The strange feeling when a central bank gets it right
Here's a quick review of the past week of central banking:
- The Fed held rates once again and may only hike rates once this year (if at all) after forecasting four hikes this year
- The BOJ gave up on calendar forward guidance and no longer wants to push long-term yields lower after failing to stoke inflation for a generation
- The BOC hinted its forecasts will be lowered in a dovish shift as it slowly abandons the idea that non-commodity exports will save the economy
- The BOE predicted Armageddon after Brexit, then bizarrely took credit after the data was solid, but now is forecasting trouble to come
The knee jerk to any central bank has been to bet against it. The last few years have probably been the worst time for central bank forecasting in a generation.
All that is what gives me such a strange feeling about the ECB. They have been adamant that a turn in the economy is coming and that there was no rush to tweak policies. Even after the Brexit vote they held a steady hand.
Today's IFO sentiment data from Germany rose to the best levels since mid-2014 with all the components turning higher.
The euro is also higher for the fourth straight day and is at the best level since Sept 15.
The numbers don't speak to the many weak pockets around Europe and Italy's cabinet is slated to revised 2017 GDP forecasts lower today; but so far the ECB is on track for a rare forecasting win in a world of central bank losers.
