July 14, 2017 / 7:43 AM / 5 months ago

Daily Briefing: Hints and shifts - ECB language

LONDON (Reuters) - The European Central Bank is likely to wait until September before signalling a shift away from its ultra-easy policy, according to a Reuters poll of economists released today.

FILE PHOTO: The headquarters of the European Central Bank are pictured in Frankfurt, Germany June 10, 2017. REUTERS/Ralph Orlowski

That’s in line with improving economic growth in Europe and recent hints from ECB policy-makers that have helped shape expectations for a shift - even though the benign inflation outlook doesn’t point to a need for a change.

However, in a mark of just how tricky it is proving for the Bank to communicate to markets the gradual wind-down in stimulus it is looking to achieve, the poll shows there is also a good number of ECB-watchers out there who expect it not to wait until then before dropping a hint of some kind at its July meeting. Expect more ruffles in the market over coming months.

It's the last day of President Donald Trump's visit to Paris today, with the U.S. leader due to stand shoulder-to-shoulder with Emmanuel Macron at France’s National Day military parade on the Champs Elysees to mark 100 years since U.S. troops entered into World War One. It has been a pretty smooth trip so far and the body language less tense than at their previous meetings.

Possibly the most interesting thing to emerge from it so far is a remark from Trump that "something could happen" on the Paris Agreement on climate change. Whether he was simply being diplomatic in front of his host or whether their talks yielded a genuine softening on his part is not yet clear.

MARKETS

Ten years ago this week, then Citigroup CEO Chuck Prince delivered a line that came back to haunt him, but at the time encapsulated the buoyant mood permeating global banking and financial markets. “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

A decade later, it’s a similar picture. Central banks are ready to switch off the music, and the Fed has turned down the volume a few notches. But the music is still playing, and world stocks are their highest ever. Bond yields have spiked higher in the last couple of weeks, but from extremely depressed levels. And as comments from Janet Yellen and Mario Draghi this week have shown, central bankers are extremely cautious about how they communicate and carry out their exit from the post-crisis era of cheap money.

Low inflation across the Western world is ensuring that policy tightening will be gradual, adding fuel to the stock market rally. Expectations of a decent Q2 earnings season, which kicks off on Friday, are also supporting the positive sentiment. Soft U.S. inflation data for June, also out today, will be music to investors’ ears.

Friday is set to be another positive session for European equities as they round off their best week since the beginning of May, with stocks futures up around 0.1 percent.

While metals and oil prices are likely to be supportive, eyes will also be on the beginning of the U.S. earnings season, with banks Citi, JP Morgan and Wells Fargo kicking off proceedings later on in the day. In Europe, Q2 earnings are expected to increase more than 9 percent since the same period in 2016, which would be an increase of more than 6 percent excluding the energy sector.

Editing by Andrew Heavens

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