HomeContributorsFundamental AnalysisECB Acknowledged That On The Capital Key Purchases Distribution

ECB Acknowledged That On The Capital Key Purchases Distribution

Market movers today

Today, we have a relatively light data calendar.

In the UK, retail sales data for January are due to be released.

In Sweden, inflation data is due out, but a variety of factors make the January print notoriously difficult to predict, see next page.

Selected market news

Asian shares paused their rally this morning after a mixed session on Wall Street, as investors took profit due to lingering concerns that protectionist threats under Trump could reverse the recovery, despite upbeat global data on Thursday. Weekly jobless claims in the US remained low and pointed to a continuing strong labour market and the US Philly Fed Index showed manufacturing activity in the Mid-Atlantic region surging to a 33-year high. Oil prices were supported by optimism over reports that OPEC may consider extending its oil supply reduction deal with non-members.

The ECB minutes from the meeting in mid-January showed that the ECB acknowledged that on the capital key purchases distribution, ‘limited and temporary deviations were possible and inevitable’. The immediate market reaction was tighter French and Italian spreads versus Germany, reflecting speculation that the ECB would follow an outstanding debt key distribution, which would benefit France and Italy strongly but result in fewer purchases of German bonds. We think it is highly unlikely that the ECB would follow an outstanding debt key distribution, as it would thereby support countries that do not have sound fiscal policies and the ECB still communicates that significant weight was placed on limiting deviations from the capital key (see Flash Comment: ECB is not about to introduce new QE buying distribution, 16 February).

News that the probe into the fake work scandal surrounding conservative French presidential candidate Francois Fillon will not be dropped by prosecutors weighed further on investors’ minds, as concern about Marine Le Pen winning the French presidential election and a possible ‘Frexit’ is growing. As we pointed out in Research France: France at the crossroads after presidential elections, 4 January 2017, the political hurdles for holding a referendum on an EU/euro exit would be quite high for Le Pen, even if she is able to secure the presidency, as it would require strong parliamentary backing. Since the corruption scandal broke out, opinion polls have consistently shown the run-off in May taking place between Emmanuel Macron and Le Pen, with the former winning the second round with 62.5% of the votes. A run-off against Macron would weaken Le Pen’s chances, as centrist Macron appeals more to voters both on the political right and left than Fillon with his hard-line liberal reform programme. Although Fillon remains determined to continue his election campaign, internal discussion within the Republican Party is growing on whether he should step down.

As expected, the annual speech of Norges Bank governor Øystein Olsen did not contain any signals on monetary policy. However, the Norwegian government announced yesterday that the fiscal policy rule for the use of oil money will be lowered from 4% to 3% and the portfolio of the oil fund changed to holding 70% shares (up from 60%). This could potentially also pave the way for a change in the inflation target from 2.5% to 2.0% later in the spring.

Danske Bank
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