Draghi clearly under pressure to present a balanced view of ECB policy.
Yesterday’s European Central Bank policy decision came and went relatively uneventfully – all policy rates and tools were kept unchanged and there were no further discussions on extra TLTROs (the ECB’s collateral-light bank lending operations). Nonetheless, the euro benefited following the press conference as the bank’s president disclosed that the governing council discussed removing references in their statement claiming rates would stay at “lower levels” for an extended period. This small titbit is more significant than it initially appears; it signals that the bank’s multi-year history of pleading with markets to believe that interest rates will remain depressed could be at an end. Expect the ECB to drop the reference entirely in the next few months. In response, the euro added 0.6% against the pound and touched levels not seen for close to two months.
Only a serious labour market calamity will deter the Fed
Today’s US labor-market report is the final opportunity for the data calendar to drop a banana skin and hinder the Fed’s progress toward normalizing interest rates. The market’s now priced in a 90% chance of higher US rates from next week, meaning that if today’s Nonfarm Payrolls figure is sufficiently poor, it’d result in a serious and significant unwind of trades and, most likely, a minor market calamity. After February’s bumper ADP employment change number (the private sector equivalent of today’s release) it’d certainly be surprising if the US added fewer than 180,000 jobs over the same period. The median estimate is for 193,000 jobs to have been added.
Excess oil supply drowns commodity-linked currencies
Commodity-linked currencies were licking their wounds yesterday after a torrid week. The Canadian, Australian and New Zealand dollars all slid alongside crude oil and gold prices. Excess supply of mainly Brent crude oil continues to surprise many despite promises from a number of OPEC and non-OPEC nations to cut supply in order to take some pressure off the crude price. OPEC’s murky production policy, the strengthening dollar and the prospects of further rate hikes from the Fed will remain reasons for commodity prices to fall until the status quo shifts.
Pressure is piling up on UK production
Last week’s string of poor PMI data from the UK could be reflected in today’s industrial and manufacturing numbers at 0930GMT, potentially spelling the beginning of a troubling phase for UK productive industries. As import costs continue to rise, manufacturers will be stretching ever further to cover their bills and keep producing output at the same rate.