A tale of two narratives

(...una cosa sbagliata non può finire nel modo giusto. Da Charlie Brown ricevo e volentieri pubblico...)

Indeed

This week  two market narratives were challenged: the narrative of Draghi always overwhelming markets  with policy moves  and the narrative of Yellen being strapped down and ready for a rate blast off.

Draghi under whelmed markets (and the Euro took off), and Yellen started speaking of a "dollar drag" on the rate blast off.

Germany has started two undeclared devaluation wars : one against the rest of the world (via Euro QE whose only true effectiveness rests in devaluating the Euro thus  making European goods more competitive in the US and elsewhere) and one against  its Euro partners (via internal deflation and wage compression). The ECB is the weapon used to wage the first war, the European Commission to wage  the second.


That directly challenges American supremacy in the global monetary  game and also hampers American plans to normalize the US financial system which has been doped and warped by massive doses of QE since the Lehman crisis.

I would like to add that whatever the US does it will end up on top. If it does nothing (or very little) in terms of provoking true divergence,  it will bust the German devaluation offensive. That will make it even more imperative for Germany to toughen  its aggressive internal devaluation strategy vis à vis its Eurozone neighbours ( a million refugees are a good enough ammunition reserve for that). If the US does hike, it will draw massive amounts of savings from Germany thus fostering the vicious deflationary cycle in Europe (which feeds  German surplus), and the effects will be identical.

Full post by Charlie Brown here