Can the ECB keep the party going?
The market kept the optimism flowing yesterday as the rotation out of tech continued to play out, with the Dow closing at another record level and stocks gaining in general.
Treasury yields backed off recent highs ahead of the 10-year auction and stuck lower, allowing for investors to breathe in some calm for the time being.
The dollar kept lower as such, with risk trades faring better but the threat of higher yields remains in place as we look towards the FOMC meeting next week.
However, some stabilisation in the bond market is welcome news for risk sentiment and that will turn into a headwind for the dollar if overall conditions stay in-check.
The ECB is the key risk event to watch in European trading today and while they aren’t expected to make any drastic moves, they are likely to tweak communication in an effort to counteract the recent selloff in the bond market.
We’ll see if investors will end up being disappointed or if that is enough to keep the party going ahead of the weekend.
1245 GMT – ECB announces March monetary policy decision, statement
The prior (January) decision can be found here. Given the recent selloff in the bond market, the ECB might feel the need and pressure to respond more strongly in this meeting to try and counteract such developments from reoccurring moving forward. They don’t have much else to work with besides tweaking some policy language and perhaps making some intention that they have the flexibility to expand PEPP if necessary. On the latter, they could just bring forward that decision to today to put any debate to rest but I reckon they would likely see verbal intervention as being good enough for now. Other than that, expect the ECB to keep brushing aside any positive ticks in inflation and retain the standard gradual recovery outlook. I don’t see any risk of them cutting rates – not at this time.
1330 GMT – ECB president Lagarde press conference
If the ECB sticks with mostly the same language as in January, then Lagarde’s press conference will be key to see to what degree the central bank feels the need to push back against recent bond market developments. That is the big thing to watch out for and any clues on what might trigger the need for added dovish action i.e. tweaks to PEPP policy.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.