Thursday preview: Will Draghi 'look through' amid Germany pressure
Attention moves to the European Central Bank on Thursday, with an interest rate decision and press conference with central bank chief Mario Draghi that should be the key event of the week.
To date, Draghi has only announced that he would be ready to cut rates further and also increase and extend the QE programme, with the market having already decided that another rate cut is out of the question, even if nobody expects an increase in the foreseeable future.
On Thursday, with the decision published at 1245 GNT and the press conference at 1330 GMT, Draghi is predicted to remain resolute in his original quantitative easing plans, even though the headline inflation which the ECB has used as an excuse to keep the QE going has improved and reached the ECB target of 2% in February.
Barclays was one of many that said they did not expect any policy changes, but expected the governing council to point to a more balanced risk regarding the macroeconomic scenario and inflation outlook.
"The Q&A may focus on the improved macro outlook and the possible next steps towards a less ultra-accommodative monetary policy stance," Barclays economists wrote.
Those at Danske Bank said the reason why they do not expect the ECB to react to the stronger inflation figure is that it is driven by the volatile energy and unprocessed food price inflation, whereas the underlying price pressure remains weak.
"The ECB has said it will not change its monetary policy based on such a rise in inflation and in the introductory statement from the latest ECB meeting it was communicated that 'the Governing Council will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability'."
Andrew Bosomworth, head of Pimco portfolio management in Germany, made the case for the central bank to keep winding down its policy support.
He said: "There is a strong case for the ECB to continue tapering its QE programme, to alter its forward guidance and to begin normalising policy rates. While these changes will tend to tighten financial conditions, this risk is outweighed by the growing risks to the region’s financial stability."
Pressing for what it describes as a reassessment of the ECB’s ‘balance of risks’, Germany is arguing that the fundamentals of the eurozone economy have evolved and Mario Draghi’s rhetoric about concern over recession are well past their sell-by date.
Said the economists at JCRA: "Draghi has a major problem, as the ECB will be announcing new inflation forecasts this week and the 1.3% forecast made in December now looks absurd.
They suggested Draghi may take a leaf out of Mark Carney’s book and go for a ‘look through’ solution, even though a Germany buoyed by the increase in its industrial production figures will be looking for a reversal in tone.
"It would be much more justified in his case, as the underlying inflation rate in the eurozone is still very low at 0.9% and the current rapid rise of the CPI measure has been almost entirely driven by the depreciation of the EUR against the USD."
Thursday March 09
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Continuing Claims (US) (13:30)
ECB Interest Rate (EU) (12:45)
Import and Export Price Indices (US) (13:30)
Initial Jobless Claims (US) (13:30)
32Red, Aviva, Cairn Homes , Capital & Regional, Charles Taylor, Cineworld Group, Communisis, Morrison (Wm) Supermarkets, Old Mutual, Portmeirion Group, Premier Oil, Restore, Secure Income Reit
SPECIAL EX-DIVIDEND DATE
Jupiter Fund Management , Persimmon, River and Mercantile Group
88 Energy Limited (DI), Arden Partners
FINAL DIVIDEND PAYMENT DATE
FINAL EX-DIVIDEND DATE
Athelney Trust, Aviva 8 3/8% Cumulative Irrd Preference 1, CareTech Holding, CRH, Electronic Data Processing, Jupiter Fund Management , Lakehouse, Rights & Issues Inv Trust Income Shares, Safestore Holdings, Spirent Communications, St. Modwen Properties, Temple Bar Inv Trust, Thomas Cook Group
INTERIM EX-DIVIDEND DATE
Ashmore Group, Aurora Investment Trust, BHP Billiton, Croma Security Solutions Group, Dechra Pharmaceuticals, Hargreaves Lansdown, Mid Wynd International Inv Trust, MJ Gleeson , Oxford Instruments, Redde, Renishaw, Ricardo, River and Mercantile Group , Ruffer Investment Company Ltd Red PTG Pref Shares, South32 Limited (DI) , Standard Life UK Smaller Companies Trust, WYG
QUARTERLY EX-DIVIDEND DATE
Honeycomb Investment Trust, Land Securities Group, Premier Energy & Water Trust, UIL Limited (DI), Volta Finance Limited