Comment: Weak China Numbers, Equivocal Comments from the ECB on Quantitative Easing
May 9, 2014 8:16 am
European stock markets traded lower Friday with investors currently weighing up central bank rhetoric with Ukraine tensions, together with data indicating disinflationary pressures in China.
Early Friday, the Stoxx Europe 600 index fell from multi-year highs while US stock futures traded lower. The Stoxx600 on Thursday climbed to its highest level since January 2008 after European Central Bank President Mario Draghi took a dovish stance and committed to ease monetary policy next month if needed.
This has led to the euro currency hitting a two-year high near $1.40 on Thursday although at the moment it is below that level, at around $1.38.
Across other asset classes, forex markets are stable while gold is up around 2 bucks and core governments – Treasuries, Gilts and Bunds – are all little changed.
There’s little on the euro zone economic agenda, so much of the focus is on the US – the S&P500 index remains highly elevated with risk-sentiment underpinned largely by the latest dovish comments by Federal Reserve Chair Janet Yellen who concluded her testimony on Thursday to US policymakers.
After two days, the clear takeaway for investors is that Yellen is showing increased reluctance and prudence on the topic of monetary tightening, pledging to keep an accommodative environment much longer after the bond-buying programme ends. This has clearly helped risk sentiment by pressuring bond yields which led investors to flock to risk assets like equities.
That being said, market participants do remain somewhat cautious about central bank policy on the whole but more so the ECB at the moment as it held back from acting with stimulus measures at Thursday’s meeting.
It did suggest it can act next month and is prepared but acknowledged low-inflation will stick around for some time – that said however, markets believe the ECB will have to do something sooner rather than later to ensure that the disinflationary pressures in the euro zone don’t push the region into deflation territory.
Speaking of disinflationary pressures, it’s not only the euro zone – data overnight from Asia suggested that China may be suffering from such pressures. China’s annual consumer price inflation fell to 1.8% in April; its slowest in 18 months.
Meanwhile, China’s PPI contracted by 2% which is the 31st straight decline on the back of weak demand – markets read this as a worrying sign for the world’s second largest economy. China stocks fell in reaction to the data while in the rest of Asia, stocks were also mostly softer with Australian markets falling on downbeat comments by the RBA.
Of course, Ukraine tensions continue to curb enthusiasm to pile on risk and will do so for some time – oil prices are on the up this morning on concerns about the prospects for supply disruption if the crisis in Ukraine escalates further.
European stock markets traded lower Friday with investors currently weighing up central bank rhetoric with Ukraine tensions, together with data indicating disinflationary pressures in China.
Early Friday, the Stoxx Europe 600 index fell from multi-year highs while US stock futures traded lower. The Stoxx600 on Thursday climbed to its highest level since January 2008 after European Central Bank President Mario Draghi took a dovish stance and committed to ease monetary policy next month if needed.
This has led to the euro currency hitting a two-year high near $1.40 on Thursday although at the moment it is below that level, at around $1.38.
Across other asset classes, forex markets are stable while gold is up around 2 bucks and core governments – Treasuries, Gilts and Bunds – are all little changed.
There’s little on the euro zone economic agenda, so much of the focus is on the US – the S&P500 index remains highly elevated with risk-sentiment underpinned largely by the latest dovish comments by Federal Reserve Chair Janet Yellen who concluded her testimony on Thursday to US policymakers.
After two days, the clear takeaway for investors is that Yellen is showing increased reluctance and prudence on the topic of monetary tightening, pledging to keep an accommodative environment much longer after the bond-buying programme ends. This has clearly helped risk sentiment by pressuring bond yields which led investors to flock to risk assets like equities.
That being said, market participants do remain somewhat cautious about central bank policy on the whole but more so the ECB at the moment as it held back from acting with stimulus measures at Thursday’s meeting.
It did suggest it can act next month and is prepared but acknowledged low-inflation will stick around for some time – that said however, markets believe the ECB will have to do something sooner rather than later to ensure that the disinflationary pressures in the euro zone don’t push the region into deflation territory.
Speaking of disinflationary pressures, it’s not only the euro zone – data overnight from Asia suggested that China may be suffering from such pressures. China’s annual consumer price inflation fell to 1.8% in April; its slowest in 18 months.
Meanwhile, China’s PPI contracted by 2% which is the 31st straight decline on the back of weak demand – markets read this as a worrying sign for the world’s second largest economy. China stocks fell in reaction to the data while in the rest of Asia, stocks were also mostly softer with Australian markets falling on downbeat comments by the RBA.
Of course, Ukraine tensions continue to curb enthusiasm to pile on risk and will do so for some time – oil prices are on the up this morning on concerns about the prospects for supply disruption if the crisis in Ukraine escalates further.
Related Posts: