“Markets are currently pricing in a 15bp rate hike by the ECB only by Jan 2021 as compared to Q4 2020 being priced last week,” TD Securities said, adding that it revised its expectation for a rate hike to June 2020 from December this year.
“The sharp negative revisions to the outlook indicate a high hurdle to shift policy in the other direction. Indeed, this is reflected in our new ECB forecast. If anything, today’s meeting solidifies that the EUR has a lot of wood to chop as far as reclaiming any sort of lost glory from its 2017 days. With the ECB clearly sidelined, we acknowledge that the EUR forecast – which calls for a move above 1.20 later this year – is now under review.”
While giving the ECB credit for what it announced, Capital Economics also said the bank “is still too optimistic in expecting growth to rebound sharply next year and forecasting core inflation to rise steadily”.
Mr Draghi’s comments came a day after the OECD said the global economy is slowing and major risks persist, with growth weakening much more than expected in Europe.
The OECD now projects that the global economy will expand by 3.3 per cent in 2019 and 3.4 per cent in 2020. The outlook and projections cover all G20 economies. “Downward revisions from the previous Economic Outlook in November 2018 are particularly significant for the euro area, notably Germany and Italy, as well as for the United Kingdom, Canada and Turkey.”
In a speech overnight, Federal Reserve governor Lael Brainard said the US central bank needed to “navigate cautiously”.
“The most likely path for the [US] economy appears to have softened against a backdrop of greater downside risks. Our goal now is to safeguard the progress we have made on full employment and target inflation. Prudence counsels a period of watchful waiting.”
Ms Brainard in particular pointed to weakening growth outside the US.
“While strong foreign growth provided tailwinds early last year, foreign growth projections have been revised down repeatedly more recently. The slowdown of foreign growth now appears to be more persistent than initially assumed, with growth likely running below potential for most of last year.”
Next up: China trade data and the latest reading on the strength of the US labour market.
The New York Times reported that Chinese officials are far less confident than US President Donald Trump that a trade deal is near.
“Beijing officials are wary that the final terms may be less favourable, especially given Mr Trump’s propensity for last-minute changes, according to two people familiar with China’s position,” the Times reported.
All of this ‘news’ poses a challenge to the Australian dollar.
“The AUD is typically viewed by investors as a barometer of global growth,” St George Bank said in a morning note. “So the widening worries about the world economy is lowering demand for the AUD.”
The currency slipped to as low as US70.05¢ in New York trading. It recently was at US70.15¢.
No local data
Overseas data: China trade balance February, PPI and CPI for February; Japan fourth quarter GDP final, Current account January; German factory orders January; US February non-farm payrolls
Capital Economics on the pending US jobs data: “We expect the employment report due on Friday to show a solid 190,000 rise in non-farm payrolls in February. Survey evidence and the recent decline in initial jobless claims suggest that labour market conditions have remained strong.
“As a result, the unemployment rate is likely to have dropped back to 3.9%, from 4.0%. We also anticipate a 0.2% m/m rise in average hourly earnings, keeping the annual growth rate at 3.2%. But there is still little evidence that higher wage growth is providing any boost to inflation.”
SPI futures down 35 points or 0.6% to 6235 at about 8.45am AEDT
AUD -0.2% to 70.15 US cents (Overnight low 70.05)
On Wall St near 4pm: Dow -0.8% S&P 500 -0.8% Nasdaq -1.1%
In New York, BHP -0.5% Rio -0.4% Atlassian +0.7%
In Europe: Stoxx 50 -0.5% FTSE -0.5% CAC -0.4% DAX -0.6%
Spot gold -0.1% to $US1285.56 an ounce at 12.44pm New York time
Brent crude +0.4% to $US66.24 a barrel
US oil +0.8% to $US56.68 a barrel
Iron ore +0.6% to $US87.61 a tonne
Dalian iron ore -0.2% to 615 yuan
LME aluminium -0.1% to $US1864 a tonne
LME copper -0.7% to $US6423.50 a tonne
2-year yield: US 2.47% Australia 1.67%
5-year yield: US 2.44% Australia 1.70%
10-year yield: US 2.64% Australia 2.08% Germany 0.06% France 0.42%
US-Australia 10-year yield gap as of 8.09am AEDT: 56 basis points
From Today’s Financial Review
Experts back RBA’s confidence in small ‘wealth effect’: Former RBA board member John Edwards says spending would have to worsen before the Reserve Bank contemplates rate cuts.
Carbon ruling threatens WA resources sector: New resources projects are under threat under a Western Australian ruling on carbon.
Graham Tuckwell punts payday on ETFs: Graham Tuckwell admits he could be sitting on a beach – were it not for the opportunity he still sees in an Australia that shuns exchange-traded funds.
So much losing must be tiring: Jennifer Rubin: The sole reason that Trump is hanging in there for now – other than Fox News – is the economy.
Fox News has become an American plague: Fox News has swiftly devolved into what often amounts to a propaganda network for a dishonest president and his allies.
Saturday “marks the 10-year anniversary of the end to the worst bear market for US stocks since the Great Depression”, LPL’s Ryan Detrick said.
“Although at that time no one could have imaged we’d be looking at the longest bull market ever 10 years later, it’s important to note that this might be the longest bull market to date, but it hasn’t had the largest gain.
“Yes, in terms of duration this is the longest bull ever, but in terms of magnitude, the 1990s bull market was actually more than 100 percentage points above the current bull market,” Mr Detrick said “potentially suggesting that this bull market might not be as strong as many think.”
ECB slashes euro zone growth forecast: Mario Draghi said the euro-zone economy will expand only 1.1 per cent this year, 0.6pp lower than just three months ago.
TD on the ECB: “The ECB pulled out all the stops today, extending their forward rate guidance to year-end and introducing a new series of TLTROs. They slashed their growth and inflation forecasts as downward shocks are proving more persistent than expected.
“We now expect the ECB to next hike rates in June 2020 (previous: Dec 2019).”
Britain’s FTSE 100 fell on Thursday as several blue-chip stocks traded ex-dividend and financial stocks were hit after the European Central Bank delayed a rate hike at least until next year and offered a fresh round of cheap loans to banks.
NMC Health and insurers Aviva and Admiral all slipped after earnings reports.
The FTSE 100 was down 0.5 per cent, while the FTSE 250 gave up 0.9 per cent and was on track for its worst week in more than two months.
Miners Rio Rinto, BHP and Evraz plus house-builder Persimmon all traded ex-dividend and were among the top drags on the main bourse.
Germany and its customs authority are prepared for all Brexit scenarios, including Britain crashing out of the European Union without a divorce deal setting out future relations, Finance Minister Olaf Scholz said on Thursday.
EU officials have told Britain to rework its Irish backstop proposal by Friday but fear it will struggle to secure a deal that satisfied pro-Brexit lawmakers before a key vote in the UK parliament on Wednesday.
Just three weeks before Britain is due to leave the EU, the two sides are locked in a game of brinkmanship and attempts to reach a mutually acceptable deal could go down to the wire.
“All necessary precautions have been taken,” Scholz said during a visit to a logistics hub at an airport in the eastern city of Leipzig, adding that the government had already agreed to hire 900 additional customs officers.
Asked how high he estimated the risk of a no-deal Brexit, Scholz said that this was difficult to predict.
The Republican and Democratic leaders of the US Senate Foreign Relations Committee introduced legislation on Thursday backing Canada’s handling of Huawei Technologies chief financial officer Meng Wanzhou, as the United States seeks her extradition.
Senators Jim Risch, the committee’s Republican chairman, and Bob Menendez, its ranking Democrat, introduced the resolution backing Canada for “upholding the rule of law”. They announced the measure a day after the Chinese telecoms equipment maker sued the US government, saying a law limiting its US business was unconstitutional.
Shares in Hong Kong fell on Thursday on investor caution over the outlook for global growth and US-China trade, as China’s finance minister reiterated Beijing’s resistance to broad easing to counter slowing growth.
At the close of trade, the Hang Seng index was down 258.15 points or 0.9 per cent at 28,779.45. The Hang Seng China Enterprises index fell 1.1 per cent to 11,460.08.
China’s main Shanghai Composite index closed up 0.1 per cent at 3106.42 points, while the blue-chip CSI300 index ended down 1 per cent.
Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.4 per cent, while Japan’s Nikkei index closed down 0.7 per cent
TD on the euro: “The ECB has sucked the life out of EURUSD though this should hardly come as a surprise for markets given they have largely been calling the ECB’s bluff on forward guidance. Nonetheless, focus will remain on the downside for EURUSD as the policy anchor is even more deeply buried than before. A break below 1.1216 support will have us focus on a new lower trading range in near-term marked by 1.10/1.12. Outside of this, our EUR FX forecast is under review.”
The euro sank on Thursday to its lowest against the US dollar since June 2017.
“The ECB has no choice,” said Joseph Trevisani, senior analyst at FX Street in New York. “There are a lot of internal problems which are impediments to growth.”
The euro sagged to $US1.1206, its lowest level since mid-2017. It was 0.8 per cent lower at $US1.1216 in midday New York trading. The euro is at risk of falling to $US1.10 in the coming weeks, analysts said.
The Swedish crown fell to its weakest since December 15, 2016 at 9.4185 per dollar. It was down 0.6 per cent at 10.581 per euro, Reuters data showed.
Benchmark copper on the LME closed down 0.7 per cent at $US6423.50 a tonne, drifting further away from a 6-1/2-month high of $US6540 reached on February 25.
Optimism over the ability of a potential US-China trade deal and Chinese economic stimulus to push prices higher was also fading, said Capital Economics analyst Ross Strachan.
Stimulus measures announced this week in China, the largest metals consumer, were “not a game changer” and would not stop growth there from slowing, he said.
Copper’s more than 10 per cent rise from a January low also showed traders had priced in the possibility of a trade deal, he said, predicting copper would end the year at $US6250 a tonne.
SocGen said it is moving to a more cautious stance on most of Metals and Mining stocks it covers after YTD gains. While sentiment towards sector remains positive, the bank said it is uncertain how long this will last given mixed macroeconomic data and relatively subdued commodity price momentum
As a result, SocGen downgraded BHP to “hold” from “buy”, reflecting recent share performance and distribution of proceeds from asset disposals of onshore oil assets completed in December.
SocGen also downgraded Rio Tinto to “sell” from “hold” – saying it was its least preferred stock in the sector – reflecting recent price gains on back of rebound in iron ore markets, which it thinks might be short lived.
ASX extends six-month high on NAB: National Australian Bank helped the local sharemarket higher on Thursday, despite large miners falling.
The S&P/ASX 200 Index rose 18.3 points, or 0.3 per cent, to 6263.9 while the broader All Ordinaries climbed 17.4 points, or 0.3 per cent, to 6344.2.
TPG’s Greencross loan offering back at the vets
Rawson Lewis lands mining heavyweight
Patrick Grove launches i-Catching funding round for iflix
with Reuters, Bloomberg, AAP
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