It’s difficult to get past the obvious at the moment. Markets have made their bet on further monetary easing, and they’re now waiting for central banks to deliver. Policymakers have been showering markets with promises to “act if needed,” and assurances from those stuck at the zero bound that the toolbox is far from empty. But they haven’t done anything yet, though this is a position that will be closely examined this week. Mr. Draghi will be at the spotlight first today when he delivers his introductory statement at the ECB forum in Sintra. The nebulous 5y/5y forward inflation gauge has crashed to new lows recently, and it seems to me that the consensus now expects a signal from Mr. Draghi that the ECB will cut its deposit rate, or re-start QE, as soon as September, which incidentally will be Mr. Draghi’s last meeting as ECB president. Meanwhile at the Fed, the only question seems to be whether The FOMC cuts by 25 or 50 basis points in the next few months, setting the stage for an interesting June meeting this week. To the extent that markets have priced-in monetary easing in response to the deteriorating trade negotiations between the U.S. and China, it would make the most sense to assume that the much anticipated Osaka sit-down between Mr. Trump and Xi—at the end of June—to be a catalyst for something in markets.
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