September 12, 2019 / 8:01 AM / 7 months ago

Daily Briefing: Brace yourself for the ECB

World markets are bracing themselves for a week of central bank meetings and probably another wave of monetary easing, starting with the European Central Bank on Thursday, then a Federal Reserve rate cut expected next Wednesday and possibly further easing from the Bank of Japan and Swiss National Bank next Thursday.

FILE PHOTO: Mario Draghi, President of the European Central Bank (ECB), attends a news conference in Vilnius, Lithuania June 6, 2019. REUTERS/Ints Kalnins/File Photo

Turkey’s central bank, meantime, is expected to announce another interest rate cut today of as much as 250 to 300 basis points.

The big debate on all these decisions is the extent to which the fresh monetary stimulus is already priced and whether it will underwhelm given the aggressive nature of the recession and policy response bets through August.

Bond markets at least have been recalibrating over the past week, with nudges and winks from officials that perhaps not all the cards would be played just yet.

The ECB is expected to lower its deeply negative deposit rate again, by at least 10 basis points, there’s been some question over whether it will immediately begin a new round of bond buying of about 30 billion euros a month – or hold back on that decision until new President Christine Lagarde takes over in October.

There’s also some uncertainty over the extent of offsets for commercial banks from the damage caused by an even more negative deposit rates – possible tiering of the rates charged or more generous special refinancing terms.

President Donald Trump stepped up his pressure on the Fed on Wednesday, calling for its policy rates to be cut to zero or even negative as wll, the Fed is unlikely to cut by more than a quarter percentage point next week.

On Thursday, however, stock markets have been buoyed in advance of the policy decisions and on further signs of détente between Washington and Beijing over trade before formal trade talks resume next month.

Trump pushed back the next U.S. tariff increase by two weeks in response to China’s exemption yesterday of some U.S. goods from its measures.

The S&P 500 gained about 0.7% overnight and the Vix “fear index” of Wall Street equity volatility dropped to its lowest since Aug. 1.

MSCI’s all-country index of world stocks climbed for the seventh straight day on Thursday to its highest level in six weeks, its best winning streak since early June.

Helped by the trade war developments, Shanghai, Seoul and Tokyo stocks were 0.7% to 0.8% higher on Thursday.

Hong Kong ended in the red, with many casting doubt on the Hong Kong Exchange’s sudden near $40 billion bid for the London Stock Exchange on Wednesday.

The trade news also helped China’s offshore yuan strengthen to its best levels since Aug. 22, with MSCI’s emerging-markets currency index up to its highest since Aug. 5.

In Europe, euro/dollar remained at $1.10 before the ECB decision after dipping below that level yesterday.

Dollar/yen hit its highest since Aug. 1.

European stocks opened about 0.3% higher, with benchmark euro zone government bond yields giving back some of this week’s gains before the ECB decision.

Turkey’s lira steadied before its central bank decision about midday London time.

In European corporate news, there is some more upbeat IPO news a day after the stock market debut in Amsterdam of Prosus, a Naspers spin-off that includes the e-commerce group's 31% stake in Chinese tech giant Tencent.

AB InBev said it continues to explore a Hong Kong IPO of its Asia Pacific unit Budweiser, two months after saying it would not proceed with the planned listing. Its shares are seen up 1% to 2%.

In Germany, software company TeamViewer set the price range for its Frankfurt listing, valuing it at up to 5.5 billion euros in one of Europe’s largest IPOs this year.

Shares in Rovio Entertainment are expected to fall as much as 5% after the maker of Angry Birds games cut its 2019 sales and profit outlook, citing increasing investment and lower-than-expected revenue from brand licensing and older games.

Shares in the London Stock Exchange are also likely to remain in focus amid doubts over the Hong Kong exchanges’s $39 billion takeover bid, which caused its shares to fall more than 3%.

In earnings, Morrisons reported its first fall in quarterly underlying sales since 2016, partly reflecting a tough comparison with last year, when it was boosted by a hot summer. Shares in Britain's No. 4 grocer are likely to rise 1% to 2%, though, because profit beat expectations and the company proposed a special dividend.

Volkswagen may fall after reports in German media that newer engines contain cheat devices.

A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own. 

Editing by Larry King

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