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ECB leaves key rates unchanged in January meeting

  
  Analysis
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The ECB announces its latest monetary policy decision – 23 January 2020

  • Prior decision
  • Deposit rate facility -0.50%
  • Main refinancing rate 0.00%
  • Marginal lending facility 0.25%
  • Rates to remain at present or lower levels until inflation outlook robustly converges to target, reflected in underlying inflation
  • Announces first strategic review of policy since 2003
  • Further details on scope, timetable of review will be due later at 1430 GMT
  • Bond buying to continue until shortly before rates are raised
Pretty much a non-event as the details of the statement is very much a repeat of December – or so it seems, the ECB website link is down – besides the announcement of the strategic review, which was very much expected.
The euro is barely moved on the release as all eyes will turn towards Lagarde’s press conference, which is due at 1330 GMT later.
Update: Here’s the full statement.

“At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The Governing Council will continue to make net purchases under its asset purchase programme (APP) at a monthly pace of €20 billion. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The Governing Council also decided to launch a review of the ECB’s monetary policy strategy. Further details about the scope and timetable of the review will be published in a press release today at 15:30 CET.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.”

FT reports that the EU may give the derivatives industry and extension on Brexit

  
  Analysis
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Financial Times says the European Union is readying moves to offer an extra year to the financial derivates industry to prepare for Brexit

  • Valdis Dombrovskis, vice-president of the European Commission, said on Friday that contingency plans for accessing UK-based clearing houses would have to be extended beyond the current March 2020 end date because the EU financial services industry would not have alternatives in place in time.
That’s the in a nutshell version of the report – here is the link for more (FT may be gated)

Economic data coming up in the European session

  
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Eurozone October final inflation reading in focus today

Comic 15-11

Happy Friday, everyone! Hope you’re all doing well as we look to get things going in the session ahead. Risk trades are in a better mood today with some recovery seen in yen pairs and gold is also lower to start the day.

Meanwhile, equities have nudged higher while bond yields are also faring better as the Trump administration talk up hopes of a trade deal.

Looking ahead, there is little on the economic calendar in Europe to really shift the dial so we may be in for a more quiet one barring any major headlines to cross the wires.
1000 GMT – Eurozone October final CPI figures
The preliminary report can be found here. As this is the final release, it isn’t expected to have much – if any – impact on markets as a whole.
1000 GMT – Eurozone September trade balance data
Prior release can be found here. An indication of trade conditions in the euro area region but the data is a bit lagging as this pertains to Q3 economic performance.
1000 GMT – Italy October final CPI figures
The preliminary report can be found here. Focus is on the overall Eurozone release so the report here will matter little, and even more so since this is the final release.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading!

Carney press conference after BoE remains on hold

  
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Mark Carney

  • Recent Brexit deal creates a possibility of a pick up in UK growth
  • World risks slipping into low growth, low inflation but many of these dynamics occurred first in the UK
  • Both reduced Brexit uncertainty and stronger world economy assumed in BoE forecasts, but neither is assured
  • Now evidence that households are doing precautionary saving before Brexit
  • Brexit uncertainties are weighing particularly heavily on business investment
  • Reduced chance of a no -deal Brexit has pushed up sterling
  • Brexit agreement reduces risk of no deal significantly
  • pick up in UK growth likely to be limited by a lack of supply capacity in the economy
  • New BoE Brexit assumptions assume transition occurs over 3 years vs previous much longer transition.
GBPUSD pushing down towards 1.2800, but that level is holding for now

European mid-morning: Currencies remain little changed but big week lies ahead

  
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Major currencies are <0.1% changed against the dollar so far today

EOD 28-10

The pound is arguably the only active mover as cable rose to a high of 1.2859 earlier in the session before settling back to near flat levels currently around 1.2820-30 levels.
Other major currencies are holding in narrow ranges against the dollar with little conviction to break stride so far today.
The risk mood is a bit mixed overall with European equities looking indecisive but bond yields are marked higher amid the fact that a Brexit extension was granted, with the move higher coming after France moved on their stance from last week.
Despite the slower start to currencies this week, fret not because it is going to be a crucial week ahead and here are some of the highlights to look forward to:
Monday, 28 October (still to come)
– UK parliamentary vote on Johnson’s election motion
Wednesday, 30 October
– Australia Q3 CPI data
– France Q3 preliminary GDP data
– US October ADP employment change
– US Q3 advanced GDP data
– Bank of Canada October monetary policy meeting
– FOMC October monetary policy meeting
Thursday, 31 October
– New Zealand October ANZ business confidence
– China October manufacturing, non-manufacturing PMI
– BOJ October monetary policy meeting
– Eurozone October preliminary CPI data
– Eurozone Q3 preliminary GDP data
– Canada August monthly GDP data
– US September PCE deflator data
Friday, 1 November
– China October Caixin manufacturing PMI
– US October non-farm payrolls, labour market report

Is there still a possibility of a no-deal Brexit at this stage?

  
  Analysis
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What if I told you that a no-deal Brexit now hinges on Boris Johnson winning the parliamentary vote tomorrow?

Boris Johnson
Before we get into the thick of things, let us set out what exactly is at stake tomorrow. Clearly, Boris Johnson’s Brexit deal motion is the main event but what does it mean really?

If lawmakers do vote to pass the motion, it means that they have technically voted in favour of a Brexit deal but there is still the issue of ratification and getting Johnson’s deal through the necessary legislative hoops – that includes voting on the withdrawal agreement.
The issue with all of this is related to the Benn Act. Now, the Benn Act requires Johnson to request an extension if Johnson cannot get parliament to agree on a Brexit deal. Hence, if the deal is rejected tomorrow, then there is no issue.
However, if the deal is approved, this is where things may yet get a little tricky.
In such an event, Johnson isn’t compelled to seek an extension and if there are hurdles he cannot overcome in getting his deal to be ratified and implemented, he could just let things run its course and we get towards a no-deal Brexit after 31 October.
Logically, you would think that he would seek a technical extension to get a deal through but possibly and certainly are two different words with very distinct connotations.
He could possibly seek an extension to work out any potential legislative issues and buy enough time to get his deal over the line legally but it doesn’t mean that he will certainly do so.

Is there any way to avoid this altogether?

This is where the vote on the Letwin amendment tomorrow may be rather consequential.
The Letwin amendment sets out that the government is to request an extension of the Brexit deadline, if a deal is passed, up until all the necessary legislative hurdles are overcome to officially put such a deal into place.
In essence, it is an added insurance in case Johnson has other plans up his sleeve.
This means that even if Johnson’s vote passes tomorrow but fails to get through any potential legislative complications by 31 October, he will still be compelled to request for an extension to the Brexit deadline.
While the drama involved in all of this is certainly captivating, it must be said that if we do see Johnson’s deal being passed tomorrow, it is pretty much a given that it should make it through all the significant legislative hurdles and be ratified in due time.
The timeline may now say it should be done by 31 October (two weeks) and that certainly could be plausible if lawmakers decide to work overtime.
That said, even if that isn’t enough time, a technical extension just to get the deal implemented is almost surely the most likely outcome – barring any unforeseen circumstances.

What happens now that Boris Johnson has managed to strike a Brexit deal?

  
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We have been down this road before

Johnson

A Brexit deal is only as good as its chances to pass a vote in parliament. Just ask Theresa May how that worked out for her.

For all the optimism we’re seeing in the pound over the past week, all of that now hinges on whether or not Boris Johnson can get this deal through a parliamentary vote.
So, what are the key signs to watch for that?
The most obvious telltale sign is to watch for the stance adopted by the DUP. Just be reminded that Johnson doesn’t have a working majority in parliament so he will need all the support he can get at this point in time.
As it stands, the DUP isn’t quite on board yet so that means there is still a high chance of the deal failing to get through a vote in parliament.
What would that mean if we see such a scenario? Again, it just puts us back to a similar position when Theresa May was trying to get her Brexit deal through a vote – where she failed three times by the way.
Another possibility is if Johnson decides to couple his deal with a referendum vote in order to sway Labour lawmakers to get on his side. But that is likely a long shot and one he is almost certainly not going to pursue.
Otherwise, I still reckon it is a tall order for this Brexit deal to pass a vote in parliament at this juncture. But if the DUP and ERG gets on board, I think the pound has the potential to first head towards 1.33 before looking towards 1.35 next.

Pres. Trump sounds off….

  
  Analysis
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…Stocks are not liking the optics of it all

Pres. Trump is sounding off as he defends himself in the way he knows how. Below are a sampling of the recent tweets:
...Stocks are not liking the optics of it all
He is also on the wires saying:
  • He thinks the whistleblower should be protected if he is a legitimate whistleblower
But adds:
  • Person who provided whistleblower information is a spy
What does it have to do with the market?
Stocks continue to suffer, as things are seemingly more and more in disarray.
The S&P is currently down 56 points or -1.9% at 2884.30. The NASDAQ is down 142 points or -1.8% at 7766.  Both are near lows for the day.

S&P index

Gold prices remain elevated at plus $21.50 or 1.45% at $1500.50.
The USD is mixed
  • The USDJPY is seeing the safe haven flows and trades near lows for the day
  • The USDCHF, which was up near 90 pips earlier after weaker CPI inflation, has moved back to mid range.
  • The EURUSD moved to new highs on some dollar selling
  • The GBPUSD has also recovered (dollar selling) after being lower on Brexit concerns earlier.

Eurozone August unemployment rate 7.4% vs 7.5% prior

  
  Analysis
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latest data released by Eurostat

unemployment eurozone
The latest unemployment figures from the eurozone are showing a continued steady decline in unemployment numbers. The worry here would have been if employment levels start to fall due to a slowdown in manufacturing etc. However, no concerns like that seen in the data and EURUSD at 1.0932 – remember there are some decent option levels at 1.0900 level on the EURUSD

Its European Central Bank policy meeting day – preview

  
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ECB monetary policy decision is coming later on Thursday 12 September 2019

  • announcement due at 1145gmt
  • ECB President Draghi’s press conference (his last one!) is at 1230 GMT
Various previews have been posted in past days, I’ll collate them all for easy reference a little later. But for now, BNZ have a handy summary:
  • consensus among economists is for a 10bp cut to the ECB’s deposit rate and the announcement of a resumption to QE, with the median estimate for a €30b per month pace of bond buying. 
  • The market prices 14bps of rate cuts in for this meeting, implying an almost 50% chance that the ECB could cut by 20bps. 
  • The ECB is widely expected to accompany any rate cut with the adoption of a “tiering” system for bank reserves, whereby some portion of banks’ reserves will be exempted from the negative deposit rate, in order to mitigate the negative financial impact on the banking sector. 
  • The bond market’s focus is likely to be on whether the ECB restarts its QE programme and, if so, what the size of such a programme might be. Despite the recent rise in European and global rates, expectations for the ECB are still high (as evidenced by a 30 year German yield of 0%) and were it to disappoint market expectations on QE, the risk is for an extension in the recent bond sell-off.
ECB monetary policy decision is coming later on Thursday 12 September 2019 
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