Just as we were wrapping our American heads around the idea that checking on Spanish bond yields was a necessary part of our morning pre-market routine, now come grumblings that tomorrow's European Central Bank (ECB) policy meeting is actually more important than what the Fed will say today.
"It [the ECB meeting] is more important in terms of the drama in the euro zone," concedes Andrew Wilkinson, chief economic strategist at Miller Tabak, in the attached video. It wasn't always this way, he says. But since real economic activity in Europe "has come to a crashing halt" and financial markets have weakened substantially, the fallout for the euro/euro zone crisis "is impacting everybody around the world."
Not least of which is the U.S. and our own domestic slowdown — a predicament Wilkinson earlier described as a "crisis not of our own making," given the impact of external influences.
As difficult as it is to handicap Fed actions, economists will readily admit that predicting outcomes in Europe is theoretically 17 times harder. As much as Mario Draghi, the ECB President, was able to boost global confidence last week by saying the ECB would do whatever it takes to support the euro, his work is far from over.
"Draghi's clearly on a mission to heal the crisis," Wilkinson thinks, adding that what he needs to do now is to convince the German members of the ECB that, under the current conditions, it would be appropriate to resume the Securities Markets Programme (SMP). "The real spat now is between the Bundesbank and Mario Draghi," he says.
Of course, a jaw-boning pledge to save the euro is not the same thing as a pledge to support the euro currency, which is coming off its best three-day gain versus the dollar since mid-January. While that bounce has given a good scare to record numbers of investors who have bet against (or are shorting) the euro versus the dollar, it also acts as an economic headwind to the region's big exporters, something that could stem enthusiasm for its advance.
"The weak euro is very constructive for the manufacturing sector, which is big for Germany and France, as well as Italy," Wilkinson points out, highlighting yet another tight-rope that the new ECB chief has to walk. "There is a tremendous amount riding on this [ECB] meeting."