STIR: Effective Fed Funds Rate

MNI speaks to ECB sources. On MNI Policy MainWire now, for more details please contact sales@marketnews.com

• Reuters has run a sources story in which six "policymakers" have said that they see the negatives of QE to have outweighed the benefits. The story goes on to argue that some of the sources wanted the upcoming strategy review (which Bloomberg has reported is due to start after the summer break) to keep a 2% symmetrical inflation target but to remove "forceful" language when responding to low inflation, while others "want a clear acknowledgement that prolonged asset buys are not an appropriate policy instrument."
• Note that the ECB has not really delivered a definitive verdict on whether it thought that QE was a net positive or negative having had the benefit of hindsight, and has more communicated that using rates is now its primary policy tool.
• However, other central banks such as the Bank of England have changed their tone around QE - with the Bank's official view now that QE helps most in times of stress to help improve market functioning and to mitigate unwarranted tightening of financial conditions, but acknowledges that the direct effects on inflation and GDP are less clear cut. The Bank of England does still see QE as having brought net positive impacts for the UK. If there is a conclusion from the ECB within the strategy view that QE did not bring net positives that would be a big deal in the central banking world on a global basis.
• If that was indeed the conclusion, it would also mean that if rates ever did move back towards zero and monetary stimulus was required the market would have much more certainty that the ECB would not engage in asset purchases which could spook investors.
• There's no immediate near-term policy impact here.

• Canada trade balance -CAD1.9 in May vs the consensus of -CAD1.3, marking the third deficit in a row and its largest deficit since Jun 2023.
• Exports -2.6% MOM to the lowest since Jul'23 after rising +2.1% in April as precious metals -17.1% in May. Decreases were seen in 8 of 11 subcategories.
• Imports -1.6% MOM led by metals as Canadian demand for gold faded from April.
• Exports -0.6% YOY; imports -1.4%.
• US surplus widened to +CAD8.2B from +CAD7.1B from light truck exports.
• Ex-US deficit widened to -CAD10.1B from -CAD8.4B in May as exports fell by the fastest pace on record.
• April trade deficit revised to -CAD1.3B from -CA1B.