Years of dithering has given Draghi a QE dilemma

Five Euro Note

If the Swiss National Bank can’t stand the heat about to emerge from the European Central Bank’s monetary kitchen, Mario Draghi must be cooking something explosive, right?

That, at least, is what many in the market assume – that Draghi has persuaded the doubters and the ECB will serve full-blown quantitative easing on a colossal scale next week.

It may not be so simple. Expectations are so high that the rumoured €500bn (£390bn) programme of buying sovereign bonds might be viewed as a disappointment. The ECB is late to the QE party and deflation has arrived already in the eurozone.

How about €1tn? That would be more impressive. But investors might conclude that a cap of any size betrays German hesitation and objections. Draghi, remember, is the man who, in another context, coined the phrase “whatever it takes”.

There is also the outside possibility, of course, that the ECB does nothing next week and opts to reconsider QE at its March meeting. That would astound markets. Investors might conclude that an ECB that can’t summon the unity to launch QE in the current economic climate is incapable of saving the euro.

Draghi is in a horrible position. Expectations are so high they will be hard to meet. That’s the price of two years of dithering.

BT v Ofcom

Has Ofcom just shot BT’s football fox? Well, the wound is definitely not mortal but it will cause some pain, to judge by BT’s angry reaction. “Misconceived” is a word the telecoms company reserves for occasions when it is seriously miffed. An appeal is almost certain.

At one level, the row is merely technical. Should the cost of providing “free” football and other sports to BT’s superfast broadband customers be included when calculating the company’s overall cost-base for fibre?

Ofcom says yes and its answer matters because the regulator wants to introduce a “margin squeeze” test on BT to ensure that competitors can make a profit when they buy access to the group’s fibre network. BT must maintain a decent gap between its wholesale prices for fibre and the prices it charges its own retail broadband customers.

The margin test was expected, and wouldn’t itself cause BT to splutter. But the inclusion of sports costs in the calculations will make the test harder to pass. Failure would mean BT would have to raise its retail prices or cut its wholesale prices, thereby giving rivals a leg-up.

The good news for BT is that it has passed the test this time. But that’s as things stand today. Champions League footie is coming to BT Sport and the next round of bidding for Premier League action has almost arrived. The latter could affect the squeeze test if BT bids high on Premier League rights and wins. Ofcom intends to apply the same regulatory logic to any mobile offers that are bundled into superfast broadband deals. That, perhaps, is even more significant as BT is in the process of buying EE for £12.5bn.

The way BT tells it, it is the pay-TV challenger trying to give Sky a run for its money for the first time in 25 years. Well, yes, that’s true, and the ambition is laudable. But it is surely also reasonable to ensure that non-football fans don’t contribute via the back door to the great corporate BT/Sky sports showdown. If that is the effect of Ofcom’s “safeguard,” it is a sensible move by the regulator.

Retail rethink?

Another day, another retailer grumbling about Black Friday. This time it’s Home Retail Group, owner of Argos, where chief executive John Walden says “the draw of discounts affected trade both before and after that busy weekend as consumers satisfied their Christmas shopping lists with bargains”. What did he expect?

Walden, of course, is not that naive. Argos joined the Black Friday malarkey but tried not to get sucked in too deeply. Thus Argos’s like-for-like sales were weak – the rise was just 0.1% in the final three months of 2014 – but the group protected its profit margins.

In theory, that ought to have reassured investors; in practice, the shares fell 6%. But one can understand why. Non-food retailers have got themselves into a fine old mess by importing the Black Friday nonsense from the US.

Most promise to slow things down next time. But that’s what they say now, when the chaos in the supply chain feels fresh. Next November, one suspects, they won’t be able to help themselves.

Somebody should break ranks and run Black Friday in August, when the wheeze might be a useful way of drumming up demand in a quiet month. Nobody on this side of the Atlantic cares one jot about the loose association with US Thanksgiving.

Powered by article was written by Nils Pratley, for The Guardian on Thursday 15th January 2015 21.26 Europe/London © Guardian News and Media Limited 2010


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