ECB Monetary Policy Pressured by Two Strong Opposing Economic Forces


The European Central Bank kept its benchmark interest rates unchanged, as widely expected and stuck to its decision to end the stimulus program in the third quarter of this year but did not provide any further details that disappointed markets, as many expected a hawkish reaction in light of surging inflation that prompted a number of major central banks to start tightening policies.

The ECB’s President Christine Lagarde pointed to growing uncertainty on the war in Ukraine, as the main obstacle, but said that the central bank will maintain optionality, gradualism and flexibility in conducting its monetary policy.

The end of asset purchases could come at any time in the third quarter but without any further information about the timing, as well as no timeframe for when the central bank would start to raise rates, adding that rate hike could occur weeks or even months after the stimulus ends and when the ECB gets there.

Unexpectedly dovish stance suggests that the European Central bank is diverging from its all major peers, as the US Federal Reserve and The Bank of England already started to tighten their policies after nearly three years, with the US central bank leading on expectations for eight or more hikes in next two years. (more…)

Reuters poll shows the PBOC is likely to lower benchmark lending rates (LPR) today

Reuters polling shows (28 traders and analysts surveyed):

  • 11, or 39% of all respondents, predicted a marginal cut of 5 basis points (bps) to both the one-year loan prime rate (LPR) and the five-year rate
  • Another six participants also expect a reduction to either rates within a range of 5 to 10 bps
  • The remaining 11 respondents expected both rates to remain unchanged this month.

The LPR setting is due at 0130 GMT, although it has been earlier.

US major indices close solidly higher on the day

The major US  indices  closed solidly higher with the NASDAQ index leading the way. That’s the good news the bad news is Netflix earnings and numbers came in much worse than expected (with net subscribers negative at -200 K and forecasts of -2 million in the next quarter). The stock is currently down 20% from its closing level.

Nevertheless for the day, the major indices were solidly higher:

  • Dow Jones closed up 499.5 points or 1.45% at 34911.19
  • S&P rose 70.52 points or 1.61% at 4462.22
  • NASDAQ index rose 287.31 points or 2.15% at 13619.67
  • Russell 2000 rose 40.63 points or 2.04% at 2030.76
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