SocGen’s Michala Marcusen has a great paragraph on Davos in her latest weekly note.A more confident mood marked this year’s Davos meetings, but new concerns relating to unconventional monetary policies and currencies are emerging. French Minister of Finance Moscovici told a panel that the “euro is high and this creates some problems” and several eyebrows were raised at Japan’s new economic policy. Deputy Governor of the PBoC, Yi Gang, indicated that the yuan was close to equilibrium and warned that G20 leaders should seek better communication and coordination on FX. In a move that will heighten expectations for future BoE easing, the new BoE Governor coming to office in July, Mark Carney, noted that monetary policy was far from “maxed out” and more should be done. This week will see the FOMC continue QE while the ECB is likely to see further balance sheet shrinkage. While many factors influence currencies, the apparent monetary policy dichotomy will keep the debate open as to whether the euro is about to take the past position of the yen.
The World Economic Forum in Davos is filled with a lot of Davos-speak, and discussions about stuff that doesn’t matter much to markets.
But the monetary policy stuff is significant right now for a couple of reasons.
First of all, Both Japan (due to Abe’s aggressive policy) and the UK (due to incoming BoE chief Mark Carney) are potentially about to embark on new avenues of policy.
But more generally, there’s a belief that at least in the US that the end of the age of easing is coming into view. So the monetary policy concerns that were voiced at Davos (and this question of who’s maxed out, and who needs to start reeling it in) actually matter.