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Marketmind: Hey ECB, how high will you go?
Global Banking & Finance Review®
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A look at the day ahead in markets from Dhara Ranasinghe.
A look at the day ahead in markets from Dhara Ranasinghe.
There’s little doubt the European Central Bank will on Thursday confirm it will pull the plug on years of stimulus and is getting ready to hike interest rates for the first time since 2011 to contain record high inflation.
Can we move on then? Not quite. With inflation at 8.1% and broadening out, ECB chief Christine Lagarde’s words will be watched closely for a sense of 1) how big the ECB will go in July when the rates lift off is expected to take place and 2) how high it is willing to push up rates.
Also watch what the ECB says about the degree of support it might be willing to give weaker economies as borrowing costs start to rise.
Pricing in money markets meanwhile suggests traders view the chance of 50 bps move by the ECB as increasingly likely in the coming months.
While the growth outlook has turned, many major central banks are opting for larger rate hikes. Note, Australia hiked by a bigger than expected 50 bps earlier this week.
The ECB’s key depo rate, which has been stuck at -0.50% for some time, is about to leave negative territory behind.
Angst about higher rates meanwhile continues to keep world markets on edge — Asia stocks are lower, European and U.S. equity futures are in the red.
Even upbeat news from China has done little to shore up sentiment: Data showed China’s exports grew at a double-digit 16.9% pace in May, shattering expectations in an encouraging sign for the world’s second biggest economy.
And in currencies, the yen fell to a fresh 20-year low against the dollar. With the Bank of Japan wedded to an ultra-loose monetary policy and most of its peers jacking up rates fast, the yen continues to bear the brunt of widening interest-rate gaps.
Key developments that should provide more direction to markets on Thursday:
– IMF says yen’s recent ‘significant’ fall reflects fundamentals
– UK housing market shows signs of slowdown – RICS
– Federal Reserve issues quarterly financial accounts of the United States
– Bank of Canada Governor Tiff Macklem speaks
– ECB meets, press conference at 1230 GMT
– National Bank of Serbia, Central Reserve Bank of Peru meet
– U.S. initial jobless claims
– U.S. 30-year bond auction
(Reporting by Dhara Ranasinghe; editing by Karin Strohecker)
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates in an economy to achieve macroeconomic objectives such as controlling inflation and stabilizing currency.
The European Central Bank (ECB) is the central bank for the euro and is responsible for monetary policy within the Eurozone, aiming to maintain price stability and oversee the financial system.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the amount borrowed or saved, influencing economic activity and inflation.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
Financial markets are platforms where buyers and sellers engage in the trade of assets such as stocks, bonds, currencies, and derivatives, facilitating capital flow and investment.
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