Germany Resists Quantitative Easing as Russia Advances

Recent speculation that the ECB will begin an asset-purchasing program has come into doubt after German Finance Minister publicly said monetary policy has “come to the end of its instruments”.

Recent speculation that the ECB will begin an asset-purchasing program has come into doubt after German Finance Minister publicly said monetary policy has “come to the end of its instruments”.

Speaking in an interview with Bloomberg Television, German Finance Minister Wolfgang Schaeuble on Friday that weak growth in the euro zone, while disappointing, was not enough to suggest that the European Central Bank should begin an asset purchasing program. “I don’t think ECB monetary policy has the instruments to fight deflation, to be quite frank,” said Schaeuble. The Finance Minister’s comments came as new data showed annual inflation decelerated to 0.3% in the Eurozone in August.

Instead of policies that would increase monetary supply and money velocity, Schaeuble said that the European Union needs more investment and consumer confidence, although he did not state how either goal would be achieved. “What we urgently need is investments, regaining confidence by investors, by markets, by consumers,” he said.

Weak Manufacturing

European nations saw weaker production, as factory growth in the UK fell more than expected and Italian manufacturing shrank in August. According to Markit Economics, a research firm, the Eurozone saw a larger-than-expected fall, with Italian production turning negative. In total, the Eurozone Purchasing Managers’ Index fell to 50.7 from 51.8 in July, according to Markit Germany’s index fell to 51.4 from 52.4 in the previous month, and Italy’s went negative by falling to 49.8. Any number above 50 indicates expansion.

Falling European Bond Yields

European bond yields fell in Monday morning trading, with the Italian 10-year bond falling to 2.41% and Portugal’s 10-year bond falling to 3.18%. While some analysts have been quoted as saying their still expect a quantitative easing program to come out of the ECB, a growing number are saying that it is unlikely that such a program will begin this week. The ECB will meet in Frankfurt on September 4th.

European Stocks, Ukraine

Despite the disappointing figures, European stocks saw minor losses in Monday morning trading, with the CAC 40 seeing the biggest drop of 0.29%. The DAX was down 0.11% in Monday morning trading, while the FTSE 100 and IBEX 35 remained flat.

The relatively stable equity performance offset higher bond prices as traders bet on continued stagnant price growth, but equally greater systemic fears of Ukrainian instability threatening regional growth also influenced the markets. Over the weekend tensions over the Crimean region intensified as Ukrainian ships were attacked and the EU began plans for more sanctions against Putin’s government.

Meanwhile, Russian president Vladimir Putin said that he believes southeastern Ukraine should be granted “statehood” in a television interview. “We must immediately begin serious talks on technical issues and the political organization of society and the status of southeast Ukraine’s statehood to better serve the interests of the people there,” he said.

Putin will meet with Ukrainian delegates and representatives for the rebels in Minsk today.

At the same time, Ukrainian officials have announced that four Russian battalions of 1,600 soldiers are active in southeast Ukraine, and are providing logistic support and training for rebels in the region. Ukraine has also killed 100 pro-Russian rebels in the last day, according to Leonid Matyukhin, spokesman for the Defense Ministry.

The Russian ruble has fallen to a record low against the U.S. dollar, at 37.428 rubles to the dollar.