For the Eurozone, monetary policy has to work

China is the latest to kick off more easing with another cut in the reserve ratio. Japan just released PMI numbers that missed estimates and tomorrow will see PMI and unemployment come out of Europe. This lackluster performance could cause the central banks to have to add more stimulus, with the Eurozone’s as early as this month. With rates in the Eurozone and Japan in negative territory how much more the central banks can do will certainly become a concern. The market will have to shift its attention to the possibilities of fiscal stimulus from these regions for further growth.

Some governments are able to step in, like China, Japan, and the US. The Eurozone is a bit more complicated in the sense that there is no fiscal policy at the level that monetary policy is trying to help out the region. This is going to put most of the strain on the central bank which will try to prop up the economy on its own. This will be the place that monetary policy will be tested in its purist form, with little outside help available. Add to this the prospects of tighter border controls in response to the refugee crisis and you will see growth continue to disappoint and the ECB try and remain accommodative.