HomeContributorsFundamental AnalysisHawkish Twist From ECB, Despite Status Quo On Policy Measures

Hawkish Twist From ECB, Despite Status Quo On Policy Measures

Market movers today

The US February jobs report (14:30 CET) will be scrutinised intensively following the recent speculation about the prospect of a Fed hike on Wednesday next week. At the moment, it seems that it would take a significant downside surprise to keep the Fed from hiking. We estimate a non-farm payroll of 190,000, although Wednesday’s strong ADP report suggests that risks to this estimate are on the upside. Furthermore, we expect to see some reversal in average hourly earnings after weakness in wages in financial activities dragged them down in January. We estimate average hourly earnings increased by 0.3% m/m and 2.8% y/y in February and that the unemployment level remained at 4.8%.

In the UK, industrial production and construction output in January are due at 10:30 CET. Also, the NIESR GDP estimate for February (16:00 CET) may attract attention, as it has been a fairly reliable estimator of actual GDP growth.

In Scandi markets, inflation data is due today in Denmark and Norway.

Selected market news

Hawkish twist from ECB, despite status quo on policy measures. In line with our macro economists’ expectations, the ECB kept all policy measures unchanged and stayed the course on forward guidance. Nonetheless, on the latter, President Mario Draghi said that the Governing Council had considered removing ‘lower levels’ from the guidance for the policy rate to ‘remain at present or at lower levels for a considerable period of time’. The staff forecasts on headline inflation were revised higher this and next year, while the ECB lifted its core inflation forecast for 2018 and 2019. Our macro economists see these forecasts as too optimistic, expecting the ECB to lower its core inflation forecasts at a later point in time, and therefore also look for the ECB to extend its QE purchases beyond December. See ECB Review: Hawkish twist but full QE implementation is needed , 9 March 2017.

Stronger EUR and higher German government yields. The market took notice of the slightly hawkish tone from Draghi. EUR/USD strengthened above 1.06 during the meeting, while the 10Y German government bond yield rose 5bp. There were also spill-over effects to Treasuries, which continued to sell off during the US session. The 10Y yield rose some 5bp, rising above the December high and reaching a new three-year peak. US equities were marginally higher, with the S&P500 index closing 0.1% up. This morning, Asian equities are also trading in green territory.

Oil slide continued yesterday. Commodity markets have generally taken a hit this week in preparation for a more hawkish Federal Reserve at the meeting next week. The oil market has been particularly hard hit due to stretched long positioning and possibly some complacency to downside risks following OPEC’s re-emergence and a period of low volatility. That caused the price of Brent to drop temporarily below USD52/barrel yesterday – the lowest since before OPEC decided to cut oil output in November last year.

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