Euro Rises on ECB Announcements
March 10, 2016
The ECB Governing Council announced a more aggressive package of stimulants than analysts were expecting.
- All ECB central bank interest rates including the main refinancing rate were lowered.
- The size of monthly quantitative asset purchases was increased 33% to EUR 80 billion and will run at least through end-2017.
- The types of eligible assets in the program is being broadened to include investment-grade non-financial corporate bonds.
- Effective June, a new TLTRO initiative with maturity of up to 4 years at a rate as low as the deposit rate will be launched.
- Stronger forward guidance on interest rates was unveiled: rates will be at present or lower levels for an extended period and well past the horizon of quantitative stimulus.
- Newly released macroeconomic forecasts by the ECB staff project GDP growth of 1.4% this year (down from earlier forecasts made in December of 1.5% and released last September of 1.7%). Growth in 2017 and 2018 is expected to be 1.7% and 1.8%. Significant downside global risks are associated with these projections. Regarding inflation, a forecast of 0.1% was retained for 2016, followed by projections of 1.3% in 2017 and 1.6% in 2018, which still lies below the target of close to, but below, 2.0%.
Other key developments overnight:
- New Zealand’s Official Cash Rate was lowered unexpectedly by 25 basis points to a record low of 2.25%.
- Chinese consumer prices jumped 1.6% on month in February, most in eight years, lifting the 12-month rate of increase to a 20-month high of 2.3%.
- The Bank of Korea left its seven-day repo rate at 1.50%, the level since a cut last June.
- German trade and current account surpluses declined in January, dampened by weak emerging market demand.
- French industrial production jumped 1.3% on month in January, a five-month high and resulting in a 1.9% advance from a year earlier.
- U.S. jobless insurance claims declined 18K last week to a 5-month low of 259K and recorded an average of 267.5K over the last four weeks, down from 281.25K in the prior four weeks to February 6.
- Capacity utilization in Canada fell 0.5 percentage points to 81.1% last quarter. Such averaged 81.3% in 2015, down from 82.3% in 2014 but up from 80.8% in 2013.
Market movements today:
- The dollar has declined by 1.3% against the euro, 1.1% versus the Swiss franc, and 0.5% relative to sterling.
- The dollar is up 0.5% against the Australian dollar and 0.2% relative to the loonie but has faded 0.2% vis-a-vis the kiwi. Monetary policy eased in New Zealand.
- The Chinese yuan is unchanged against the dollar.
- Share prices in the Pacific Rim dropped 2.0% in China, 0.7% in India, 0.4% in Indonesia and 0.3% in Hong Kong but rose 1.3% in Japan and 0.8% in South Korea.
- European share prices were lifted by the ECB actions to the tune of 3.0% in Spain, 3.1% in Greece, 2.7% in Italy, 1.1% in France, and 0.8% in Germany. The British Ftse edged 0.1% lower, and Swiss stocks firmed just 0.4%.
- 10-year sovereign debt yields are three basis points higher in the United States and U.K. but flat in Japan and off a basis point in Germany.
- West Texas Intermediate crude oil fell back 1.2% to $37.85 per barrel.
- Comex gold climbed 1.0% to $1,265.89 per ounce.
Other items of interest include:
- Japanese corporate goods prices, which fell 0.2% in February, stretching the 12-month rate of decline to 3.4%. Import prices recorded an on-year plunge of 15.1% on top of an 18.1% dive in the year to January 2015.
- The British Royal Institute of Chartered Surveyors monthly housing index improved to 50% in February from 48% in January and 49% in 4Q15.
- Stock and bond transactions last week in Japan generated a much larger net JPY 1.84 trillion capital outflow than that of 87 billion yen in the previous week.
- Consumer prices in the year to February rose 0.6% in The Netherlands, 0.3% in Denmark, 3.1% in Norway and 0.4% in Portugal. Greek consumer prices were down 0.5% on year.
- Irish real GDP rose 7.8% last year, tops in the European Union. Icelandic GDP climbed 3.2% between the final quarters o 2014 and 2015.
- Germany’s seasonally adjusted trade surplus narrowed to EUR 18.6 billion in January from a monthly mean of 20.1 billion euros in the fourth quarter of 2015. Exports unexpectedly fell 0.5% on month and 1.4% on year.
- Chinese producer prices recorded the smallest on-year drop, 4.9% in February, since last June.
- Turkey’s current account deficit of $2.227 billion in January was 8.7% smaller than a year earlier. Denmark recorded a DKK 11.6 billion current account surplus in January, DKK 0.5 billion less than in December.
- Factory output in South Africa fell 1.8% in January. A 2.5% on-year decline was the most in a year and a half.
- Brazilian retail sales plunged 10.3% between January 2015 and January 2016. Spanish retail sales advanced 3.1% in the same interval.
Copyright 2016, Larry Greenberg. Al rights reserved. No secondary distribution without express permission.
Tags: Bank of Korea, Chinese CPI and PPI, ECB, German current account, Japanese corporate goods prices, Reserve Bank of New Zealand