Fairly Calm Build-up to ECB Policy Meeting

Yesterday’s fall-out on Asian markets this morning is relatively limited, meaning a fairly calm build-up to this afternoon’s ECB policy meeting. Admittedly, Japan is closed for business. Money markets expect Frankfurt to ease the tightening pace and raise rates by 25 bps to 3.25%. Analyst estimates shifted from 50 bps last week to 25 bps as well, following this week’s inflation numbers and BLS.

Asian Stock Markets Rejoiced Post-FOMC

No surprise from the US central bank, Federal Reserve’s policy meeting outcome yesterday where the Fed hiked its policy Fed funds rate by 25 basis points as expected, its 10th hike in this current tightening cycle to a target range of 5% to 5.25%.

EUR/USD Edges Lower, ECB Expected to Raise Rates

All eyes are the ECB, which is expected to raise rates at today’s meeting. The burning question remains will the central bank increase rates by 25 or 50 basis points? The eurozone April inflation report, published Tuesday, didn’t provide any insights as both the headline and core readings barely moved and were very close to the estimates. Headline CPI came in at 7.0% and the core rate at 5.6%, which is well above the 2% target and much too high for the ECB.

Bitcoin Aims Higher

The bulls in Bitcoin have pushed the price to $29K, consolidating above the 50-day moving average. This is an essential signal of a medium-term uptrend. Short-term attention is focused on the $29.4K area, where Bitcoin fell earlier this month, and resistance runs through the local highs of mid to late April. A move higher would pave the way for another test of highs for almost a year.

Euro Craters After ECB Signaled They Are Almost Done Tightening

The ECB kept the door open for more hikes but it looks like they are positioning for the June or July meeting that takes rates to a restrictive level.  They will be data-dependant as they are aware that the lags and strength of transmission to the real economy remain uncertain. Inflation is too high so they had to say that they will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target.

Sunset Market Commentary

The ECB lift its key policy rates by 25 bps today with the key deposit rate now at 3.25%. That’s a downshift from the previous 50 bps pace which we expected to be continued, but in line with market expectations.

European Central Bank Slows The Pace Of Monetary Tightening

The European Central Bank (ECB) offered its latest monetary policy assessment today, delivering a smaller rate increase than at previous meetings. In a widely expected move, the ECB raised its Deposit Rate by 25 bps to 3.25%. Meanwhile, the economic message was little changed, in that the ECB said the “inflation outlook continues to be too high for too long.” The ECB said headline inflation has declined over recent months, but underlying price pressures remain strong.

Will Nonfarm Payrolls Hint at a Fed Pause in June?

The Federal Reserve delivered its tenth consecutive rate hike on Wednesday, as expected, but reset its guidance to indicate increased emphasis on incoming data. Hence, Friday’s nonfarm payrolls will be the next test for the US dollar at 12:30 GMT, with forecasts pointing to a discouraging outcome.

Fed is Expected to Cut Cates in July

Bank stress fuels Fed doves. As of today, the market is not only expecting three rate cuts in the second half of this year, but price in the first potential rate cut for July.

USD/CNH: Animal Spirits in Control of China's Equities

Let’s discuss a bit about the current macro environment of China. Both the official NBS and Caixin (consisting of more small and medium-sized firms) Manufacturing and Services PMIs data for April have shown a decline in activities after a growth spurt in Q1 due to policy changes such as more expansionary fiscal and monetary easing measures as well as the removal of stringent Covid-19 lockdown rules.