Draghi defends criticism of ECB’s lack of stimulus
Last night the European Central Bank’s (ECB) Mario Draghi spoke on the uncertain 2016 global outlook, and the challenge to ensure that headwinds from it do not blow the European recovery off course. He said the ECB is doing its part to secure a cyclical recovery by fulfilling its price stability mandate, but to turn it into a structural recovery others would have to pitch in on the fiscal front, structural reforms and reducing the debt overhang.
The ECB President hinted that additional easing may be on tap at the central bank’s next meeting in the statement accompanying last week’s policy announcement. He seemed to reinforce that point in his speech, where he stressed that the ECB targets “headline” and not “core” inflation; the former stands much lower than the latter, and he quipped that excess liquidity can always be withdrawn. With the markets now expecting Bazooka II in March, two months away, and given the fact that the ECB disappointed in December, the market probably won’t get ahead of itself and quickly price in aggressive easing. Tellingly, he also added that the ECB needs to fulfill its inflation mandate in order to maintain its credibility.
Mark Carney speaks this morning and the markets expect more of the same tone we have heard of late with regards to global risk and slowdown, and how it affects the UK. While UK data this week will likely show expansion accelerated last quarter, making three years of non-stop growth and also the lowest unemployment rate in a decade, Carney and the majority of his colleagues are focussing on global risks that could hinder momentum and strangle inflation. At last week’s statement he mentioned “the world is weaker and U.K. growth has slowed. Due to the oil-price collapse, inflation has fallen further and will likely remain very low for longer.” Furthermore, uncertainty on the Brexit will play a part in the strength of the Pound. Coupled with the current negative sentiment, Sterling will struggle to gain strength.
In the US, the Federal Reserve has confirmed that its Federal Open Market Committee (FOMC) meeting is due to go ahead tomorrow after concerns that the recent snow storm would postpone it. Data releases from the US today will put the FOMC in the spotlight as we see the Case-Shiller Home Price Index, which is expected to rise from 5.5% to 5.7%, after that the Markit services and composite PMI figures and then consumer confidence due remain stable at 96.5.
Data to watch: 10.45am BoE Governor Speech. 2pm US Case-Shiller Home Price Indices (YoY). US Housing Price Index (Mom). 2.45pm US Services PMI. 3pm US Consumer confidence (Jan).