amount. Really? How does Kudlow know this? Again, there’s way too much noise coming from the White House in an effort to impact markets.

Coming discussions will look at the value of the Chinese yuan, and, very importantly, the role of President Erdogan’s Turkey. Turkey, the great NATO ally, has recently taken positions in direct opposition to the United States. It has sided with Russia in Syria while immediately undermining the Trump administration’s political stance against Maduro in Venezuela. This is an important geopolitical risk that is not appreciated by the markets. Enjoy your time but keep reading and sending questions.