The European Central Bank surprised investors this afternoon as policymakers pushed back rate expectations and unveiled a fresh round of cheap loans to Euro Zone banks (TLTRO’s). The dovish policy shift, coupled with notably lower growth and inflation forecasts sent the Euro to its lowest level since mid-November while Euro Zone government yields also tumbled. Equity markets initially ticked higher on the announcement but soon began to tumbled with bank stocks leading declines as the details of the new TLTRO were less favourable than many had expected. Bourses are sharply lower at the closing bell with the Euro Stoxx 600 bank index falling over two-percent (FTSE -0.7%, DAX -0.7%, CAC -0.4%). Wall Street followed suit with a lower open as trade tensions and global growth concerns have led to underperformance in the material and industrial sectors. On the data front, US releases were broadly stronger-than-expected with higher readings for Unit Labor Costs and Non-Farm Productivity plus a pullback in initial jobless claims. Elsewhere in FX, Sterling is under pressure with Gbp/Usd falling to new lows after a UK government source said there is nothing at the moment to suggest anything is going to change in Brexit talks with the EU over the next 48-hours, adding that the EU is simply not moving. Still to come today, we await possible comments from Fed Governor Brainard and the Bank of Canada’s Patterson plus US consumer credit.
Key Headlines/Data:
* UK government source said there is nothing at the moment to suggest anything is going to change in Brexit talks with the EU over the next 48-hours, adding that the EU is simply not moving.
* OPEC Feb crude oil output falls 60,000 b/d to 30.80 mil b/d: Platts survey (Platts)
* US Challenger Job Cuts (Feb) 76.8K, previous 53.0K
* White House National Security Advisor Bolton said President Trump is open to speaking again with North Korea.
* European Central Bank – Monetary Policy Decisions:
– Main policy rates on hold: refinancing rate at 0.00%, deposit rate at -0.40%
– Expects the key ECB interest rates to remain at their present levels at least through the end of 2019 – changed from ‘at least through the summer of 2019’
– A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years
– To continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates
* European Central Bank – Press Conference:
– Weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year
– The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment
– Underlying inflation continues to be muted. The weaker economic momentum is slowing the adjustment of inflation towards our aim.
– In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner
– The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets
* European Central Bank – Economic Forecasts:
– GDP: 2019 +1.1% versus +1.7% previous | 2020 +1.6% versus +1.7% previous | 2021 %+1.5 versus +1.5% previous
– HICP: 2019 +1.2% versus +1.6% previous | 2020 +1.5% versus +1.7% previous | 2021 +1.6% versus +1.8% previous
* ECB Press Conference – Q&A:
– The new measures are adding to accommodation
– All decisions were unanimous
– The Governing Council sees the chances of a recession as very low
– We did discuss the impact of a low rates for longer on Euro Zone banks
– Several members of Governing Council proposed extending the calendar of forward guidance to March next year
– We did not discuss restarting the QE programme. Or cutting the deposit rate
* US Unit Labor Costs Q/Q (Q4 F) +2.0% versus +1.6% expected, previous +1.2%
* US Non-Farm Productivity Q/Q (Q4 F) +1.9% versus +1.6% expected, previous +2.2%
* US Initial Jobless Claims (Mar 1) 223K versus 225K expected, previous 225K revised to 226K
* EU Official said Greece has not yet completed its post-bailout conditions.
* EU Trade Minister Malmstrom said there is no support in Europe for a full and comprehensive trade negotiation with the US.
* A North Korean missile launch site that Pyongyang had previously said it was dismantling appears once again to be operational, according to an independent analysis of updated satellite photos (WSJ)
* @anguswalkertalk (ITV News Correspondent) – U.K. and EU negotiation teams agree to continue talks in Brussels, over weekend if necessary. Likely that Ministers will return with fresh proposals and possible May/Juncker meeting before vote next Tuesday
* US EIA Natural Gas Storage Change -149 Bcf versus -141 Bcf expected, previous -166 Bcf
