European futures are pointing to a positive start to the session on Thursday, buoyed by decent gains in the U.S. overnight and the dovish minutes from March’s FOMC meeting on Wednesday.
While there is some support within the committee to continue to raise interest rates, I think it’s clear from the minutes that they’re not that close to forming a consensus at this stage, which effectively takes April off the table, as the markets had already assumed. This sudden dovishness from the Federal Reserve does suggest that we’re seeing an alternative approach being adopted that puts more emphasis on the markets than they would have U.S. believe.
Perhaps this is a coordinated effort from the major central banks in response to the turmoil in the markets at times since last summer, an attempt to bring some more stability to the markets. While it could be argued that the ECB didn’t have such consideration when it unleashed its “bazooka”, I think it’s clear that a number of its policies were not aimed at devaluing the euro which has clearly been the objective at times in the past. This was clearly evident by the fact that the euro actually strengthened quite considerably following the last meeting.
The meeting accounts from the March ECB meeting should shed further light on the central bank’s intentions this afternoon. ECB President Mario Draghi appeared to suggest at the meeting that no further rate cuts are being considered at the moment, which is what sparked the initial rally in the euro last month and it will be interesting to see if this view is shared by the rest of the committee and whether it applies to all forms of easing. Is the ECB done for now and intending to monitor the situation for the foreseeable future and see if its actions have the desired effects.
Central banks will continue to be a dominant theme in the markets on Thursday as we’ll also hear from Mario Draghi when he speaks on the economic and financial situation in Europe, in Lisbon, as well as Fed Chair Janet Yellen this evening. Yellen’s event will be particularly interesting as it is a panel discussion that includes a number of former Fed chairman, who could go into great depth about past and current policies, as well as the possible course of action going forward. I’m sure markets will be paying very close attention to the comments that come from this event.