All posts by mwebster

ECB Cuts Interest Rate

As expected, Mario Draghi has just confirmed that ECB interest rates will be cut from 0.75% to 0.5%. As a result of poor economic growth, lingering recession, record high unemployment rates and recent poor inflation figures, the ECB has finally decided that an interest rate cut is necessary in order to help encourage growth in Europe. Whilst the rate cut had been expected by markets today, it remains surprising how long it has actually taken for such a decision to come about, especially given the horrendous condition of numerous economies throughout the Euro Zone.

Volatility increased significantly in the run up to the interest rate decision and remained high post data release. Immediately following the decision markets began to spike, most notably EUR/USD plummeted to 1.3115 and then rocketed back up to 1.3184 in the space of one minute. Similarly GBP/EUR dropped to 1.1789 before rallying back to 1.1813 in just minutes.

Soon after this ECB president Mario Draghi chaired a press conference regarding the ECB’s monetary policy, in which Mr Draghi gave further details as to why interest rates had been cut. It was also disclosed that the ECB would consider taking interest rates to below zero “with an open mind” which has unsurprisingly led to a further weakening of the euro right across the board. GBP/EUR is now trading at 1.1876, whilst EUR/USD has fallen to 1.3063.

When Will It End?

Surprisingly there is a reasonable amount of economic data due out today despite it being a bank holiday in many European countries. Inevitably this has turned the focus to the UK and US where we will see PMI figures from both sides of the pond today, as well as an interest rate decision and a potentially revealing FED press conference in the US this evening.

With the recent economic data coming out of the US being somewhat negative, market participants will be keen to see whether the US ISM manufacturing PMI is able to surpass expectations of a fall to 50.9 in April. Following this PMI data, this evening we will see a US interest rate decision and crucially the Fed’s monetary policy statement. Whilst interest rates are widely expected to remain at their current level of 0.25%, spectators will be keen to find out whether the FED gives any indication as to when and how speedily they may begin to reduce their bond buying program. Speculation is growing that the FED could well begin to curtail QE before the end of the year however policy makers will be keen to ensure that any reduction in monetary easing does not result in the weakening of an already fragile economy.

The UK Markit Manufacturing PMI figure was released this morning at 49.8, beating market expectations of 48.5, following which sterling immediately spiked to a daily high of 1.1819 against the euro before dropping back. Similarly cable spiked to a daily high of 1.5590 before returning to its current level of 1.5570. Following these spikes in volatility we may well now see markets trade sideways until this afternoon when the release of US PMI figures may induce further market activity.

Please find a summary of this week’s economic calendar below:

01.05.13
02:00 Chinese NBS Manufacturing PMI
07:00 UK Nationwide Housing Prices
09:28 UK Markit Manufacturing PMI
15:00 US Construction Spending
15:00 US ISM Manufacturing PMI
15:00 US ISM Prices Paid
19:00 US Fed Interest Rate Decision
19:00 US Fed’s Monetary Policy Statement and press conference

02.05.13
02:45 Chinese HSBC Manufacturing PMI
08:48 French Markit Manufacturing PMI
08:53 German Markit Manufacturing PMI
08:58 Euro Zone Markit Manufacturing PMI
09:30 UK PMI Construction
12:45 ECB Interest Rate Decision
13:30 ECB Monetary policy statement and press conference
13:30 US Initial Jobless Claims
13:30 US Trade Balance

03.05.13
02:00 Chinese Non-manufacturing PMI
09:28 UK Markit Services PMI
10:00 EU Producer Price Index
13:30 US Nonfarm Payrolls
13:30 US Unemployment Rate

To Triple Dip, or Not to Triple Dip

Movements in Sterling have been relatively restrained this week, with little economic data having been released attention is being focussed on GDP figures due out in the UK and the US at the end of the week. Market expectations are for a 0.1% increase in UK GDP when the figures are released tomorrow morning, however with potential increments being so fine, the margin for error is miniscule. Whatever the result, the effect on the UK economy is likely to be just as miniscule in the short term, however the opposite couldn’t be more true for the UK coalition government and their religious adherence to “Plan A”.

Should the figures tomorrow show that the UK has slipped into recession for the third time in as many years, the subsequent pressure heaped upon George Osborne could be enough to bring the Chancellor to tears for the second time in as many weeks. Furthermore, weak GDP figures would add emphasis to Christine Lagarde’s comments last week that Mr Osborne should consider rethinking the government’s austerity strategy. The comments last week were a surprising contradiction of the IMF’s long standing support for the UK’s deficit reduction strategy, however perhaps after over two years of trying and little signs of improvement in the economy, even the IMF are now beginning to think that a change of plan may be necessary for the UK government.

With very little economic data due out today, attention has turned to Germany this morning where business environment surveys have been released. The German IFO Business Climate and IFO Current Assessment figures showed falls in April to 104.4 and 107.2 respectively. The euro weakened following the immediate release of this data as the figures were substantially below market expectations. GBP/EUR rose to a daily high of 1.1763 before falling back to 1.1739, whilst EUR/USD recovered to 1.2994 after having dropped off to 1.2954 immediately after the IFO data release. Little activity is expected in the markets this afternoon until US Durable Goods figures are released which could stoke some movement, however volatility is likely to be restricted as market participants await the key GDP data from the UK tomorrow and the US on Friday.

Please find a summary of this week’s economic calendar below:

25.04.13
09:30 UK GDP
13:30 US Initial Jobless Claims
23:45 New Zealand Trade Balance

26.04.13
00:30 Japanese Consumer Price Index
04:00 Japanese Interest Rate Decision
13:30 US GDP
13:30 US Personal Consumption Expenditures Prices
14:55 US Reuters/Michigan Consumer Sentiment Index