- ECB seen waiting for June meeting to announce any fresh changes to stimulus;
- Muted market response to Trump tax plans;
- Economic data and earnings eyed.
U.S. equity markets are expected to open relatively unchanged on Thursday as investors eye the latest monetary policy decision from the ECB and respond to Donald Trump’s tax reform plans, announced on Wednesday.
The ECB will announce its latest monetary policy decision shortly and is expected to leave everything unchanged, with the June meeting being seen as the most likely point at which the central bank will seriously consider a further removal of stimulus. While it’s unlikely that another reduction in asset purchases or a rate hike will happen until the end of the year, the central bank may allude to such a move earlier but I think today’s meeting is a little too soon.
Mario Draghi may have been keen to stress that the previous reduction is not tapering, but I think it’s clear that the central bank has started a process of removing stimulus in much the same way that its U.S. counterpart did. The only difference is that it’s being less explicit with its plans and the process will be far more gradual. The problem that the ECB is facing is that core inflation is still well below its target of below but close to 2% and there still exists a two-tier eurozone with some countries in a far better position for monetary tightening and others still in need of substantial easing.
As far as today’s meeting is concerned, very little is expected from the central bank. The meeting falls in between the first and second round of the French Presidential elections, with eurosceptic Marine Le Pen one of the two candidates set to battle it out for the Presidency on 7 May. While the central bank may want to avoid appearing to interfere in the election, it will be interesting to see whether the reference to downside risks is scaled back in order to avoid playing into Le Pen’s hands, or whether they talk up the progress achieved this year and the improved prospects for the region.
There has been a relatively muted response to Trump’s plans for tax reform that were announced on Wednesday, the prospect of which was one of the key drivers of the market rally that followed his election victory last November. With U.S. equity markets near all-time highs and much of the details that were released already being known, it would appear everything was already priced in.
While it was interesting to see the plans being laid out, there are still a number of obstacles to overcome before the changes come into effect, which may explain the muted response. Investors may have also got a little carried away with the plans previously and the implementation of them could take longer than people were expecting which is taking a little bit of the shine off.
Still to come today we’ve got some US economic data being released as well as first quarter earnings reports from a number of companies including Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL).