ECB Policy Decision

ECB monetary policy announcement - The implied rates for 2024 see a full 25 bps rate cut priced by June Policy and 97 bps of rate cut into 2024.

Key interest rates were maintained unchanged as of the end of February 2024, amidst a backdrop of declining inflation rates, subdued economic growth, and low unemployment.

Inflation edged down to 2.6% by February 2024, following a decline from 2.8% in January. Despite downward revisions in inflation projections, mainly attributed to decreases in energy prices, domestic price pressures remain elevated, fueled by robust wage growth.

Economic activity remains weak as of the end of 2023, with consumers holding back on spending and moderated investment. GDP growth was projected to be 0.6% for 2024, indicating a sluggish recovery. Unemployment stands at its lowest since the euro's inception, as of the end of 2023, but output per person has continued to decline, indicating challenges in productivity.

Risks to economic growth remain tilted to the downside as of the end of February 2024, influenced by geopolitical tensions such as the conflict in Ukraine and the Middle East. Upside risks to inflation, including potential wage increases and heightened geopolitical tensions, persist. Monetary policy remains restrictive, with lending rates at 5.2% for business loans and 3.9% for mortgages as of the end of January 2024, and subdued growth in broad money, measured by M3.

Overall, the ECB reiterates its commitment to ensuring inflation returns to the medium-term target of 2%. Future policy decisions will continue to be data-dependent and contingent on economic developments as of the end of February 2024.

Overall, the ECB's stance remains cautious, with a focus on gathering more data and evidence before considering any adjustments to its monetary policy measures.

Key highlights from the press conference include

The Governing Council has not discussed rate cuts at the recent meeting, suggesting a cautious approach towards potential easing measures.

Data Dependence and Timing of Rate Decisions: The ECB emphasizes a data-dependent approach to determining the appropriate level and timing of monetary policy actions. The Governing Council is unanimous in its decision to wait for more information, particularly until June, to assess the economic landscape more comprehensively. The ECB will continue to monitor various indicators, including wage growth, underlying inflation, and the strength of monetary policy transmission.

Competitiveness and Economic Challenges: The ECB acknowledges concerns about the loss of competitiveness in Europe over the past decades.

Comments

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“Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.” ~ Howard Marks Bonds continued to rally this week with yields on US2s printing a high and low range of 3.71% - 3.55% to close the week at 3.584% and US10s printing a high and low range of 3.76% - 3.6050% to close the week at 3.655%. I highlighted in my blogpost on Aug 31, the triangle breakout target at 15.50 bps on US2s10s. We dipped to -0.004% on the CPI release and closed the week at 0.0710%. On Crude Oil prices we dipped to lows of $ 68.71 but closed the week higher at $ 72.09. ECB annou...

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"I fear not the man that has practiced 10,000 Kicks once, but I fear the man that has practiced one kick 10,000 times." ~ Bruce Lee Morning Everyone , This Week gave us a sense of how the prices or inflation has evolved and we had benign readings across CPI and PPI and the updated PCE estimates are now for a reading of 0.01% mom on the headline PCE and -0.01% on Core PCE Prices which translates to an annual reading of 2.4% yoy and 2.4% on Core PCE Prices. The Implied pricing off Fed Fund Futures is now pricing in o ne full 25 bps of rate cut into the September Policy and 61 bps of cumulative rate cuts for 2024. If you go further out the curve, 100 bps is priced in until March 2025 and 138 odd bps until June 2025. In the 23rd June Wrap, I had written On the DXY, 106.25 is a crucial resistance zone for DXY bears and an important point of reversal. So keep a watch on the levels with SL above 106.75. DXY declined over the last 2 weeks fro...

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One of my favorite poem is by Kahlil Gibran and thought I'd share a couple of lines with you all... Do not live half a life and do not die a half death If you accept, then express it bluntly, Do not mask it If you refuse then be clear about it for an ambiguous refusal is but a weak acceptance Do not accept half a solution, Do not believe half truths, Do not dream half a dream, Do not fantasize about half hopes To reach and not arrive, Work and not work The half is a mere moment of inability, but you are able for you are not half a being You are a whole that exists to live a life not half a life” On that note, quick weekly roundup for the US markets below: The Fed Fund Futures are pricing in 88% probability of a rate cut by September Policy. The Atlanta FED GDPNow Estimates for Q3 growth readings are running at 2.8%. The Cleveland Fed estimates for Core CPI and Core PCE are running at 0.27% and 0.22% respectively mom. In the last blog piece...

Shroedinger's Cat ~ Preparation is the Key to play markets || US Politics || Macro Musings

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