Mario Draghi holds press conference after ECB meeting

02 Jul 2020

Market Brief: ECB’s forward guidance in focus

Emily Maguire

FX Dealing team

The ECB’s Governing Council convenes today for its second meeting of the year. The main area of focus will be whether there are any changes to its “forward guidance”. 

Today's data releases
  Key levels
12.00 US Challenger Job Cuts    
12.45 ECB Rate Decision   Support Resistance
13.30 ECB Press Conference GBP/USD 1.3712 1.3997
13.30 US Initial Jobless Claims GBP/EUR 1.1064 1.1508
Market overview

The European Central Bank’s Governing Council convenes today for its second meeting of the year. The policy decision is unlikely to bring any changes: leaving the deposit rate at -0.40%; the main refinancing rate at 0.00% and the marginal lending rate at 0.25% respectively. The main area of focus will be the wording of the ECB’s statement and whether there are any changes to its “forward guidance”. We suspect that a more robust economic outlook will put the GC under pressure to remove the easing bias on its Quantitative Easing programme i.e. no longer state that it stands ready to step up or extend the programme if necessary. Even though this may seem like a trivial change, this would give insight into the GC’s intended direction of travel and ultimately, the road to policy normalisation must involve taking steps at some point. The ECB will also present its latest round of forecasts for growth and inflation which are not expected to deviate too much from the figures from December.

 

Markets have been uneasy this week regarding the US plans to impose trade tariffs. However, we have seen that reduce somewhat due to an announcement from White House spokesperson Sarah Sanders last night. Sanders suggested that there could be “carve-outs” for the likes of Canada in the announced steel and aluminium tariffs easing fears over US trade protectionism and trade wars. This issue has certainly not gone away however reports are out this morning that the President was set to formally sign the order on the tariffs today. There are also questions as to whether Trump announces broad tariffs on Chinese imports as has been reported - on the campaign trail he reportedly suggested tariffs of 45% on Chinese goods. Whoever takes over as National Economic Advisor will certainly be seen as a key appointment: Gary Cohn was seen as a more stabilising hand against some of the more nationalist voices among Trump’s advisors. Various Republicans have voiced their objection to Trump’s planned tariffs and whilst constitutionally it is Congress that has the power over tariffs, various laws introduced over the years have delegated certain powers to the President. Essentially these provide loopholes for the President to avoid Congress in introducing tariffs as he sees fit. Where this goes remains to be seen, given Nafta talks are being conducted at present, there could be an aim to push talks along and tariffs may just be limited to the announced steel and aluminium increase, but given the EU has threatened retaliatory measures, the US could respond in turn as has been suggested by Trump.

 

Back on home soil, the Office for Budget Responsibility has announced that it will estimate what the UK will pay to the EU in its divorce payments over decades to come. This will be done for the first time and spelt out in Chancellor Hammond’s Spring Statement next Tuesday. The UK has already agreed to obligations of between £35bn and £39bn after Brexit but there has been some pushback on those figures from the EU as they believe the true figure could be higher.

 

The day ahead

 

The key event is the ECB meeting release discussed above. This will see markets focus on the subsequent policy statement and Mario Draghi’s press conference afterwards. Very light data-wise apart from this but we do see a potential for currency market reaction, especially should President Draghi make comments around the strength of the euro. 

Thought of the day

Today is International Women’s day! To celebrate, Investec has invited 40 boys and girls aged 11-16 to 2 Gresham Street for a day of talks by talented staff members and guest speakers, as well as interactive and fun activities aimed at inspiring young people to #PressforProgress, so that collectively we can all play a part in driving gender equality.

 

Companies from all over the world are embracing the day aimed at honouring the accomplishments of their female workforce. For the first time in history, McDonalds have flipped their iconic arches logo on its official website, Twitter and Instagram handles. Some reports even suggest a Californian outlet of the fast food chain has gone as far as actually flipping its physical 'M' sign upside down – I feel like we have been outdone slightly! Anyway, to speak to some of the best women in the business, give our Dealing Desk a call on 0800 055 6339. 

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