*Denmark CB Leaves Rate Unchanged; Launches Extraordinary Lending Facility

Trading 12 mar 2020 Commentaire »

Denmark CB Leaves Rate Unchanged; Launches Extraordinary Lending Facility


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Lagarde Launches ECB QE To Battle Coronavirus Shock

Trading 12 mar 2020 Commentaire »

European Central Bank President Christine Lagarde surprised markets on Thursday as the bank chose to leave rates unchanged, but there was relief in the form of fresh stimulus measures that included additional EUR 120 billion bond purchases, as the Eurozone is facing a "major shock" from the coronavirus, or Covid-19, outbreak. Stimulus measures from the ECB also include more ultra-cheap longer term loans, called LTROs, on easier terms to boost lending to households and businesses at a time of crisis. The supervisory arm of the ECB extended some capital relief to banks by temporarily relaxing the capital buffer requirements. This is the first quantitative easing move by Lagarde who became the ECB President after Mario Draghi stepped down at the end of October.

Speaking to reporters after the policy decision announcement, Lagarde said the latest decisions were taken unanimously and also that the ECB strategy review is now "clearly deferred". "The Governing Council will continue to monitor closely the implications of the spread of the coronavirus for the economy, for medium-term inflation and for the transmission of its monetary policy," Lagarde said in her introductory statement.

"The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry."

The ECB will make use of all the flexibility embedded in the asset purchase programme framework, Lagarde told reporters. Lagarde stressed on the need for a stronger fiscal response to deal with the economic impact from the coronavirus outbreak, which was declared a "global pandemic" by the WHO a day earlier.

"An ambitious and coordinated fiscal policy response is required to support businesses and workers at risk," she said. Policymakers regard the current shock as severe, but temporary if the right measures are taken by all the players, she told reporters.

She also drew attention to the heightened volatility in the financial markets. After the US Federal Reserve and the Bank of England cut interest rates in surprise moves, the ECB was widely expected to lower its already negative deposit rate, at least by 10 basis points. "We are not here to close spreads, there are other tools and other actors to deal with these issues," Lagarde said. "The response should be fiscal first and foremost," she added.

The ECB chief pointed out that the monetary policy is not determined by exchange rate variations. She also asserted that the ECB is certainly not at the reversal rate, not at the lower bound.

"The spread of the coronavirus (COVID-19) has been a major shock to the growth prospects of the global and euro area economies and has heightened market volatility," Lagarde said. "Even if ultimately temporary in nature, it will have a significant impact on economic activity."

The virus outbreak is a new and substantial source of downside risk to the euro area growth outlook, Lagarde said as she presented the latest ECB Staff macroeconomic projections.

The latest set of projections was compiled before the rapid spread of the Covid-19 in Europe. Still, the euro area growth forecast for this year was sharply cut to 0.8 percent from 1.1 percent.

The projection for next year was lowered to 1.3 percent from 1.4 percent. The outlook for 2022 was retained at 1.4 percent. The HICP inflation forecasts for this year, next year and 2022 were kept unchanged at 1.1 percent, 1.4 percent and 1.6 percent, respectively. "The implications of the coronavirus for inflation are surrounded by high uncertainty, given that downward pressures linked to weaker demand may be offset by upward pressures related to supply disruptions," the ECB said.

"The recent sharp decline in oil prices poses significant downside risks to the short-term inflation outlook."

The central bank left the refi rate unchanged at 0 percent, the deposit rate at -0.50 percent and the marginal lending facility rate at 0.25 percent.

The previous change was a 10 basis points cut in the deposit rate in September 2019.

The bank also retained its forward guidance on both interest rates and asset purchases.


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U.S. Producer Prices Drop More Than Expected Amid Slump In Energy Prices

Trading 12 mar 2020 Commentaire »

Partly reflecting a steep drop in energy prices, the Labor Department released a report on Thursday showing U.S. producer prices declined by much more than expected in the month of February.

The Labor Department said its producer price index for final demand slid by 0.6 percent in February after climbing by 0.5 percent in January. Economists had expected the index to edge down by 0.1 percent.

The bigger than expected decrease in producer prices came as energy prices plummeted by 3.6 percent in February after falling by 0.7 percent in January, with a 6.5 percent nosedive in gasoline prices leading the way lower.

Food prices also showed a significant decrease, plunging by 1.6 percent in February after inching up by 0.2 percent in the previous month.

However, the report also showed an unexpected decrease in core producer prices, which exclude food and energy prices.

Core producer prices fell by 0.3 percent in February following a 0.5 percent increase in January, while economists had expected core prices to inch up by 0.1 percent.

The unexpected drop in core prices came as prices for services declined by 0.3 percent in February after climbing by 0.7 percent in January.

The Labor Department said over 70 percent of the broad-based decrease can be traced to a 0.7 percent pullback in prices for trade services, which jumped by 1.2 percent in the previous month.

Prices for transportation and warehousing services also slid by 0.6 percent in February after plunging by 1.6 percent in January, while prices for other services edged down by 0.1 percent after rising by 0.6 percent.

With the bigger than expected monthly decrease, the annual rate of producer price growth tumbled to 1.3 percent in February from 2.1 percent in January.

Core producer prices in February were up by 1.4 percent compared to the same month a year ago, reflecting a deceleration from the 1.7 percent growth in the previous month.

A note from economists at Oxford Economists said the producer price data along with yesterday's report on consumer prices underscore that price pressures were extremely tame ahead of the coronavirus.

The report released by the Labor Department on Wednesday showed a modest increase in U.S. consumer prices in the month of February.

The Labor Department said its consumer price index inched up by 0.1 percent in February, matching the uptick seen in January. Economists had expected prices to come in unchanged.

Consumer prices edged higher as higher prices for food and shelter more than offset a steep drop in energy prices.

The report said core consumer prices, which exclude food and energy prices, rose by 0.2 percent for the second consecutive month. The increase in core prices matched economist estimates.

Compared to the same month a year ago, consumer prices were up by 2.3 percent in February, reflecting a slowdown from the 2.5 percent jump in January.

On the other hand, the report said the annual rate of growth in consumer prices edged up to 2.4 percent in February from 2.3 percent in the previous month.

"Looking ahead, the disinflationary impact from the virus and the historical plunge in oil prices will exert strong downward pressure on prices," said the note from economists at Oxford Economists.

The economists added, "With GDP growth set to hit stall-speed in H1, the Fed will likely lower rates down to the effective lower bound (ELB) by mid-year."


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ECB Unveils Stimulus Boost To Overcome Covid-19 Shock

Trading 12 mar 2020 Commentaire »

The European Central Bank left its key interest unchanged on Thursday, but launched several quantitative easing measures to support the euro area economy amid the crisis arising from the coronavirus, or Covid-19, outbreak that has been declared a global pandemic.

Following its scheduled meeting in Frankfurt, the Governing Council, led by ECB President Christine Lagarde, announced a comprehensive package of monetary policy measures. The central bank decided to conduct additional longer-term refinancing operations, temporarily, to ensure immediate liquidity support to the Eurozone financial system. "Although the Governing Council does not see material signs of strains in money markets or liquidity shortages in the banking system, these operations will provide an effective backstop in case of need," the ECB said.

These longer-term loans will be offered in a fixed rate tender procedure with full allotment, with an interest rate that is equal to the average rate on the deposit facility. The LTROs will provide liquidity at favorable terms to bridge the period until the Targeted LTRO, or TLTRO, III operation in June 2020, the bank said. Further, all lending operations under TLTRO III will have considerably more favourable terms during the period from June 2020 to June 2021. These operations will support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises, the ECB said.

During this period, the interest rate on these TLTRO III operations will be 25 basis points below the average rate applied in the Eurosystem's main refinancing operations. The central bank also raised the maximum amount of borrowing for counterparties under the TLTRO-III scheme to 50 percent of their stock of eligible loans as on February 28, 2019. In this regard, the ECB said it will as relevant committees to explore collateral easing measures for counterparties to make full use of the funding support. Policymakers also decided to add a temporary envelope of additional net asset purchases of EUR 120 billion until the end of the year, ensuring a strong contribution from the private sector purchase programmes. "In combination with the existing asset purchase programme (APP), this will support favourable financing conditions for the real economy in times of heightened uncertainty,: the bank said.

The Governing Council retained the forward guidance on asset purchases and reiterated that the bank "continues to expect net asset purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates."

The ECB left the key interest rate, which is the rate on the main refinancing operations, at record low zero, as expected.

The deposit facility rate was kept at -0.50 percent, while several economists had expected the bank to cut it by 10 basis points as part of its stimulus package in response to the virus outbreak. The marginal lending facility rate was kept at 0.25 percent. The central bank retained its forward guidance on interest rates. "The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics," the bank said. Policymakers also said the reinvestment of proceeds from the sale of assets bought under the APP will continue. Separately, ECB Banking Supervision announced temporary capital and operational relief in reaction to coronavirus outbreak.

The supervisory arm of the ECB said banks can fully use capital and liquidity buffers including Pillar 2 guidance. The central bank will also consider operational flexibility in the implementation of bank-specific supervisory measures.

"The supervisory measures agreed today aim to support banks in serving the economy and addressing operational challenges, including the pressure on their staff," Andrea Enria, Chair of the ECB Supervisory Board, said.

As the severity of the Covid-19 unfolded outside its country of origin, China, business confidence slumped and this is reflected in the crashing stock markets. Apart from this, the oil price crisis due to a standoff between the main producer Saudi Arabia and Russia is also hurting sentiment. Last week, the Federal Reserve cut its interest rate and the Bank of England followed suit yesterday. The UK central bank also announced several stimulus measures including a special funding scheme to support small businesses. The government unveiled a $39 billion stimulus package. Earlier on Thursday, the Australian government also announced a stimulus package. The coronavirus outbreak has wreaked havoc on economies across the world. In Europe, Italy is experiencing a most severe outbreak and the country has gone into an almost total lock-down as the infected cases surged and deaths increased. The Italian government has also announced a stimulus package to support the economy.

On Wednesday, US President Donald Trump announced a 30-day ban on travel to all the 26 Schengen countries and the EU has disapproved such a move.

Businesses are taking a major hit due to supply-chain disruptions caused by the coronavirus outbreak. A survey by the think tank ifo showed on Thursday that more than half of German companies are likely to be impacted by the pandemic. Industry bodies representing the German chemical and mechanical engineering industries lowered their output growth forecasts for the year.


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U.S. Weekly Jobless Claims Unexpectedly Edge Down To 211,000

Trading 12 mar 2020 Commentaire »

First-time claims for U.S. unemployment benefits unexpectedly showed a modest decrease in the week ended March 7th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims dipped to 211,000, a decrease of 4,000 from the previous week's revised level of 215,000.

Economists had expected jobless claims to inch up to 218,000 from the 216,000 originally reported for the previous week.

Meanwhile, the Labor Department said the less volatile four-week moving average crept up to 214,000, an increase of 1,250 from the previous week's revised average of 212,750.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, fall by 11,000 to 1.722 million in the week ended February 29th.

The four-week moving average of continuing claims still rose to 1,727,500, an increase of 5,250 from the previous week's revised average of 1,722,250.

Last Friday, the Labor Department released a separate report showing employment in the U.S. soared by much more than expected in the month of February.

The Labor Department said employment surged up by 273,000 jobs in February, matching the upwardly revised spike in January.

Economists had expected employment to increase by about 175,000 jobs compared to the jump of 225,000 jobs originally reported for the previous month.

With the much stronger than expected job growth, the unemployment rate unexpectedly edged down to 3.5 percent in February from 3.6 percent in January. The rate had been expected to remain unchanged.


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Euro Mixed After ECB Announcement

Trading 12 mar 2020 Commentaire »

The euro showed mixed trading against its major counterparts in the European session on Thursday, after the European Central Bank kept key rates unchanged and boosted asset purchase program to counter the economic impact of the coronavirus.

The Governing Council left the key interest rates unchanged after the policy session in Frankfurt.

The main refi rate is currently at a record low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is at 0.25 percent.

The bank expanded quantitative easing program by 120 billion euros until the end of the year.

The ECB will conduct additional longer-term refinancing operations temporarily to provide immediate liquidity support to the euro area financial system.

In TLTRO III, the bank will apply more favourable terms during the period from June 2020 to June 2021 to support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises.

Data from Eurostat showed that Eurozone industrial production expanded for the first time in five months in January.

Industrial output grew at a faster-than-expected pace of 2.3 percent on a monthly basis and in contrast to a revised 1.8 percent drop in December.

The currency showed mixed trading against its major counterparts in the Asian session. While it rose against the greenback and the pound, it fell against the yen and the franc.

The euro rebounded to 1.0577 against the franc, from a 3-day low of 1.0545 seen at 7:15 am ET. The euro is seen finding resistance around the 1.09 mark.

The euro firmed to a 5-month high of 0.8899 against the pound, from yesterday's closing value of 0.8785. Next key resistance for the euro is likely seen around the 0.90 level.

Survey data from the Royal Institution of Chartered Surveyors showed that UK house price inflation gathered momentum in February as prices increased across all parts of the country.

The house price balance rose sharply to 29 percent in February from 18 percent in January. This was also above economists' forecast of 20 percent.

The euro dropped to a weekly low of 1.1198 against the greenback, from Wednesday's closing value of 1.1269. Should the euro falls further, it is likely to test support around the 1.105 region.

The euro remained lower against the yen, at 116.92. The EUR/JPY pair has set a 3-day low of 116.31 at 7:30 am ET. The euro is poised to challenge support around the 114.00 mark.

Data from the Bank of Japan showed that Japan producer prices fell 0.4 percent on month in February.

That was shy of expectations for a decline of 0.3 percent following the 0.2 percent increase in January.


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*ECB's Lagarde: Determined To Support Households And Business Amid Virus Outbreak

Trading 12 mar 2020 Commentaire »

ECB's Lagarde: Determined To Support Households And Business Amid Virus Outbreak


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EURUSD reaches key Fibonacci level and bounces

Trading 12 mar 2020 Commentaire »

EURUSD was expected to pull back towards the key Fibonacci levels we have mentioned in our previous analysis. EURUSD has reached the 61.8% Fibonacci retracement level and has bounced off of it.

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EURUSD has pulled back as a back test of the broken wedge pattern. Price has so far reached the 61.8% level and is bouncing. As we explained in our last Ichimoku cloud analysis, we had a weak sell signal and the first target was the cloud support at 1.1130. Price surpassed our target and reached 1.1060.

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So far the back test is successful and supportive of the bullish continuation of the break out. If price pushes back inside the wedge pattern and stays below, then this would be a very bearish sign.

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*ECB Banking Supervn Unveils Temporary Capital, Operational Relief On Covid-19

Trading 12 mar 2020 Commentaire »

ECB Banking Supervn Unveils Temporary Capital, Operational Relief On Covid-19


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*ECB: To Add Extra ERU 120 Bln Net Asset Purchases Until The End Of Year

Trading 12 mar 2020 Commentaire »

ECB: To Add Extra ERU 120 Bln Net Asset Purchases Until The End Of Year


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