The European Central Bank announced a monetary stimulus package that exceeded most economist’ expectations and may be just what the doctor ordered to bring life back to the European Union’s economy. The Los Angeles Times reported (CLICK HERE to view article) that the ECB will enter into a bond buying program through September of 2016 at a rate of $60 billion Euros (approx $68 million) per month. This is a good sign for the EU and comes at time when many economist have expressed concern about the European economy pulling the rest of the global economy into a recession.
In the January 11, 2015 issue of the Los Angeles Times, Tom Petruno examines Wall Street’s latest “Worry Du Jour”, Deflation and provides ample evidence that deflationary fears are likely overdone. Although it is true that energy prices have recently fallen dramatically, healthcare and food costs have not followed. Also, lower energy prices are usually a boon for consumer spending, a driver of inflation. Europe’s anemic growth, spreading globally is the evidence most often cited in talks of global deflation. But even here, many believe this is a stretch including European Central Bank President Mario Draghi who stated that deflation, “cannot be ruled out completely.” although he said the risk was “limited”. The US economy is also very strong at the moment and many economist believe its strong enough to slow deflationary pressure in Europe. As UCLA economist Lee Ohanian states “I think we’re more likely to prop them up at some level than they are to drag us down.” To view the complete LA Times article please CLICK HERE.
In a recent LinkedIn post, Mohamaed El-Erian, Chair, Investment Advisory Committee at Microsoft, makes the case for lower oil prices for some time to come–the political and economic consequences of which could be dramatic. CLICK HERE to view his post.
As the price of Oil continues its decline, the equity markets continue to grapple with the effect that this will have on corporate earnings for the broad markets. As a recent Bloomberg article (CLICK HERE) points out the answer is not clear. Although consumers and manufactures will definitely benefit from lower prices, energy companies will not. Consensus seems to be centered around a long term positive impact to the overall economy but as with most economic matters, that opinions is certainly not unanimous.