ALEX BRUMMER Central banks lay a false trail which overpaid analysts are too quick to follow 

ALEX BRUMMER: Central banks lay a false trail which overpaid analysts are too quick to follow 

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If central banks are trying to be more predictable, so as not to surprise markets, they are not doing a great job of it. 

Alternatively, overpaid analysts on whose judgments rest tens of billions of dollars of investments may be getting it wrong too often.

Certainly, analysts were wrong- footed by the European Central Bank president Mario Draghi when he unveiled the latest policy decisions.

The lowering of the ECB’s negative deposit rate by ten basis points to minus 0.3 per cent was less than expected. 

Analysts were wrong- footed by the European Central Bank president Mario Draghi when he unveiled the latest policy decisions

Analysts were wrong- footed by the European Central Bank president Mario Draghi when he unveiled the latest policy decisions

Negative interest rates are meant to discourage Europe’s commercial banks from parking funds with the central bank and to try to lend them instead. All the predictions that the ECB would at least match the yield on German bonds proved false too.

Similarly, forecasts that the current programme of bond buying or quantitative easing would be expanded from the present figure of €60billion a month also proved wide of the mark. 

In the market view, Super Mario failed to do what is necessary to pull the eurozone out of its deep slumber.

Mario Draghi, President of the European Central Bank (ECB), addressing the media during the press conference following a meeting of the ECB Governing Council in Frankfurt am Main, western Germany. Some of the debt-wracked eurozone countries are making "very substantial, very significant" progress on getting their finances in order, Draghi said.        AFP PHOTO / DANIEL ROLAND (Photo credit should read DANIEL ROLAND/AFP/Getty Images)
12/01/2012 Investors hit as stock market dives into the red and euro... F0C29G CheBanca! CheBanca  Mediobanca bank banks italy italian banking branch branches high street Barclays sells its Italian banking business to CheBanca as... Grolsch beer bottles. Brewer SABMiller is to snap up Dutch beer firm Grolsch in a deal announced worth 816 million euros ( 583m). See PA story CITY Grolsch. Photo credit should read: newscast/PA Wire Brewer AB InBev puts Peroni, Grolsch and Meantime up for... Daily Mail City Editor Alex Brummer.
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How wrong the forecasts proved to be was most visible on the foreign exchanges where the euro surged 3 per cent against the US dollar to $1.0941 – its highest level for a month. 

Shares in Germany’s key Dax index dropped 3.58 per cent as the hopes of further monetary easing drifted away.

Draghi is not the first central banker to catch the market on the hop recently. 

The dovish tone of the Bank of England’s Inflation Report last month led the public to believe that the rate hike that was meant to come into view at the turn of this year had been postponed until 2017.

That was until deputy governor Ben Broadbent noted too much faith had been placed in a flat yield curve.

All of this begs the question of what the Federal Reserve, the US central bank, will do at its next meeting on December 15 and 16. 

Janet Yellen has signalled that the US economy is strong enough to take a rise from the current super low range of 0 per cent to 0.25 per cent.

But we have been here before. There was widespread expectation that the first US rise would come in October, but instead there was much hand-wringing about the events of the summer when the Chinese economy fell out of bed.

Arguably the deep recession in Brazil and growing uncertainty in the Middle East could still weigh on the Fed.

The ECB decided from the outset that voting would not be revealed because of potential domestic repercussions so it is a bit of a guessing game as to what happened. 

You don’t have to be a mind reader to recognise that the Bundesbank’s representative Jens Weidmann, who like most German central bankers has a visceral fear of inflation, would not have been enthusiastic about the ECB going all out for expansion. In the greater scheme of things it might be just as well.

Unless Janet Yellen is engaged in a game of bluff with Wall Street, the Fed likely will move. 

By restraining itself the ECB may be dodging the bullet of a sharp divergence of policy between Europe and the US which could trigger a currency war.

 

Last stand

It may be Jes Staley’s first week at the helm at Barclays but it is his predecessor Antony Jenkins who seems to be making the waves. 

His effort to rehabilitate his reputation with a prediction that digital disruption of the banking sector could lead to more branch closures and the disappearance of thousands of jobs was not wonderful timing.

Similarly, one must assume that the disposal of Barclays’ 89 branches in Italy to CheBanca!, the retail arm of Mediobanca, at a £200million loss, was well baked in the cake before Staley joined.

Barclays has now retreated from Spain and Portugal as well as Italy. 

The dream of great banking conglomerates, stretching across national borders, largely has been killed by the financial crisis. 

That does not mean Barclays is out of Italy. Its investment banking operation will remain in place and it hangs on to a £10billion (€14billion) mortgage book for the time being.

Staley has yet to pronounce on his own priorities. One guesses that his JP Morgan and New York background means he is more favourably disposed to investment banking that Jenkins. 

He will need to demonstrate that it can be conducted with the integrity that went missing in the recent past.

 

Last orders

AB InBev is losing no time in offloading SABMiller brands which may cause it problems with regulators. 

Among the emblematic brands on the block are Grolsch, Peroni and London-based craft brewer Meantime Brewing Company, a very recent arrival in the SAB stable.

Among the interested parties watching the great beer sale from the sidelines will be Guinness owner Diageo which is thought to be interested in anything which might fall off the bar in Africa. Cheers.

 

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