Thursday, March 10: Five things the markets speak of
Investors are preparing themselves for the mammoth of the European Central Bank (ECB) today's decision. Within hours, the market will get to see if President Draghi new "overpromises and sub-book" as in ad rates in December or will he and his fellow policymakers NIRP up the ante?
Investors expect Draghi to deliver a monetary easing package that is worthy to drive inflation to its target of less than but close to 2% (inflation of the current euro area sits + 0 , 7%). Naturally, the stakes are high at the meeting of today's policy as most only a small minority of the ECB Governing who consider the policy tools that remain problematic. The ECB should push back against suggestions that negative rates are harmful and inefficient QE
The hard conversation is already promised. it is the action that financial markets want to see.
1. No easy options for the ECB
Draghi will most likely offer significant stimulus today, although it will not be without complications.
Currently, the EUR (€ 1.0970) striking distance looms this week despite weak traders / investors are unwilling to take large positions in view of the uncertainty surrounding the extent of monetary easing to be announced.
The ECB is widely expected to extend or expand its asset purchase program and reduce the interest rate it pays on commercial bank deposits still in negative territory. The are two immediate problems that Euro policy makers face, first of all, there is a limit on the availability of bonds in the market and, secondly, the ECB can not cut rates much further without unintended financial consequences stocks suffer.
most expected -10 bps rate cut to 0.4%, introducing a two-tier system of deposit rates, and an increase in monthly purchases of QE + € 20b Mars May.
This time it's not what Draghi says, but what it does that will have a significant impact on the EUR. Lower much deeper levels and the "single currency" should come under immediate pressure. Disappoint, and EUR bulls will feel a little more comfortable.
2. Reserve Bank of New Zealand (RBNZ) surprised market
Kiwi makers have made many surprise cuts, cuts that have seen the NZD ($ 0.6647 N) fall to the session overnight.
The RBNZ cut its cash rate to + 2.25% compared to expectations of the majority of maintaining the rate to + 2.50%. The bank also lowered its forecast for 2016 end CPI at + 1.1% (+ 1.6% prior), to + 0.7% GDP (+ 0.8% prior) billing rate and 0 days + 2.2% (+ 2.6% prior).
In their statement, the RBNZ cited a reason litany - the deterioration in global growth, weakness in China, slowdown in Europe, and expectations of the longer period needed to reach the target of inflation in New Zealand in the background at higher trade-weighted exchange rate since the last decision.
Governor Wheeler noted that the prospects potentially implies a rate cut this year, but he also argued that economic data could still change these projections.
surprise cut adds to the hope that global stimulus measures will continue to support markets.
3. China inflation spikes on rising food costs
The data this morning showed that the rate of inflation in China's consumption resumed in February, raising the possibility that authorities may reign in liquidity to prevent the deepening of inflation.
The index of the CPI rose 2.3%, reaching its highest level since July 2014, faster than the 1.8% increase in January. Most of the gains were due to a pre-holiday spike in food costs. Food components rose + 7.3% to + 4.1% goes to the lunar New Year, while non-food CPI actually slowed to + 1.0% against + 1.2% prior.
There was also increasingly rhetoric devoted to China's ownership of a "subprime" -like crisis in the real estate market of China. . There has been talk that regulators should encourage periphery activity (small) cities than in major cities where prices have already heated up
The PBoC set the yuan midpoint ¥ 6 , 5129 vs. ¥ 6.5106 before; the second lower right parameter.
4. Fever Commodity
Gold and silver started off this month with a bang. Precious metals have found some momentum despite the 'big' dollar do very little against the euro (€ 1.0956) and JPY (¥ 113.43). Even employment report February US has not been able to contain metal prices
For the first time in a while, investors are showing a keen appetite for gold ( $ 1247) -. He moved over + $ 100 more since the beginning of the year and is now spreading Benin a case of gold fever among investors. The 'bulls' believe that gold still has legs, highlighting the fact that there are buyers willing appearing on dips, despite the financial markets have stabilized somewhat.
5. knock-on-effect CB
Investors continue to question the effectiveness of stimulus measures the central bank to stimulate growth and inflation. Decision makers can create a favorable environment for growth, but they can not actually create.
Over the past six weeks, the market has been G7 Central Bank decision to free monetary policy. Being somewhat rudderless led to highly volatile times across different asset classes.
During the next fortnight all the major central banks will hold meetings (BoE, BoJ, SNB and FOMC) and the ECB's decision to broadcast could have a massive impact on their decisions.
Investors are understandably concerned at political meetings; Perhaps the Bank of Japan (BoJ) could be inspired next week (March 15) at its rate decision if the ECB measures are successful today?
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