LONDON (Reuters) - ECB President Mario Draghi's language will be under even more scrutiny than usual at today's press conference following a rate-setting meeting due to keep core policy on hold.
Economists polled by Reuters are pretty much in consensus that the ECB's next move will be either a tweak of its guidance in the second half of this year or a gradual reduction in its asset-buying next year.
One question is how Draghi fends off the hawks who want him to start sending an explicit message now that the largesse will be coming to an end. With headline euro zone inflation having effectively hit the ECB's target of around two percent and the overall economy fairly buoyant, Draghi is expected to put the emphasis on political risks and argue that price growth remains weak once food and energy are stripped out.
But the other question is whether he also makes some kind of concession, as sought by the hawks: for example, by dropping the customary references to possible further cut rates or more asset purchases if the economy slows.
Today's EU summit in Brussels has a perverse twist in that the Poles will be going all out to block their countryman Donald Tusk from getting a new term as EU president. This goes against the established European logic of fighting tooth and nail for national influence in the Brussels institutions.
The reason is domestic Polish politics and the visceral antipathy felt for Tusk by the leader of the ruling Law and Justice party Jaroslaw Kaczynski. Kaczynski holds Tusk "morally responsible" for the death of his twin brother. Tusk was prime minister in 2010 when Lech Kaczynski, the Polish president, was killed in an air crash in Russia. Inquiries in both countries blamed the crash on pilot error.
Some also note how the row with Poland is symptomatic of a split between Eastern members reluctant to cede national freedoms to Brussels so soon after shaking off Soviet hegemony, and rich western states that want to deepen EU integration.
Czech President Milos Zeman, a strong admirer of Donald Trump, is due to tell supporters gathered at the Prague Castle tonight whether he will seek reelection in the January 2018 popular vote.
Zeman, 72, is anti-immigrant and anti-Islam and consistently tops polls as the country's most trusted politician. In recent weeks he has stepped up his publicity machine, including launching a weekly TV show and releasing a photo of himself standing on cross-country skis.
Lastly, Credit Suisse equity strategists have put out what they see as a reality check on the French election, raising their recommendation on French equities to "small overweight" from "benchmark" on the logic that prospects of a Marine Le Pen victory are overdone. That came just as a new Harris poll showed a surge in support for her centrist rival Emmanuel Macron, who would now beat her by a comprehensive 65-35 in a second round.
While market eyes drift to today’s ECB meeting, the main movers are all playing off Wednesday’s ADP report of a huge 298,000 U.S. private sector jobs gain last month. Taken at face value, it means tomorrow’s national payrolls gain will be far in excess of the consensus 190,000. It cements next Wednesday’s Fed rate hike expectations if so and already has the market talking of 3 or 4 rate rises this year rather than the two assumed only last month. Futures are close to pricing three, but incoming economic numbers at this level will get analysts thinking.
Ten-year US Treasury yields hit their highest for the year just under 2.60 percent last night and have held those gains. Two year rates are at new 8-year highs, sending the premium over 2-year German equivalents to new 17-year highs above 220 basis points.
The dollar has jumped again around the world, with the DXY index stalking two-month highs, euro/dollar is on the back foot just above $1.05 and dollar/yen is back above $114.
But much of the heat is being felt in emerging market currencies, with the vulnerable Turkish lira falling to its lowest since early February. The twin hit of rising U.S. yields and the dollar has seen MSCI emerging market equities index fall to its lowest level in a month too.
The rising dollar and rising crude inventories also hit the oil price hard overnight, with Brent dipping below $53 for the first time this year. The combination of rate rise jitters and the hit to energy stocks from the oil price drop dragged Wall St indices lower again late Wednesday.
Asia bourses outside Japan were mostly lower and European stocks are seen opening down too. What will the ECB do? Probably not very much – but the risk is that it alters its own ‘balance of risks’ given the strength of incoming economic numbers and inflation readings and that that’s interpreted as signalling a further wind-down of its QE programme further out.
Yesterday’s UK budget had little overall impact, meantime, with sterling resuming its decline against the stronger dollar soon afterwards. Attention may shift to indications from Scottish first minister Sturgeon today that a new referendum on independence might be tabled for as soon as September next year.
Editing by Dominic Evans