European Central Bank Cuts Europe’s Growth Forecast; Announces More Stimulus

Roman Schwartz
March 10, 2019

While the timing of the lunar new year made it hard to draw a true signal from the China data noise, the scale was alarming, especially when coupled with sombre new data from Germany and Norway.

Adding insult to injury, China's leading brokerage Citic Securities issued a rare "sell" rating on the Shanghai-listed shares of People's Insurance Group of China (PICC) sending them down nearly 10 percent.

Spot gold was up 0.6 percent at $1,293.18 per ounce as of 1300 GMT.

At midday, the Dow Jones Industrial Average fell 141.88 points, or 0.56 percent, to 25,331.35.

With the Euro-zone likely the next target for President Trump's trade-talk embrace, a slowing economy, a central bank very low on monetary bullets, an inability by members to mount a joint fiscal response and an impending Brexit by the U.K, it is no surprise that the Euro (EUR) fell out of bed. The pressure looked to continue on Wall Street, with S&P 500 E-Mini futures easing 0.4 percent. It also cut its growth and inflation forecasts while offering banks a new set of cheap loans to bolster economic growth.

The ECB said interest rates would be stuck around historic lows until the year's end at best, with bank boss Mario Draghi warning the eurozone was "coming out of, and maybe we still are in a period of continued weakness and pervasive uncertainty".

Yet the cocktail of growth woes and dovish central banks proved a boon for bonds.

The euro sinks to near a 21-month low against the United States dollar today, hurt by a series of dovish signals from the European Central Bank.

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"Our initial take is these developments are pressing down on market confidence, seen in lower bond yields and equities".

The yield on 10-year Treasuries fell two basis points to 2.62 percent. The euro duly sank to depths last seen in mid-2017, sending the safe-haven US dollar and yen surging. USA investors piled into sovereign debt while in Europe, the yield on the 10-year German bund fell by half from 13 basis points to about 6.5 basis points. There was also a chance the jobless rate could fall by more than forecast given the recent strength in employment.

"Lower interest rate expectations in Europe mean a likely rise in the USA dollar".

The dollar index against a basket of six major currencies was a shade lower at 97.515.

The euro also shed over 1 percent on the yen overnight and was last trading at 124.70 yen.

The Japanese yen advanced 0.4 percent to 111.12 per dollar.

It reduced the forecast of inflation for 2019 to 1.2 percent, down from the projection of 1.6 percent in December with similar reductions for the following two years. "That is not good news for euro area banks or the euro".

Gold futures on the COMEX division of the New York Mercantile Exchange jumped back on Friday as weak US job data dragged down the dollar and equities.

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