European Outlook: Asian markets managed modest gains as higher oil prices underpinned energy producers and indices near multi-year highs. Mainland China underperformed once again amid official efforts to curb leverage. New Zeeland benchmarks meanwhile led the move higher after the central bank said it will keep rates at record lows for an extended period of time. U.S. futures are heading south but FTSE 100 futures are moving higher after already outperforming yesterday ahead of today’s BoE announcement. Expectations are for a steady policy decision, leaving the minutes and the inflation report in focus. In the Eurozone, Draghi managed to bring some calm into spreads, as he signaled that the forward guidance may be changed in June, but that real tapering is still a way off and won’t start before next year. The calendar today also has U.K. production data as well as inflation numbers out of Switzerland and Sweden, the ECB’s latest economic bulletin and the EU Commission’s updated set of forecasts.
ECB Outlook: Risk to price stability is “by and large gone” as President Draghi stated.He added that the forward guidance was meant to address tail risk and that some tail risks are less and less probable. The clearest sign yet from the ECB President that the easing bias will be scrapped in June and Bund futures are coming off intraday highs on the comments. With the risk of the French election out of the way the ECB is firmly on course to tweak the forward guidance in June, with Draghi following up Mersch’s comments from Monday, which show the central bank moving towards a more balanced view on growth and inflation and laying the ground for dropping the easing bias, that is still in place and adopting a neutral stance. The QE schedule for this year, which has already been announced, will remain in place and real tapering won’t start before 2018 and will be announced in September at the earliest. The key issue then for June is whether the statement tweaks the guidance in a way that would allow to lift the deposit rate out of negative territory even before asset purchases have been phased out. Given recent comments that seems increasingly likely, although it may not yet be announced in June, as Draghi and Co will be eager to move very gradual on policy normalization amid concerns that it could put undue pressure on peripherals.
RBNZ Rate Statement: RBNZ held rates steady at 1.75%, as expected. The statement by Governor Wheeler was similar to March, which was similar to February. Measured optimism remains in place, but with a recognition of ongoing uncertainties. Notably, Wheeler said developments since the February Monetary Policy Statement on balance are considered to be neutral for the stance of monetary policy. And a dovish bias was retained, as the Governor concluded that “Numerous uncertainties remain, and policy may need to adjust accordingly.” In March he said “Numerous uncertainties remain, particularly in respect to the international outlook, and policy will need to adjust accordingly.” But with “numerous uncertainties” remaining, is possible that an easing bias will remain in place at the RBNZ. But absent any downside surprises, the Bank should hold steady through year end.
Main Macro Events Today
- BOE Rate Decision & Monetary Policy – No change to prevailing policy settings is widely anticipated. This will leave the focus on the minutes and the latest inflation report, which will likely feature the recent signs of accelerating economic activity after a relative soft patch in Q1, along with robust global growth.
- UK Production Data – Industrial production data for March are also up today, which expected to improve to a -0.4% m/m figure after -0.7% in February. Trade data will be released at the same time.
- US PPI & Unemployment Claims – PPI for April will highlight inflation developments from the producer side, and it is forecasted with gains of 0.1% and 0.2% for the headline and core, following a 0.1% overall decline in March and an unchanged reading on the ex-food and energy component. Unemployment Claims expected at 245K from 238K last week.
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