Today was supposed to be all about Greece, but that's going to have to wait until Monday (which, I'll note, is a market holiday in the U.S., further complicating the picture).
Instead, the market's macro focus this morning was on a Russia-Ukraine ceasefire, the Bank of England signaling a rate hike sooner vs. later and a surprise rate cut and QE announcement by Sweden's central bank.
"It's a really exciting time to be a central bank reporter, which I'm pretty sure is not good news for the world economy," says Pedro da Costa, economics reporter for The Wall Street Journal. "It means, effectively, all these central banks -- six years after the crisis -- are still operating more or less in emergency mode. It shows you just how difficult it is to get the economy out of a disinflationary gravitational pull when growth slows globally all at once."
Even though the U.K. economy is relatively strong, the Bank of England's raised forecast for U.K. growth in 2016 and 2017 should be taken with a grain of salt. First, the BOE left the door open for more rate cuts, with Gov. Mark Carney saying the bank remains "vigilant to the risks of disappointing global growth.” Second, the BOE is betting the recent slowdown in U.K. inflation is transitory and largely due to oil's steep slide. Third, and most importantly, the Bank has consistently overestimated U.K. growth in recent years.
"Six months ago Mark Carney made similar hints" about hiking rates "and then the growth picture came down and they had to moderate their tone," da Costa says, recalling the Fed has found itself in a similar situation. "For last two or three years they've started the year with a fairly positive outlook and then around the summertime something takes place, some crisis, that leads them to downgrade forecasts. We'll see what happens in the U.K."
And then there's Sweden which cut interest rates into negative territory for the first time, joining the "next to nil" rate parade that's making its way around Europe's continent. On Wednesday, Switzerland issued 10-year notes with a barely perceptible yield of 0.011% (da Costa's WSJ colleague, Greg Ip, has a good explainer about why sovereign interest rates in Europe are so low, despite the still-real possibility of a Greek exit from the Eurozone.)
"The other issue that comes into play with Sweden moving in the opposite direction as the U.K. is, of course, increased volatility in currency markets," da Costa notes. "As central banks go in different directions, their currencies also tend to go in different directions so that’s exacerbating market volatility."
Indeed, while lacking the drama of the Swiss national bank's dropping its peg to the euro earlier this year, sterling hit its highest level of 2015 vs. the dollar after the BOE announcement. The dollar also weakened vs. the euro following a weaker-than-expected report on U.S. jobless claims and retail sales, and the yen rallied vs. the greenback after Bloomberg reported the Bank of Japan "is concerned further monetary easing to boost inflation could trigger declines in the yen that damage confidence."
Some weakness in the dollar will probably bring welcome news to U.S. multinationals like Pepsi and Caterpillar, whose fourth-quarter results were hampered by the currency's muscularity. Still, the dollar's strength didn't seem to be a big issue for Cisco, Boeing or Apple, among others.
All this against a backdrop of Treasury Secretary Jack Lew reportedly telling other finance ministers "no country should use their exchange rate to increase exports" at this week's G20 meeting.
So what does da Costa make of concerns about so-called "currency wars" breaking out? Watch the accompanying video to find out.
Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.
