As ECB Tweaks Tone, Markets Should Listen

Specifically, its responsibility is to maintain annual inflation across the eurozone near but just below 2%.

“Headline inflation has again increased, largely on account of rising energy and food price inflation”.

Cosimo Marasciulo, head of European fixed income at Pioneer Investments, said: “Overall it was a pretty boring statement and press conference, as evidenced by the fact that Draghi struggled at times to find parts of the speech he wanted to reference”.

If a rate is negative the bank will pay the ECB (rather than receiving money in interest).

On geo-politics, Draghi reiterated that the Euro is irrevocable and does not see any material risk to a possible breakup of the Eurozone. The euro rose half a cent to a one-week high of $1.0606 on the news and forward euro interest rates now expect a first, modest interest rate increase in the first half of next year. EUFN added about 2.1% on March 9, 2017.

He noted that the US treasury itself has recognized that Germany has not intervened in foreign currency markets since 2011. ECB President Mario Draghi accordingly announced small upgrades to euro zone growth forecasts, now seen at 1.8pc this year and 1.7pc next year. The rising prospects of higher USA rates have started to weigh on investor sentiment and such may translate to further downside pressures on Wall Street.

Volkswagen gained 0.26% after the German carmaker said it would plead guilty in U.S. courts to three counts of felony as part of a plea agreement with regulators over the diesel emissions scandal. “In this context and taking into account looming political risks, the European Central Bank has no reason to change its monetary policy now and will at best review its macroeconomic forecasts”.

The market was likely reaffirming its conviction in this view after the ECB’s announcement, he said. The euro’s real effective exchange rate was close to its historical average, he said. What does this mean for the euro?

The ECB’s caution in reading too much into the uptick in inflation and growth figures was also reflected in a global economic assessment issued by the Organisation for Economic Cooperation and Development (OECD) on Tuesday.

Nonetheless – this is a major rate decision with a heavy potential for volatility given market sensitivity to fears of a “taper tantrum”.

It was boosted by shares in companies including Origin Enterprises. For the rise in yields to significantly dent credit markets, they would have to rise markedly from current levels. If raising rates before the end of QE were to be considered a realistic path, that would mark a departure from the guidance on timing of rate hikes that ECB President Mario Draghi has given since March 2016, when he lowered the deposit rate to minus 0.4 percent.

That helped eurozone equities perk up in afternoon trading.

The ECB meeting has probably been the most important event this week so far.

Far-right candidate Marine Le Pen is threatening to take France out of the eurozone and even out of the European Union. Investors may direct their attention towards Friday’s NFP release which may be able to propel the Dollar Index higher if it follows the same positive pattern as the ADP release.