1. The Bank of England will announce its rate decision at 6 a.m. CDT and look for the status quo. Governor Carney has been pleased that the U.K. economy is gaining traction and the Brits’ QE program has been tapered for a quite awhile, meaning that the BOE‘s balance sheet has remained at 375 BILLION POUNDS in asset purchases. Inflation has been lowered while growth has increased. The rise in housing prices will be a concern but Carney seems to be comfortable decreasing the lending program to private borrowers while continuing to keep loans flowing to small and medium businesses. The BOE will keep rates at 0.5% and probably use a cautious outlook in reference to Europe so as not to excite STERLING BULLS.
2. The European Central Bank (ECB) will announce the results of its meeting at 6:45 CDT and I expect no change in rates or a change in official ECB policy. The last meeting saw the ECB cut rates by 25 basis points but the vote to cut rates was contentious as the German-led bloc voted against the cut. Draghi will not wish to see another divided vote but the fireworks will possibly come at the Draghi press conference beginning at 7:30 CDT. The ECB president will be hammered with questions about the possibility of NEGATIVE INTEREST RATES on bank reserve deposits. Further questions will initiate discussion of a new type of quantitative easing or LTRO program should any banking problems arise, or, more importantly, if the impact of continued high unemployment leads to the build up of deflationary price pressures. The European press is much better prepared than the American press corp so be prepared for tweets that create a great deal of volatility. Patience will be a virtue as Mario Draghi attempts to keep the lid on tensions between the Germans and the rest of Europe.
As reported in a Bloomberg article today, “… prices fell in Greece, Cyprus and Ireland and were flat in Spain and Portugal. By contrast, they rose 0.7% in France and Belgium, 1.2% in Germany and 1.5% in Austria.” This is making Draghi’s efforts to promote growth in the peripherals difficult as the German-led bloc wants interest rates to increase so that real yields are not negative for German savers. As always, the ECB is stuck trying to determine whose EURO is it?
3. The Bank of Canada held its interest rate steady at 1 percent and issued a very benign statement. Governor Poloz seemed somewhat concerned about low inflation but with the Canadian dollar weakening during the last year he seems to be content about allowing the effects of a weaker currency to work through the Canadian economy. Poloz noted the U.S. economy was gathering momentum but the BOC will wait to see if the pickup is due to temporary factors. The Canadian outlook was thus very similar to Tuesday’s Reserve Bank of Australia’s announcement. The view from the smaller global resource based economies is for continued tepid global growth.
***Again, look for volatility out of the ECB press conference as algo-driven trades generated from KEY WORD HEADLINES create price swings in the markets. As Draghi begins his speech the U.S. will be releasing GDP numbers and jobless claims, which will also act to be market movers. The jobless claims number will be scrutinized to see if it synthesizes with today’s ADP data, which was better than expected. Caution is the watchword for the 7:30-8:30 CDT window.