By GEOFFREY SMITH
— We bring you 25 glorious years of the ECB in 25 moments.
— As U.S. politicians head to a debt ceiling deal, money market troubles may just be beginning.
— The race to replace Ignazio Visco at the Bank of Italy heats up.
ECB 3.25% ⇡ — BOE 4.5% ⇡ — FED 5.25% ⇡— SNB 1.5% ⇡— BOJ -0.10% ⇣— RBA 3.85% ⇡— PBOC 3.65% ⇣— CBR 7.5% ⇣ — SARB 8.25% ⇡
Testing… testing… is the mic on? Are we live? Ah. Hello there, everyone! Welcome to the inaugural POLITICO Morning Central Banker, bringing you all the news that’s fit to pixelate from the world of monetary policy, banking supervision and the sharp end of the money markets.
We’ll be aiming to bring you not just the nuts and bolts, but the color, the context and the personalities behind the news, at a time when both central banks and the markets they influence are having to re-learn the basics of the value of money, after three decades in which the inflation monster seemed dead.
As this is POLITICO.EU, you can expect us to be focused mainly on the European Central Bank, the Bank of England and the other institutions around the Old Continent. But they don’t act in a vacuum, so we’ll be sure to bring you the important stuff from further afield too. And because we know your time is precious, and that less is more, we’ll try to keep things simple here, while showing you the way to all the detail you could need, such as with this deep dive by Ben Munster into the race to succeed Ignazio Visco at the Bank of Italy.
Thanks for joining us for your free trial. We seriously doubt there’s better value for money out there …
Send tips to [email protected], [email protected], [email protected], [email protected]. Tweet us, too: @Geoffreytsmith @JohannaTreeck @Ben_Munster @izakaminska
— ECB financial stability review teasers due at 10 a.m. CET
— World Gold Council releases its latest central bank gold survey at 10 a.m. CET
— Former Pimco boss Mohamed El-Erian speaks to Morning Central Banker at 3 p.m. CET
US DEBT DECISION FALLOUT? The big news over the long weekend was that the Biden administration and GOP-led House of Representatives agreed a deal in principle to avoid a U.S. default.
But the chaos may not be over yet. Watch for some lively ‘normalization’ in global markets as bond traders decide how far they’re willing to forgive and forget last month’s political farce over the U.S. debt ceiling. Chinese credit rating agency, Chengxin, has already downgraded the U.S. by one notch to AAg+ from AAAg, while Fitch put Washington on notice of a possible downgrade last Wednesday.
Focus on the money market: While risk premia on short-dated T-bills are sure to collapse quickly, the question is whether the market will adjust to a smaller, but more permanent, risk premium to guard against the chance of it all going properly south the next time. The smart money is still watching for potential liquidity fallout as money markets prepare for some $1 trillion of T-bills being sold in the coming weeks after the deal. Much of the liquidity that got drawn into the Fed’s reverse-repo facility over the course of the standoff must make its way back into the T-bill market to keep liquidity conditions healthy. The same applies to the $50 billion or so deposited this year in the Fed’s foreign repo pool by foreign central banks.
Back in Europe…The European Central Bank will release an intriguing couple of teasers from its upcoming Financial Stability Review at 10 a.m. CET, one focusing on bank-nonbank interlinkages, the other on the interaction of market and funding liquidity (an increasingly important point as eurozone banks prepare to repay €476 billion in TLTRO funds next month).
And while the ECB may already have had its party, the overseer of Europe’s single currency officially marks a quarter of a century in business this Wednesday. Morning Central Banker has distilled the whole, heart-rending blockbuster into 25 key moments for you, so that you’re up to speed for our coverage of the next 25. See here.
TWITTER SPACE… To mark the launch of our new Central Banker vertical we’re taking to Twitter for a Spaces session diving into the consequences of the U.S. debt ceiling crisis for eurodollar markets and more.
The line-up? Glad you asked. We’ll be joined by special guests including former Pimco boss Mohamed El-Erian, the Peterson Institute for International Economics’ Nicolas Véron, and global liquidity plumbing expert James Aitken. John Reade will also be popping in to update us on the World Gold Council’s latest central bank survey, which is out today, as will former Elliott Management portfolio manager Meyrick Chapman. Our Editor-in-Chief Jamil Anderlini will be kicking off the festivities, before our Senior Finance Editor Izabella Kaminska grabs the mic (or phone). Set a reminder and join us here at 3 p.m. CET on May 30 (for approximately an hour and a half).
THE ITALIAN JOB: Ignazio Visco is due to step down from the Bank of Italy in November after an, um, eventful 12-year stint that has covered an existential debt crisis, some controversial bank rescues and (checks notes) eight Prime Ministers. The latest of them, Giorgia Meloni, has some tough trade-offs to make as she searches for a successor.
POLITICO’s Ben Munster has been nosing around Rome to find which way the wind is blowing. It transpires there is one clear favorite: ECB board member Fabio Panetta, who we understand is very keen for an excuse to return home to Italy. The trouble for Meloni is that bringing him back might open up a can of worms in Frankfurt that she might otherwise prefer to keep closed.
Backup candidates: Small surprise, Meloni is eyeing some alternatives just in case the Panetta move doesn’t work out, preferably with the political chops to match predecessors such as Mario Draghi and Carlo Azeglio Ciampi. Top of the billing are banking supervision expert Luigi Signorini and former Finance Minister Daniele Franco. For more see here.
DOWNING STREET PRICE EDICT: The U.K. government is looking to cap food prices in an increasingly desperate fight to get inflation down, the Telegraph reported over the weekend. The move could see Prime Minister Rishi Sunak take a leaf out of the French government’s playbook and get the largest supermarkets to “voluntarily” cap prices for a range of essential goods.
Food inflation in the U.K. topped 19 percent for a second month in April, one of the most politically explosive parts of the current inflation disaster, and one increasingly on the mind of a Conservative government facing re-election next year. Adding to the pressure on Tuesday, the British Retail Consortium said shop prices increased 9 percent in the year to May, up from an 8.8 percent increase in April, reaching their highest rate since industry records began in 2005 — even as food inflation slowed.
Chancellor of the Exchequer Jeremy Hunt said on Friday he would welcome more interest rate hikes from the Bank of England, even at the cost of causing a recession.
Not learning from history? Whether supermarket price caps are the way to tackle it is another question entirely. UBS Wealth Management’s Paul Donovan said in a morning briefing that smaller shops and restaurants have been just as enthusiastic in raising their prices recently, signalling the “unmitigated disaster” of Richard Nixon’s attempt to control prices back in the 1970s could be about to be repeated in Britain.
“There’s a significant risk that even with a price cap, supermarkets will attempt to maintain their profit margins by forcing farmers to accept less, which may then reduce what farmers are willing to supply the market,” Donovan said.
That high-pitched whirring sound you can hear is Margaret Thatcher spinning in her grave.
ACROSS THE POND: Friday’s data made unpleasant reading for the Federal Reserve (and for anyone betting on rate cuts in the foreseeable future). Prices for personal consumer expenditures picked up again in April, while core PCE prices — the Fed’s favorite inflation measure — matched a six-month high of 4.7 percent. To add insult to injury, personal spending also jumped by 0.8 percent, well above consensus forecasts.
The dollar index hit a two-month high on the numbers, as the market ramped up its bets on another rate hike in two weeks’ time. It’s been drifting over the weekend.
TAXING STABLECOINS: Taxmen from across the world need to agree on how best to treat stablecoins, according to staffers at the International Monetary Fund. The IMF published a 24-page Fintech Note late last week flagging the policy challenges of adopting a consistent approach, but offered a far from clear answer itself, even though it is inclined to see them as a means of exchange rather than a store of value.
Questions still arise, “as to whether it is possible to provide for such guidance in a comprehensive manner, given the myriad potential economic functions of tokens,” the staffers wrote. “For stablecoins to be capable of becoming competitive with traditional currencies, substantially similar tax treatment to currencies is necessary to the extent that stablecoins are, in fact, predominantly used as a means of payment.”
The IMF report will likely grab the attention of tax officials at the European Commission, which is exploring different ways of taxing crypto assets. One idea kicking around in Brussels is to introduce a sales tax — an idea that’s proved popular for stablecoins, IMF staffers said.
— “We do think that this spectacular reversal of energy prices will feed into core, but timing is uncertain,” said ECB chief economist Philip Lane on Friday.
— “My gut feeling at the moment from everything I have seen is that we’ll be moving rates again at our June meeting and it wouldn’t surprise me if we’re moving again at our July meeting,” Central Bank of Ireland governor Gabriel Makhlouf told Reuters on Friday.
— “There’s a legitimate argument if you’re trying to lose weight, you know, what, what can you eat and how much exercise everybody should be able to agree that the first strategy should not be cutting off your toe. Right? Because that doesn’t save much weight and it’s really painful. And that’s, that’s kind of where the debt ceiling is,” Chicago Fed President Austan Goolsbee told CBS on Sunday.
— What Milton Friedman wrote to Otmar Issing at the creation of the ECB — Bloomberg
— MPs and retailers lambast UK plan to cap basic food prices — FT
— Sweden’s biggest commercial landlord SBB is in trouble and looking at a potential sale — SBB.
— Economists warn RBA could lose control of cash rate due to review board overhaul — Sky Australia.
THANKS TO: Ben Munster, Johanna Treeck and Bjarke Smith-Meyer.
(Editor’s note: this is intended as a selective list, giving precedence to European events.)
TUESDAY, 30 May
— Spain May CPI, 9 a.m.
— Riksbank executive board to face questions on 2022 monetary policy in parliament, 9 a.m.
— Eurozone April money and credit data, 10 a.m.
— ECB pre-releases excerpts from its Financial Stability Review, one focusing on bank-nonbank interlinkages, the other on the interaction of market and funding liquidity 10 a.m.
— Eurozone May business and consumer confidence surveys, 11 a.m.
— Belgium May CPI, 11:30 a.m.
— ECB weekly financial statements and asset portfolio update, 3 p.m.
— ECB’s Holzmann speaks at conference on “Financing the energy system of the future”, 3 p.m.
— ECB’s Centeno speaks at economy event in Barcelona, 3:30 p.m.
— Fed’s Barkin fireside chat at virtual NABE Monetary Policy and Outlook Webinar, 7 p.m.
WEDNESDAY, 31 May
— RBA’s Lowe to speak, 1 a.m.
— British Retail Consortium shop price index, 1:01 a.m.
— German states’ May CPI data from 7:30 a.m. onward; preliminary German CPI at 2 p.m.
—German April import prices, 8 a.m.
— French April consumer spending 8:45 a.m.
— French May CPI, 8:45 a.m.
— French 1Q GDP revision, 8:45 a.m.
— German May unemployment 09:55 a.m.
— ECB Financial Stability Review, 10 a.m.
— Italy 1Q GDP revision, 10 a.m.
— Poland May CPI, 10 a.m.
— Poland 1Q GDP revision, 10 a.m.
— ECB’s Visco presents Bank of Italy annual report, 10:30 a.m.
— Italy May CPI 11 a.m.
— MAS’s Ravi Menon speaks at the BIS virtual Green Swan conference, 12.05 p.m.
— ECB’s Lagarde to speak to students (no text), 2:30 p.m.
— Fed’s Bowman, Collins to speak, 2:50 p.m.
— U.S. April job openings, 4 p.m.
— SNB’s Jordan to speak, 5 p.m.
— Fed’s Harker to speak, 6:30 p.m.
— Fed’s Jefferson speaks on “Financial Stability and U.S. Economy” at International Conference on Policy Challenges for the Financial Sector, 7:30 p.m.
— Fed issues Beige Book economic survey, 8 p.m.
THURSDAY 1 June
— Japan May manufacturing PMI, 2:30 a.m.
— China May Caixin PMI, 3.45 a.m.
— Germany April retail sales, 8 a.m.
— Riksbank Financial Stability Report, 9:30 a.m.
— ECB’s Knot speaks at European Banking Federation conference, 9.55 a.m.
— ECB TARGET balances, 10 a.m.
— Eurozone final May PMI, 10 a.m.
— UK April money and credit data, 10:30 a.m.
— Eurozone May CPI, 11 a.m.
— Eurozone April unemployment 11 a.m.
— ECB’s Lagarde to speak to German Savings Banks event, 11:30 a.m.
— ECB publishes accounts of May meeting, 1:30 p.m.
— ECB publishes Structural Financial Indicators, 2 p.m.
— ECB’s Enria to speak at IMF/World Bank event, 2:45 p.m.
— Mark Carney speaks at the BIS’ virtual Green Swan conference, 3.05 p.m.
— U.S. May ISM manufacturing PMI, 4 p.m.
— Fed’s Harker to speak, 7 p.m.
— Fed balance sheet data, 10:30 p.m.
FRIDAY 2 June
— ECB publishes quarterly insurance statistics, 10 a.m.
— U.S. May employment report, 2:30 p.m.
All times CET, unless otherwise noted.