ECB monetary policy left unchanged

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.
The ECB left monetary policy unchanged, as expected, with the refinancing rate remaining at 0.00% and the deposit rate at -0.4%. The euro briefly spiked higher after Mario Draghi said that there was no discussion, either on tapering the QE programme or extending it beyond the original deadline of March 2017.

Whilst sterling finished strongly on the euro, it wasn’t reciprocated on the US dollar, as strong US housing data released had the greenback soaring late in the session.

Portugal’s government bond yields at six week interst rates low

This morning, Portugal’s government bond yields are hovering near six week lows, ahead of a key review by Canadian ratings firm DBRS, out after the close of play today. Whilst this is slightly concerning for Portugal, they are expected to get through the test unscathed. If it were to be downgraded, it would fall out of the ECB’s QE programme.

Wise Money news to come

Today is fairly thin in terms of wise money news data, however we do have UK public finance figures out this morning. Whilst expected in lower than last month’s number, a lower figure shouldn’t dampen Sterling’s resurgence on the euro too much. Aside from this, most of the day will be spent interpreting the ECB press conference from yesterday, with many investors keenly watching Sterling/euro advances.

ECB lowers negative interest rates

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.Initially they delivered a comprehensive package of easing which included a cut to the main refinancing rate from 0.05% to 0% and a deposit rate cut to -0.4% from -0.3%. QE was also increased and expanded and they introduced a new year 4 year liquidity package in the form of TLTROs.

At this point the market responded positively and the euro lost ground sharply against the US Dollar and the Pound. However, the rug was pulled by confirmation in the Q&A session from Mario Draghi that he does not expect to see any further rate cuts.

This line in the sand on no further interest rates spun the euro from weakness to strength in a very sharp about turn and led to euro gains on the day amidst huge volatility.

It seems the ECB are trying to focus their attention on the credit space through bank lending to support the recovery and to curb disinflation. The decision is effectively moving away from targeting euro weakness as a way to turn the tide of falling inflation.

The ECB has also now bought time before any additional easing would be considered. In summary they have sent the message out that they are done for now. This conclusion has been taken as a disappointment by the market which had expected the easing bias to continue with forward guidance and some are questioning if this is the ECB’s last stand and they are now out of bullets.

German inflation numbers come in weaker than expected

Today will be largely spent assessing yesterdays’ ECB decision and fallout. Elsewhere in the EU, this morning we have had German inflation numbers which have come in weaker than expected at -0.5%. Later on it’s the turn of UK trade balance which is expected to be slightly up from last month’s figure.

Aside from this there is little data out, however over the weekend we have some key Chinese data to look forward to.

Global stock markets slide on Greece debt crisis

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controls.

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controlsThe moves by the Greek authorities came after the European Central Bank decided not to extend any extra emergency funding.

London’s FTSE 100 index was down 1.47% and Germany’s Dax index fell more than 2%. In the US, the Dow Jones fell nearly 1% early in the session.

Bank stocks are among the hardest hit, with shares of Deutsche Bank and Commerzbank both losing more than 4%.

The Athens Stock Exchange and Greek banks will be closed all week.

On the money markets, the euro lost ground against other major global currencies.

The London FTSE 100 share index was down 98.47 points at 6,655.23 with other European markets seeing even bigger falls. Earlier in Asia, Japan’s Nikkei index fell nearly 3%.

On the currency markets, the euro saw volatile trading in Asia, falling by 2% at one point. However, it has since recovered some ground, with the euro down 0.15% against the dollar at $1.1149.

The euro has weakened against the pound, with one euro now worth £0.7089, while the pound buys €1.4108.

Oil prices are heading lower. Brent crude oil futures fell more than 1.5% to $62.10 a barrel.

Bond yields (an indication of borrowing costs) for Italy, Spain and Portugal – which are considered some of the weaker eurozone economies – rose sharply.

In contrast, German bond yields fell. German bonds are seen as safer investments in times of crisis.

Greece was due to make a €1.6bn payment to the IMF on Tuesday – the same day that its current bailout expires.

Last week, talks between Greece and the eurozone countries over bailout terms ended without an agreement, and Prime Minister Alexis Tsipras then called for a referendum on the issue to be held on 5 July.

At the weekend, the Greek government confirmed that banks would be closed all week, and imposed capital controls, limiting bank withdrawals to €60 (£42) a day.

There is zero chance of the European Central Bank turning Emergency Liquidity Assistance back on – life-saving lending to banks – unless Greeks give an affirmative vote to a bailout proposal from the rest of the eurozone and the IMF, which Juncker sees as a proxy for Greece’s monetary future.

As for Athens, most of the Syriza government detests the bailout offer – for the way it pushes up VAT and cuts pensions.

So we will have the bizarre spectacle of a Prime Minister, Alexis Tsipras, arguing both against the bailout and for remaining inside the eurozone – so goodness only knows how he will vote.

And Greek people will be torn between fear and loathing of bailout proposals that will damage the living standards of many of them, and fear and loathing of abandoning the euro and seeing their banks closed.

Wise money markets look to central banks for future direction

After the positive US Confidence figures to start last week US Dollar suffered as the week came to a close, so did the Dollar rally and strength that was sustained for the past 3 weeks.
Wise money markets look to central banks for future direction
With mixed messages coming from America, the USD suffered as investors continue to look for further hints at reductions in the Fed’s current cycle of monetary stimulus, as stock markets start to suffer.

This morning, April Chinese Manufacturing PMI was revised downwards, in further signs that momentum in the Republic is continuing to falter as domestic demand is flagging.

Also, this morning weaker then consensus retails sales data from Australia is continuing to weigh on the currency ahead of tomorrow’s interest rate decision.

In the UK there is a quiet week data wise to follow with Manufacturing PMI this morning expected to show slight growth at 50.2 and Services PMI on Wednesday showing growth at 53.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take the reins in July.

This is unlikely to be much of an event this month with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

Over the channel after the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Manufacturing PMI data today and Services on Wednesday are expected to come in line with releases late last month to show a brighter picture in the Eurozone but that the area is still struggling to find growth in the sectors.

ECB cuts interest rates

The big news yesterday was Super Mario-  ECB chief, dropping interest rates by 25 basis points at the ECB monthly meeting.ECB cuts interest ratesThe move was widely expected in the market which is why there was not a huge reaction in the aftermath, with GBP/EUR nudging up 60 pips or so. The larger move was EUR/USD which after trading over 1.32 came back to just over 1.30.

I think the market was hoping for more details on how the ECB will help to extend to credit to SME’s across the euro zone, but as usual Mario talked a great deal with zero content, I guess we will find out more about the plans in planned speeches and press leaks during this month.

In terms of the euro moving forward, the rate cut should allow GBP to push towards the 1.20 level over the next couple of months. This should be accelerated by today’s non-farm payrolls which are expected to be softer than originally forecast.

The Dollar has in recent months begun to trade like a normal currency, away from the Risk-on/risk-off paradigm that dominated US Dollar trading over the past few years. That is why a disappointing NFP number should see the Dollar weaken slightly, however don’t be surprised to see GBPUSD ramp up as we move towards the number.

Eurozone PPI is also due this morning at 9am – recent individual country PPI’s have been dire so expect the theme to continue with currency area wide number as well.

Bank Of England and ECB hold fire as the BOJ starts printing presses

There were no changes in policies from either the Bank of England or the ECB at their most recent rate meeting yesterday.Bank Of England and ECB hold fire as the BOJ starts printing pressesThe Bank of England was widely expected to expand the asset purchase scheme in the face on a continued bleak outlook for the UK economy and another tough budget from the UK government.

Sterling certainly traded as though further QE was expected in the build up to the announcement, rising sharply against the Dollar and Euro after the decision of no change was announced.

Mario Draghi did his usual verbal gymnastics, saying a lot without really saying anything meaningful, pushing the euro around significantly when speaking but leaving it relatively unchanged on the day.

The main event yesterday was in Japan where BOJ head Haruhiko Kuroda announced unprecedented monetary policy stimulus sending the Yen and Japanese government bond yield sharply lower, a trend that has been repeated in Asian trading this morning.

We will have to wait and see whether the new stimulus plan is successful is raising domestic inflation towards the 2% target.

Wise money awaits banks’ central banks interest rates decisions

Hopes that the U.K. will avoid a triple-dip recession were dealt another blow yesterday as UK Construction figures released showed that the sector contracted again in March, although there is ultimately a brighter picture with confidence levels increasing.Wise money awaits banks' central banks interest rates decisionsToday, we have the all important Services PMI figure expected to come in at 51.5 for another month of growth for the sector but also the BoE interest rate decision that is expected to remain on hold although the QE decision will be more widely watched as the U.K. economy mulls on the question.

Is it time to restart the printing presses? With Sir Mervyn King keen to ease monetary policy further it will be interesting to see if he can convince the other MPC members that now is the time .

In the USA Initial Jobless claims today should paint a continually bright picture for US employment with the figure expected to show a marginal fall against last month.

However, the markets will be waiting for tomorrow’s Non-Farm Payroll figure for further economic direction although the outlook was slashed yesterday after the initial ADP Nonfarm number came in grossly under estimate at 158k versus 200k expected.

The ISM Non-Manufacturing figure yesterday also disappointed coming in at 54.4 vs 55.8 expected.

 The stability in the eurozone was hit again yesterday with inflation continuing to fall in the currency bloc to a 31 month low of 1.7%.

The ECB interest rate decision this afternoon is expected to remain on hold although with inflation continuing to fall many economist believe there could be calls for a further rate cut in the near future.

Markets will be watching Magic Mario Draghi’s press conference in the afternoon for further details regarding the Cyprus bailout and how the ECB will react to any future bailouts.

In other news this morning, the BoJ kept rates on hold at 0.1% and has successfully weakened its currency again as it said it will qualitatively and quantitatively ease.

This has put a spur into the market with GBP/EUR coming under early pressure heading towards 1.17, EUR/USD clinging above 1.28 for the second day and GBP/USD has continued its decline as it struggles to stay above 1.50.

EU bails out Cyprus

The European Union has finally provided a 10 billion euro rescue package to the Cyprus government with the majority of the bailout going to two of the largest Cypriot banks.EU bails out CyprusHowever the EU has requested that Cyprus mobilise internal resources meaning that a one off levy will placed on residents and non-residents depositors, as without this the bailout, it would leave an unsustainable level of GDP-debt ratio which could soar to 145%.

This has caused the euro to weaken this morning against a basket of currencies primarily US Dolar and the GB Pound however the rally has already started show signs of retracement.

The EU has also shown that it may be willing to adopt expansionary fiscal policy to help boost growth, this was pushed forward by France, Spain and Portugal while Germany,

Austria and Finland had called for further austerity. The compromise was short-term targeted measures to help boost growth and tackle the high unemployment.

The UK chancellor is due to release the UK budget on Wednesday with little change expected despite the recent weak economic data, the markets will be looking as to whether the chancellor mentions a change in the Bank of England’s mandate such a move should cause sterling to weaken further.

The monetary policy committee minutes are due out on Wednesday which will be looked at closely to ascertain the current bias towards an increase in QE.

In the US, strong data has continued with retail sales increasing despite the tax hikes that have taken 1.5% out of households disposable income alongside an improving job market seen from the strong US jobs report released earlier in the month.

The FOMC meeting is on Wednesday where it is expected that Bernanke will reiterate that the economy is still on the road to recovery and that the labour market is still not at the required level to suggest an exit from QE, further enforcing this by stating that the risks of continuing the current QE program outweigh the potential costs.

No changes to policies and wise money market looks to further falls in the Pound

Both central bank meetings yesterday produced no changes in policy.No changes to policies and wise money market looks to further falls in the PoundThe market traded as though the Bank of England would expand the Quantitative Easing program yesterday morning, with cable losing fifty points is the build up to the announcement.

But with rates and the asset purchase scheme on hold for month Sterling staged a minor recovery climbing back above the key 1.50 level.

How long that level holds in the face of a changing mandate from the Bank of England is the key question.

Sterling has been trading in a wide range, but a range non-the-less, for the past 4 years.

The changes afoot at the BOE will determine if we finally break out of that range.

The ECB stated for the first time that it will keep policy loose for as long as needed, mirroring moves by the Federal Reserve last year and marking a subtle change in wording from previous meetings.

Given what the Fed did next – implicit economic targets tied to policy – Mr Draghi was asked about unemployment for hints on future plans, which was met with the customary stone wall.

Later today the US non-farm payrolls are due, with expectations of 160K new jobs added last month.

The market still looks likely to want to sell Sterling in the face of an upside surprise so yesterday’s mini rally for the Pound may be short lived.

Central Bank Thursday

Today we have central bank meetings for the UK and the Eurozone which will keep the wise money market on its toes.Central Bank ThursdayThe consensus is for no change but with the recent heightened activity of central banks the market is not going to take this for granted.

The Bank Of England are expected to keep interest rates on hold and remain firm on QE for now even after the February minutes saw three members voting for additional QE.

The European Central Bank again are expected to keep rates on hold but in the subsequent press conference the market will be looking for clues from Mario Draghi on policy moving forward.

It is widely touted that he will soften his tone on a rate cut in the months ahead especially if the inflation outlook is revised down slightly.

The politics of economic strategy is becoming ever more pressing in the UK it looks like David Cameron will today confirm in a speech that he is sticking to his plan for the economy.

Business secretary Vince Cable piled the pressure on Cameron yesterday by suggesting an opposite strategy of borrowing more whilst we have cheaper borrowing costs and spending.

Mervyn King has also suggested that the government should fully nationalise RBS and use part of it to lend in an environment where the banks are still not lending adequately.

Later today we have the US Federal reserve’s results of its supervisory stress test of the six largest US banks which will be of note.

Data in the US has been pretty encouraging recently and we have the big one- the non-farm payroll data on Friday which is not expected to disappoint.

In other news, the Bank Of Japan have left policy measures unchanged in outgoing governor Shirakawa’s final meeting.

This was as expected and it is the expectation of incoming Kuroda that will be much more focused upon in April.