Comment: European Markets Higher Before BOE/ECB Meetings Thanks To Easing Ukraine Tensions
March 6, 2014 8:24 am
European financial markets trade up Thursday ahead of key central bank decisions by the Bank of England and European Central Bank. Asian markets rose overnight on the back of confidence over easing tensions in the Ukraine after Russia pulled back ground troops earlier this week and President Putin downplayed the possibility of military action.
Hopes grow for a solution to the Ukraine crisis following talks between Russia and the West but leaders from the West are at odds on how to deal with the issue itself. That said, EU leaders today are hosting an emergency summit in Brussels to grapple with a unified response by Western powers, perhaps with sanctions against Russia. An emergency funding package for Ukraine is also likely to be discussed as the country is now at the brink of financial collapse.
Overnight in the US, we had a poor set of economic data in the shape of softer than anticipated ADP jobs data, in at 139k versus consensus of 155k and strong downward revisions to the January numbers, prompting market participants to downgrade their expectations for Friday’s US nonfarm payrolls report. At the same time, US non-manufacturing ISM [services] data came out and was also below expectations – dropping to 51.6 vs. 53.5 and with the employment sub-index falling from 56.4 to 47.5.
In the face of continued deteriorating economic data from the US, there will be more pressure on Fed chair Janet Yellen to contemplate halting tapering of bond-buying. Much of the disappointing economic data at the start of the year was attributed by the severe weather conditions in the US with Fed members dismissing economic readings as distorted by the bad weather, but we are in March now, and investors are not convinced by the constant weather-blaming anymore. The US economic recovery is most certainly stalling a tad – if we continue to see more deterioration in data, particularly Friday’s nonfarm payrolls report, markets will be of the view that the Fed cannot justify further tapering until economic conditions improve.
In Europe, attention is on both BOE and ECB meetings – BOE unlikely to act and maintain policies – the Bank will continue to monitor the recovery in the UK but conditions have been decent since the Inflation Report last month and fresh forward guidance has been issued too so little is expected by the BOE.
For the ECB however, there are expectations of a rate cut, by around 15 basis points of 0.1% and a reduction in the deposit rate too. Inflation in the euro zone continues to decline, raising the spectre of deflation while tough austerity and stubbornly high unemployment sap economic growth. Data has been mixed out of the euro zone in general with Germany driving the recovery, as expected but France contracting.
Spain makes progress most facets of its economy but Italy remains a laggard in the overall euro area recovery with a new PM in place who faces a plethora of challenges. ECB will issue 2016 forecasts for the euro area which will garner much attention as well as the press conference in which Mr Draghi will be asked questions about the low-gear euro area recovery, deflation, further stimulus measures and the crisis in Ukraine.
European financial markets trade up Thursday ahead of key central bank decisions by the Bank of England and European Central Bank. Asian markets rose overnight on the back of confidence over easing tensions in the Ukraine after Russia pulled back ground troops earlier this week and President Putin downplayed the possibility of military action.
Hopes grow for a solution to the Ukraine crisis following talks between Russia and the West but leaders from the West are at odds on how to deal with the issue itself. That said, EU leaders today are hosting an emergency summit in Brussels to grapple with a unified response by Western powers, perhaps with sanctions against Russia. An emergency funding package for Ukraine is also likely to be discussed as the country is now at the brink of financial collapse.
Overnight in the US, we had a poor set of economic data in the shape of softer than anticipated ADP jobs data, in at 139k versus consensus of 155k and strong downward revisions to the January numbers, prompting market participants to downgrade their expectations for Friday’s US nonfarm payrolls report. At the same time, US non-manufacturing ISM [services] data came out and was also below expectations – dropping to 51.6 vs. 53.5 and with the employment sub-index falling from 56.4 to 47.5.
In the face of continued deteriorating economic data from the US, there will be more pressure on Fed chair Janet Yellen to contemplate halting tapering of bond-buying. Much of the disappointing economic data at the start of the year was attributed by the severe weather conditions in the US with Fed members dismissing economic readings as distorted by the bad weather, but we are in March now, and investors are not convinced by the constant weather-blaming anymore. The US economic recovery is most certainly stalling a tad – if we continue to see more deterioration in data, particularly Friday’s nonfarm payrolls report, markets will be of the view that the Fed cannot justify further tapering until economic conditions improve.
In Europe, attention is on both BOE and ECB meetings – BOE unlikely to act and maintain policies – the Bank will continue to monitor the recovery in the UK but conditions have been decent since the Inflation Report last month and fresh forward guidance has been issued too so little is expected by the BOE.
For the ECB however, there are expectations of a rate cut, by around 15 basis points of 0.1% and a reduction in the deposit rate too. Inflation in the euro zone continues to decline, raising the spectre of deflation while tough austerity and stubbornly high unemployment sap economic growth. Data has been mixed out of the euro zone in general with Germany driving the recovery, as expected but France contracting.
Spain makes progress most facets of its economy but Italy remains a laggard in the overall euro area recovery with a new PM in place who faces a plethora of challenges. ECB will issue 2016 forecasts for the euro area which will garner much attention as well as the press conference in which Mr Draghi will be asked questions about the low-gear euro area recovery, deflation, further stimulus measures and the crisis in Ukraine.
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