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Published Friday, January 9th, 2015

Rather like cholesterol it would seem that there is good and bad deflation. If it stems from miserable global growth and lack of demand it is bad. If it comes from improvements in productivity or an excess of supply it is good. Yesterday it was seen as good, but much like medical advice we can be confident of a different and equally convincing view tomorrow.

It was a good day for stock markets. Wall Street turned in gains of close to 2% and European indices rose 3-4%. Benign and calming Federal minutes reassured investors that all was well with the US economy with no interest rate rise around the corner. Today’s non-farm payroll data is expected to come in at 240,000 which, if correct, will be the eleventh consecutive monthly increase above 200,000, which has not happened since 1994.

In Europe the conviction has taken hold that the ECB will abandon sugar free QE and go for the high calorie version on January 22. Whenever QE is launched stock markets are the big gainers so the bets were being placed yesterday. No matter that data on the German economy was far from re-assuring, that the ECB may wait until after the Greek election on January 25, that even if it proceeds it may still be in a stunted format or that there is a weight of opinion that doubts the efficacy of QE in the European context. When interest rates are at rock bottom equities are the obvious place to be.

to read the rest of the report, please click here

Posted by David Hufton