A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Share this story:
Andrew Kositkun Foreign Exchange Head Trader
Initially, the ECB’s January meeting was seen as placeholder between now and when things get interesting. However, recent data flow as well as Governing Council (GC) member comments have made Thursday morning’s ECB announcement slightly more interesting.
To be clear, the balance of risks still skew to the downside and there is no reason for the ECB to update its assessment of risks at a meeting that doesn’t include updated forecasts. But, the tone from ECB officials could possibly change.
US-China trade and risks around the Brexit Withdrawal Agreement have subsided. Additionally, data flow has shown signs of manufacturing stabilization and core inflation has moved to the ECB’s forecasted average for 2020. As a result, it wouldn’t be surprising to hear the more hawkish members of the GC becoming more vocal with their opinions.
Upbeat economic data aside, the most interesting part of this week’s ECB meeting will likely be details around the strategic review. While there are many topics that could be reviewed, inflation targets and measures are likely to be in focus. Additionally, the timeline and the motivation for the review should garner attention.
The start time for the review is known, but will there be an end date (Lagarde has hinted it will be done by end of 2020) or will it be an open-ended discussion? With regards to motivation, words will matter. The 16 years that have passed since the last review is justification enough for a reassessment, but markets have clearly taken notice of Lagarde’s statement that the ECB needs to get “closer to the people.” This implies that the ECB could be concerned about the impact of negative rates. The expectation still remains for Lagarde to be neutral with her language, but any indication that the ECB needs to acknowledge “side effects” or “unintended consequences” will be seized on.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
Fatalities from the Wuhan coronavirus have risen to nine cases with the US and Hong Kong reporting their first cases. The World Health Organization is expected to decide today whether or not to designate a public health emergency of international concern. This is a designation used for complex epidemics that can cross borders. After yesterday’s volatile session, markets appear to be calmer today as China’s National Health Commission has detailed the steps it is taking to contain the disease. However, officials acknowledged that they’re still trying to understand the virus.
The welfare costs of the coronavirus (nCov) are clearly high, but the economic implications are a bit murky. Looking at the 2003 SARS episode, the outbreak peaked 3-4 months after the first case was reported and was mostly contained 6-7 months later. Assuming a similar trajectory, the nCov outbreak may not peak until March-April. However, this time around the outbreak comes amid the Lunar New Year (LNY) period where officials are estimating that 3 billion trips will be made. The LNY travel period runs from January 10 to February 18. Countering this have been more timely and credible communication and preventive measures by the government. Ultimately, the hope is that this remains a transitory shock with the impact most felt in retail sales and transportation.
The Bank of Canada maintained its overnight rate at 1.75% as expected. However, the bank removed the word “appropriate” from its description of how it views it current overnight rate level, making the initial read dovish. Gov. Poloz has held the view that rates were appropriate and the removal of this description signals less confidence in the BoC's outlook. Additionally, YoY CPI slightly missed expectations, rising 2.2% versus expectations for a 2.3% rise.
In Italy, bank stocks and sovereign bonds dropped after reports that Five Star Movement leader and Governing Coalition member Luigi Di Maio has announced his resignation from his leadership position, increasing the chances of an early election.
The GBP is the biggest winner in the G10 space as market pricing for a BoE rate cut has dropped to 48% from 60% yesterday on the back of yesterday’s employment report.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Now accepting scholarship apps Celebrating 40 years of service -- A loan to an innovative company -- Affording your dream home -- Mergers and a new branch in Raleigh View this email in your browser Forward to a friend
Your Market News update for May 30, 2019 | View online Market News News that's moving the market now As Trade-War Worries Linger, Market Seems to Lack Buying Conviction May 30, 2019 8:40 AM | JJ Kinahan 6 min read | Daily Market Update