ECB expected to remain on the sidelines – BTMU

Derek Halpenny, European Head of GMR at BTMU, has ruled out any modification of the ECB monetary policy for the foreseeable future.

Key Quotes

“Admittedly, there was more to the move higher in EUR/USD than just the comments from Peter Navarro published by the FT. Euro-zone real GDP expanded by 0.5% on a Q/Q basis in Q4 resulting in an annual growth rate of 1.8%. The more intriguing data was perhaps the jobs data with the unemployment rate falling to 9.6%, the lowest since May 2009 and a clear sign of progress on removing spare capacity from the jobs market”.

“The other data though was less supportive of the ECB making any change to its monetary stance any time soon. While the overall annual inflation rate jumped by more than expected, to 1.8% from 1.1%, the core annual rate remained stuck at

0.9%. ECB President Draghi in December and again in January mentioned the energy base-effect lift to inflation as likely to provide a “transitory” lift to inflation and hence market talk of the ECB changing its rhetoric is very premature”.

“As we’ve pointed out recently, the stance of the ECB is also a reflection of the ECB’s desire to maintain financial market stability through to the French elections and providing Le Pen does not win, will then be in a position to signal to the markets a plan to taper and end QE – but not before. And the very recent pick-up in periphery bond yield volatility will only add to the ECB’s determination to maintain a steady monetary policy stance”.