Monday 17 February 2014 

Zurich 

During client meetings we have a debate on central bank communication issues. The Fed and the Bank of England are being forced, by unemployment falling faster than they expected,  to jettison  the data contingent ‘forward guidance’. The reversion to a communication style which gives them more leeway implies more uncertainty for markets. The ECB on the other hand has communicated in the past that it still has many instruments available to deal with deflationary risks but markets are increasingly questioning what the ECB actually has up its sleeve, perhaps out of impatience.  

Tuesday 18 February 2014 

London 

I discuss with our Multi Asset Solutions team possible negative feedback loops in emerging debt: the currency depreciation would weigh on corporate profitability to the extent that they have currency mismatches. This could increase the non-performing loans of banks, which could negatively impact domestic credit supply and hence growth. To be seen if it evolves that way. 

Wednesday 19 February 2014 

Paris 

During my presentation to French institutional clients I’m joined by joined by Cedric Scholtes, a colleague from FFTW, our global fixed income specialist. Cedric is based in New York so he’s ideally placed to provide anecdotal evidence on the ‘polar vortex’ and more importantly to explain why growth should be very much satisfactory this year: less fiscal drag compared to 2013, household formation will underpin durable goods spending and the residential construction sector, a low level of house inventory, an expected pick-up in corporate capital expenditures. 

Thursday 20 February 2014

Paris 

I’m recording my new monthly video. The topic is “When inflation expectations become unanchored it will be too late”. Long term inflation expectations are a slow moving variable so if the ECB gives it a lot of weight in its reaction function, implying a reluctance to ease further, there is a risk of being too late in easing. The day’s events are dominated by Ukraine where the newsflow gets grimmer by the hour. 

Friday 21 February 2014 

Brussels 

I’m doing an interview for Kanaal Z, a financial news TV channel in Belgium, on how markets deal with geopolitical uncertainty. The topic was chosen in view of the political developments in Ukraine. I emphasise that until now the issue is still very much confined to one country. Hence the contagion effect has been minimal. If, for example, gas supplies to Europe would be impacted, market reaction would be huge. To illustrate how fast things are evolving: by the time the interview was done, I could see on Twitter that the different parties had signed the deal which had been negotiated earlier that day. 

In the evening I’m reading an article on the New York Times website on the transcripts of the 2008 FOMC meetings. They have just been released and provide sobering insights in how difficult it is to gauge the momentum in an economy and how it will react to economic shocks. There are also interesting paragraphs on the use of anecdotal evidence to assess how the economy is doing (like aesthetic surgery or expensive dental treatment) and how to best describe that the Fed has noticed that inflation expectations have risen. It’s definitely recommended reading: http://economix.blogs.nytimes.com/2014/02/21/live-blog-inside-the-feds-2008-proceedings/?_php=true&_type=blogs&_php=true&_type=blogs&hp&_r=1.

 

William De Vijlder

Vice – Chairman of BNP Paribas Investment Partners