Market movers today
The main event this week is set to be the UK’s triggering of Article 50 on Wednesday. The first part of the negotiations will be centred on the ‘divorce bill’ for the UK. The EU has made it clear that substantial progress on this issue will have been delivered before starting negotiations on a new trade deal.
On the date front today, in the euro area we are due to get the February figures for loan growth and M3 money supply growth. Loan growth increased for three consecutive months, from 1.8% yearly growth in October 2016 to 2.2% in January 2017. We estimate it increased further to 2.4% in February.
German Ifo expectations are also due to be released Today. Ifo expectations saw a fall in January to 103.2 from 105.5 in December 2016, but increased to 104.0 again in February. We believe it will have increased a bit further to 104.3 in March. Other survey indicators still indicate optimism in the business economy but German consumer confidence has started to trend lower and in coming months, we expect the same correction in the strong business sentiment seen recently.
German retail sales for February are also due for release. In January, we saw a monthly decline of 1.0% but we estimate a bounce back in February to 0.6%, as consumer confidence remains at a high level and low unemployment supports consumption. Note also that German unemployment figures are scheduled for release on Friday.
We also have two speeches from ECB executive board members. Peter Praet is set to speak on Monday, with Benoit Coeuré due to speak on Friday. The speeches are of special interest to market participants, as speculation about whether the ECB could hike rates before the termination of the QE programme has started to be priced in.
Selected market news
The dollar and US equity futures are this morning building on Friday’s declines and gold is climbing further with bonds. This move comes after the failure of the US Congress on Friday night to pass the bill to replace Obamacare. As a result, the market is increasingly questioning whether the Trump administration will be able to pass any significant tax reforms and infrastructure bill, which is far more important for the economy than Obamacare. In our view, changes to US economic policy are likely to come later and be smaller than previously expected due to the chaos within the Republican Party. Asian equity markets are falling in line with US markets this morning. Emerging market currencies are on the other hand gaining against the USD, as a delay to expansionary fiscal policy in the US reduces the risk of more frequent Fed hikes than currently priced in by the markets.
In Europe, the EU leaders (excluding the UK government) showed unity in Rome, where they met to celebrate the 60th anniversary for the Rome Treaty this weekend. Prior to the meeting, there had been some fear that certain member states, such as Poland and Greece, would hijack the meeting to show their frustration against current EU policies, but this did not happen. At the meeting, German chancellor Angela Merkel said that the EU could move forward at different speeds.
