When Bad News is Good News

Friday’s FT headline – “Stocks boosted by weak data” conveyed the general feeling in the markets that last week was another case of the ‘bad news is good news’, i.e. weak economic data will force central banks to keep monetary policy loose longer than expected. In the case of Europe, the current trajectory of the economy and inflation has almost everyone believing that it is only a matter of time, rightly or wrongly, before the ECB joins the unconventional monetary policy club and embarks on some form of quantitative easing. The fervour over the consumption tax increase in Japan and a potential waning of the ‘Abe effect’ has added to calls for the Bank of Japan to become even more aggressive. Meanwhile, “remarkably weak pay growth” in the UK has Mark Carney and the Bank of England backing away from a potential interest rate increase later this year.

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