OMT Will Never Be Used: Shugg

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Feb. 7 (Bloomberg) -- James Shugg, Senior Economist at Westpac Banking Corp., previews the U.S. jobs number and discusses ECB tools. He speaks on Bloomberg Television's “The Pulse.” (Source: Bloomberg)

You're right.

January payrolls is the -- the bete noire of economist nightmares.

It is the worst guide to the u.s. labor market that there is but it is the one that the market focuses on the most.

The january one is coming from a starting point that we do not know, because the bls don't r pre-release the revised figures.

The weather effects will be difficult, too.

There may have been a weather affect in december.

I think people exaggerate the extent of the weather because you have to be off the job for the full payroll period.

People were back at work in january and then there was another affect in the january numbers.

It won't show up as a drag on the figure.

You cannot tell from the payroll survey, unlike the the household survey, you cannot tell if people were away from work because of the whether or not.

It is very much an uninterpretable number.

Our forecast is 1.70. if we are right, is pure luck.

What do you think the market will react to?

How much of a deviation from the consensus will be necessary to get some sort of market reaction?

It depends on the revisions.

You mentioned earlier that the december number, 74,000, was just wrong in terms of the way markets are viewing it.

I think the november number was just wrong in that it was so strong.

And december, rather ahthan having a weather number, december was correcting for that solid november number.

It may be that some of that gets sorted out for the seasonal factors.

What are markets going to react to?

I think they will take it with a grain of salt.

There will be a reaction on the basis of faulty analysis because you will not be able to get to the bottom of it.

You'll have to wait until we have had a decent look at the numbers before we come up with any understanding of the underlying dynamic in the labor market.

Change geras.

I want to -- change gears.

I want to get your reaction to the decision by the constitutional court in germany to refer its take on whether or not the bond buying program is passing the buck.

The constitutional court seems to view it as a negative, but nevertheless, the markets are going nah.

It does not matter.

Omt's are never going to be used.

Even though the administration's there would not agree to the conditionality, yields have fallen with omt's in place.

Even portuguese bond yields have fallen below five percent in the last month.

There is investor complicity at play.

Investors know that omt is never going to be used.

It is a sideshow.

The big bazooka that is there to give them a bit of comfort, to demonstrate that draghi is doing whatever it takes and markets are giving them the benefit of the doubt that if some future issue crops up to derail this slow mending of the european sovereign debt crisis, then draghi will fix it, because he is around for another five years.

P you wonder what he will do with the inflation problem.

He has effectively suspended it.

By saying you have to look at the reasons for it.

The program countries of spain and portugal and ireland and greece holding down inflation.

They have to become more competitive by lowering cost structures.

Try to aim monetary policy as addressing that issue would be plain wrong.

If there is a serious risk of broad-based deflation coming through, yes, then it is the ecb's responsibility to act.

If you want to free up markets, then theyv have to act.

They should not try to drive inflation higher in europe i using monetary policy when it is being held down by the necessary adjustments for those program countries.

I made that point several times.

I think -- they'll run the number on the basis that it is a natural part of the reform process.

James shugg, thanks indeed.

Back in two.


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