Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Trichet and the ECB, Finalizing a Legacy

Interest-Rates / ECB Interest Rates Jan 20, 2011 - 06:29 AM GMT

By: David_Urban

Interest-Rates

On October 31, 2011 the tenure of ECB President Trichet will come do an end.  In the coming months we will likely hear an increasing drumbeat of noise concerning who will replace Trichet and what policies the new leader of the ECB will embrace.  In the meantime, it is likely that Trichet will use the remaining months to tie up loose ends regarding the PIIGS and set a potential course for his successor.


On January 13th, the ECB released its latest statement sending a hawkish tone to the markets and warning that if commodity prices continue to rise the ECB may have to step in a begin raising interest rates in an attempt to stay ahead of the inflationary curve.

During the press conference Trichet reminded the markets that in July of 2008 the ECB was faced with a difficult decision in the face of rising oil prices and not afraid to raise interest rates to maintain price stability..

As Trichet's tenure as head of the ECB draws to a close we are likely to see him begin to tie up some loose ends so as not to burden the new President and allow him to start with a fresh plate.

This explains the recent push by Europe to get Portugal and Spain to accept bailouts.  As noted in a fall speech Trichet warned the PIIGS that they cannot wait to get their respective houses in order and that it must be done quickly or else they risk being left behind.

By getting Spain and Portugal out of the way early in 2011, Trichet can turn his full attention to a very pressing matter, rising inflationary pressures.

Italy will become a wildcard if Burlusconi cannot hold onto power.  If the Italian government falls then there will likely be pressure by the ECB and the market to accept reforms or a bailout.  

December 2010 ECB inflation came in at 2.2%, slightly higher than the 2% upper band.  Recent pressures in the agricultural and commodities sectors indicate that inflation may be stubborn and stay above the 2% level for most of 2011.  In that case, Trichet may choose to end his term with a rate hike in order to get ahead of the inflation curve and set the course for hi successor.

During the press conference Trichet noted a clear difference between the building inflationary pressures and problems at the sovereign level by remarking that both areas are separate and distinct risks. 

Rising commodity prices fuel inflation risk as consumers purchasing power is eroded through higher prices which in turn translates into rising wages. 

The problems at the sovereign level fuel sovereign risk as governments are forced to pay higher rates in order to finance new debt and refinance existing debt.

The question yet to be asked is who will replace Trichet as head of the ECB?

The French are concerned as Trichet is the only French member of the council and his departure represents a loss of decision making power over interest rates.

Right now the ECB council is composed of representatives from France (Trichet), Italy, Spain, Germany, Austria, and Portugal.  We may see an olive branch extended to France for support of a hawkish candidate by offering them the position currently held by Gertrude Tumpel-Gugerell, the representative from Austria, when she retires in May of 2011.

Late last year the French began to court the head of the Italian Central Bank as a possible successor in contrast to the head of the German Bundesbank who is a leading candidate.

One needs to ask themselves what favors the Germans asked for in return for their bailing out of Ireland and if the recent large purchases of debt by Japan and China were a negotiating ploy.

Whomever takes the reigns of the ECB following Trichet will be watched closely by the market as a hawk would indicate a continuation of the policies and the potential for interest rate increases.  A dove would indicate a break with the policies of Trichet and an indication that interest rates are likely to remain low for some time into the future. 

By David Urban

http://dcurb.wordpress.com/

Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author.  We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. 

Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile.  This is not intended to be investment advice or a solicitation to purchase any of the securities listed here.  I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

David Urban Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in