Mario Draghi’s speech was, for sure, in the limelight yesterday. He announced the beginning of the QE program (1.1trillion euro) starting with the 9th of March. The ECB itself will operate up to 12% of all purchases while the remaining part will be conducted on behalf of the Eurosystem by the Banco de España and the Banque de France.
After revealing the most awaited details, the ECB governor gave details about the economic assessments. Thus, they now see 2015 GDP growing by 1.5% versus a December forecast of 1%. The 2016 GDP is now seen growing by 1.9% versus a previous estimate of 1.5%, while 2017 growth is forecasted at 2.1%. The inflation is seen as being flat in 2015, downward revision from a December forecast of 0.7% that is mainly caused by the falling oil prices. For 2016 the inflation is expected to rise up to 1.5% (versus 1.3%) and in 2017 the inflation may run to 1.8%.
The EURUSD had a moment of enthusiasm as it went up to 1.1113 but then it quickly fell to 1.0986 while now is stabilizing below the resistance level of 1.1030. Today the euro will again be under pressure so the 1.0986 minimum may become attractive. The German DAX created a new high, so now the support levels are 11425 and 11470 while the resistance level is located at 11533 points and a possible target is now nearing the 11550 level.
The price of both WTI and Brent didn’t have a reaction to the 10.3 million barrels of petroleum supplies in the American inventories. The price started to rise as the beige book came out while market participants consider there are clear signs of impending production cuts and improving demand even if the oversupply term wasn’t completely abandoned. On the top of that, the turbulences in Lybia and Irak sent impulses throughout the market. Concluding, it seems that the oil price has now only one way to go and that is up.
Speaking about interest rate, we can observe the increased activity in this sector. This week India decided to lower its interest rate at 7.5%, Poland also decreased it at 1.5%, Great Britain kept it at 0.5%, the Euro Zone also maintained it at the record low of 0.05%, Canada preserved its interest rate to 0.75%, China announced a 0.25% interest rate cut, the RBNZ works on measures to curb mortgage expansion (and perhaps prepare the ground for an interest rate cut) while Brazil is raising the interest rates to a six-year high at 12.75% as the inflation rose to 7.54% (central bank’s target 4.5%).
The alarm status is definitely installed, but it is well camouflaged by the central banks’ portfolios with conventional and unconventional monetary policy tools.
On the American continent the enthusiasm dominates as the ADP was published down to 212k, ISM Non-Manufacturing PMI increased to 56.9 points, Unemployment Claims rose to 320k and Factory Orders decreased by -0.2%. The macroeconomic data are mixed so it’s even harder for market participants to anticipate an interest rate hike. The dollar is strongly appreciating while Fed’s officials came with contradictory statements in the press. Charles Evans (Chicago) calls for patience in normalizing the monetary policy while John Williams (San Francisco) thinks that Fed should not be too patient on rate hikes.
