April 12, 2019 / 7:35 AM / 2 months ago

Daily Briefing: ECB ponders options amid euro zone gloom

LONDON (Reuters) - As finance chiefs from around the world meet at the International Monetary Fund's regular bash in Washington, the word from the euro zone economy is pretty gloomy.

FILE PHOTO: A man walks outside the International Monetary Fund headquarters building ahead of the IMF/World Bank spring meetings in Washington, April 8, 2019. REUTERS/Yuri Gripas

Der Spiegel magazine reports that the German government will next week halve its national economic growth forecast for 2019 to 0.5 percent from 1.0 percent due to weaker exports in the wake of global trade tensions. That is more pessimistic than the 0.8 percent rate which the country's top economic institutes already slashed their target to last week.

Such developments will put more pressure on the European Central Bank to do more from its increasingly empty-looking toolbox. Sources say that its policy-makers are for now mostly sceptical about giving lenders a reprieve from a charge on their idle cash – the so-called tiered interest rates option - but are leaning towards rewarding banks for lending to households and businesses by putting zero or even negative rates on a new round of funding to banks.

Anti-Brexit protesters hold EU flags as they demonstrate outside the Houses of Parliament, April 11, 2019. REUTERS/Gonzalo Fuentes

In the UK, smaller parties see the possible staging of European Parliament elections as a major opportunity. Nigel Farage is launching a new “Brexit Party” campaign in the city of Coventry while the newly created Change UK party - formed by pro-Remain defectors from the main two parties - is racing to get itself registered in time for the May 23 vote.

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Greens and Libdem parties will have no problem campaigning on a squarely Remain ticket, but the election poses more of a problem for Conservative and Labour, split as they both are by Brexit. In Labour's case, some candidates are already saying they will campaign for a second referendum - with a preference to remain - in a very forward-leaning interpretation of the party's more ambiguous official policy.


Trepidation over the hotly anticipated U.S. earnings season is casting a large shadow over equity markets with Asia painting a mixed picture after a weak lead from Wall Street. European stocks are slipping with JP Morgan and Wells Fargo kicking off proceedings later in the day, giving nervy investors a chance to gauge the health of U.S. companies.

Data from China show a forecast-beating 14.2 percent jump in exports year-on-year in March, a healthy rebound from a dire reading in February. Imports slumped 7.6 percent, though, a much steeper decline than predicted, as progress on trade talks remained elusive.

Oil is holding just above $70 a barrel. Meanwhile, the euro rose to a 2 1/2-week high on Friday after Reuters reported that the European Central Bank might not be too keen to tier its sub-zero interest rates after all.

The currency also found support from dealers saying there was an anticipated increased demand for the common currency arising from a Japanese bank’s plans to purchase a multi-billion-dollar aviation finance business from a German bank.

In bond markets, yields are barely budging: German benchmark 10-year yields are just below zero and reports of a further downgrade by Der Spiegel to growth forecasts for Europe’s largest economy in 2019 are adding angst over a widespread economic slowdown in Europe.

Greek bond yields flirting with their lowest level in 13 years. In emerging markets, Turkey’s lira is coming under pressure again, slipping to a three-week low after Finance Minister Berat Albayrak’s meetings with investors in Washington did little to soothe frayed nerves over the government’s efforts to convince markets it has a reform plan that will deliver a turnaround for the battered economy.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Karin Strohecker. The views expressed are their own —

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