Friday, 23 February, 2018

European Economics Preview: ECB Rate Decision Due

Reuters Reuters
Preston Stone | 20 July, 2017, 11:25

The recent economic acceleration in the Eurozone has rendered the unconventional central bank policies increasingly toxic, but any substantial policy adjustments are hardly possible as the Eurozone is lacking monetary-fiscal policy coordination, as well as proper policy transmission to the real economy.

As ECB officials meet this week to discuss stimulus measures, cues from the central bank no longer remain the dominant supporting factor for the region's equity markets.

The Fed chief referred to "uncertainty", he said, a word that "makes markets nervous", and prompted them to pare their expectations of another interest rate hike this year, he said.

Volvo Group sank 3.44 percent even as the truck maker reported significant growth in its second-quarter profit with higher sales amid strong demand in Europe and South America.

The bank is expected to keep its refi rate at zero percent and the deposit rate at -0.4 percent. That's the program it will gradually taper back. Although the eurozone is in the midst of a broad economic upswing, trouble spots remain, notably Italy.

"The ECB's biggest challenge is that the outlook for inflation remains very unclear".

That implies a bearish response from bond markets, they said.

The ECB is scrutinising the possibilities of stimulus removal for several reasons.

The Fed now purchases securities to replace those that are maturing on its $4.5 trillion balance sheet. Such a situation undermines the market economy competitiveness, hampering labour productivity and the efficiency of the productive forces. Leveraged trading is high risk and not suitable for all.

Subsequently, the European Central Bank has to consider a soon normalisation in its monetary policies.

USA report: Global terror attacks decline for second year in a row
The report also concluded al-Qaida continued to benefit from a willingness by the Iranian government to look the other way. Iran has been designated as a state sponsor of terrorism by the US since 1984.

Expectations that the US Federal Reserve will be more cautious about raising interest rates also weighed on the dollar.

Today the Pound remains somewhat bearish against the "Kiwi", as traders await tomorrow's European Central Bank sentiment.

"We have made progress, but we have not yet reached the target and so there is still a need for our accommodative monetary policy", Villeroy told.

There is a 15% chance that Draghi confirms that discussion of tapering the asset purchase programme in 2018.

Germany's 10-year bond yield dipped 2 bps to 0.51 percent - down from 18-month highs hit a week ago at 0.58 percent but roughly double the levels it traded at just before Draghi's speech.

With the second round of Brexit negotiations starting in Brussels yesterday, it was United Kingdom inflation that hit Sterling's value.

Along with historic low interest rates and cheap loans to banks, the ECB's monthly purchases of 60 billion euros of government and corporate bonds are created to pump cash into the economy, powering growth and pushing up prices. If the European Central Bank continues at its current pace, it would hit that upper limit with regard to buying German bonds in the summer of 2018.

"Eurozone growth is looking more regionally broad-based and disinflationary pressures have abated".

Asian equities rose to the highest level in nearly 10 years as the euro weakened and USA dollar remained near its one-year low on hopes the European Central Bank and Bank of Japan will keep policies supportive amid concerns over the pace of reforms in the U.S.

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