Comment: Markets Steady But Subdued Before US Nonfarm Payrolls Data
February 7, 2014 7:26 am
Subdued financial markets in Europe this Friday, a day after the ECB and BOE met to decide on policies. As expected, no change on policies by both central banks with the BOE likely to offer more clarity on forward guidance at next week’s Inflation Report while the ECB meeting yielded few surprises. ECB’s forward guidance was reiterated with commitment to highly accommodative policies and reaffirmed that the ECB is prepared to consider all available instruments if it needs to step-in and assist the euro area. That may be a little tougher now as this morning, Germany’s constitutional court said it will rule on the legality of the ESM bailout mechanism and that the ECB’s dormant OMT programme exceeds the central bank’s mandate.
This opposition by Germany presents a stumbling block for ECB when it comes to other instruments the central bank may want to consider if indeed, the euro area is in need of urgent aid, but, the OMT programme hasn’t been activated and if the euro peripheral nations remain on top of their budget deficit targets, obey to conditions set out by the Troika, continue installing structural reforms and implementing austerity, there seems little need for the OMT to ever be activated. The ECB just hit back by reiterating that the OMT programme falls with the central bank’s mandate. That all being said, the euro area risk has greatly reduced over the past year; some reckon the OMT programme is not even needed now however changes to the ESM mechanism could push back the recent progress made by the EU on establishing a banking supervision to bailout distressed banks.
Back to the ECB meeting yesterday, the central bank did set itself apart from the US Fed by saying the recent rout in the EM space does pose a downside risk to the euro zone’s economic outlook – this remark will certainly place further pressure on European assets if we continue to see a wipe-down of EM asset prices. Looking ahead, today of course is US jobs data day with NFP due this afternoon; consensus stands at 180k versus last month’s figure of 74k. A weak figure will again last the previous figure be seen as distorted due to the weather conditions in the US whilst a strong number would only reaffirm the Fed’s tapering plan, raising expectation for another taper this month of perhaps around $10billion.
Subdued financial markets in Europe this Friday, a day after the ECB and BOE met to decide on policies. As expected, no change on policies by both central banks with the BOE likely to offer more clarity on forward guidance at next week’s Inflation Report while the ECB meeting yielded few surprises. ECB’s forward guidance was reiterated with commitment to highly accommodative policies and reaffirmed that the ECB is prepared to consider all available instruments if it needs to step-in and assist the euro area. That may be a little tougher now as this morning, Germany’s constitutional court said it will rule on the legality of the ESM bailout mechanism and that the ECB’s dormant OMT programme exceeds the central bank’s mandate.
This opposition by Germany presents a stumbling block for ECB when it comes to other instruments the central bank may want to consider if indeed, the euro area is in need of urgent aid, but, the OMT programme hasn’t been activated and if the euro peripheral nations remain on top of their budget deficit targets, obey to conditions set out by the Troika, continue installing structural reforms and implementing austerity, there seems little need for the OMT to ever be activated. The ECB just hit back by reiterating that the OMT programme falls with the central bank’s mandate. That all being said, the euro area risk has greatly reduced over the past year; some reckon the OMT programme is not even needed now however changes to the ESM mechanism could push back the recent progress made by the EU on establishing a banking supervision to bailout distressed banks.
Back to the ECB meeting yesterday, the central bank did set itself apart from the US Fed by saying the recent rout in the EM space does pose a downside risk to the euro zone’s economic outlook – this remark will certainly place further pressure on European assets if we continue to see a wipe-down of EM asset prices. Looking ahead, today of course is US jobs data day with NFP due this afternoon; consensus stands at 180k versus last month’s figure of 74k. A weak figure will again last the previous figure be seen as distorted due to the weather conditions in the US whilst a strong number would only reaffirm the Fed’s tapering plan, raising expectation for another taper this month of perhaps around $10billion.
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