Thoughts on the ECB
After listening to the ECB press conference, the following thoughts came to mind:
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- Despite ideas that the ECB would be more dovish, the ECB does not look set to provide any new aid to the economy. This may raise fears of slower growth in the EZ. The EZ economy appears to be in recession and shows little sign of recovering.
- ECB Draghi seemed to focus on the divergence of growth through the EZ region. He seemed to think that Germany was growing fine, while acknowledging weakness in places like Spain and Greece. It is interesting that recent PMI and labor market data has displayed weakening in Germany. German growth seems to be somewhat of a lynch pin to policy going forward.
- Draghi made a statement toward the end suggesting that the ECB would have a better picture on growth after looking at data over the next month. It seems like a policy shift could occur next month if data remains weak.
- Draghi was very praise worthy and positive on the success of fiscal consolidation. This could leave the door open to future stimulus. If governments are successful on austerity, then the ECB may reward with offsetting policy. It was clear that upcoming elections in Greece, Germany, and France were on the mind of the ECB and the ECB may have wanted to stand aside until the outcomes were known.
- The inflation outlook was balanced, which is a bit surprising given the week tone in demand. The growth statement talked about uncertainty and there were downside risks to the growth picture. However, the ECB was forecasting economic improvement, seeming to hope the global expansion would aid EZ growth into year end.
- There are a number of factors driving asset prices over the next few days, but net it seems the statements from Draghi will generate a headwind to a stock rally, and leave open the possibility of credit stress. The treasury market could find some support as a result. Rate differential or no change in monetary policy seems to be a supportive factor for the euro currency, but the downside risk to EZ growth and political momentum for anti-austerity measures are building the case of euro skeptics, which is a negative offset for the euro currency. The euro currency futures have been in a rough 1.300 to 1.3500 range in recent months and may reflect this tension.
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*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
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