Draghi Reflation Trade + Debt Ceiling Reminder
While overall we felt that the path for monetary policy was little changed after a series of speeches and chats from the world’s central bankers, the market took notice from a likely overly sanguine view that created heavy positioning across various asset classes. ECB President Draghi’s presentation at the ECB forum has been viewed as an indication that the ECB was turning more hawkish and preparing to withdraw market stimulus. This however has been the base case for many that expected the ECB to start reducing its asset purchases in 2018. Yellen’s speech was essentially a rehash of the FOMC presser, although we did note that she does not like negative rates, and still feels the Phillips curve is relevant. We also got hawkish rhetoric from the BOE and BOC which certainly has undertones of a global effort to push yields higher and possibly take the froth off of risk assets. Therefore, while we don’t view the policy path for the Fed or ECB changing much, a coordinated push is a new development that may remain theme for the remainder of the summer.