Central bank watch

The most notable change in rhetoric from key central banks is the commentary shift from the ECB surrounding the possibility of more easing and the potential for more unconventional policies.  Central banks elsewhere have largely maintained their stances seen over the last couple of months.

With inflation again showing lower growth, President Draghi has signalled that the ECB is more concerned with the impacts of the strength of the euro.

There has also been more discussion of the use of unconventional monetary policy, with this speech from ECB board member Benoît Cœuré outlining some of the key principles that might guide how the ECB will target markets.

It seems unlikely that the implementation of QE is imminent, not because of the need for more policy accommodation, but rather because of the complexity of such a program in the Eurozone.  But it does seem increasingly likely that the ECB will have some kind of asset purchase program in place in the next 3-6 months.

US Treasuries sold off following the first press conference from new Chair Janet Yellen, although subsequent speeches and the release of the minutes have seen bonds rally, most notably at the shorter end of the curve.

Markets remain sensitive to any apparent shifts in guidance from the FOMC, although so far there really hasn't been a meaningful change in their view beyond the shifting "dots".

Markets seem to want to push for a flatter yield curve on the parts that are non-zero at present, although an inflection point in some of the leading indicators suggest some caution in confidently predicting the rise of the Fed Funds rate.

The Bank of Japan remain in wait and see mode at the moment, with Governor Kuroda stating that the BoJ is confident inflation hitting 2% next year and no change to policy is imminent.  The most likely course is to maintain the current expansion of the monetary base as the effects of the rise in consumption tax become more apparent, which rose from 5% to 8% on 1 April.

The Bank of England have been quiet since they changed from quantitative to qualitative guidance on labour market conditions.  They continue to project rates to remain low until well into 2015, although the pace of improvement in labour markets could force an earlier move.