Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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NY Open: 'Continuing confidence with increasing caution'
Michael O’Neill
FX Trader, Loonieviews.net
Summary: The ECB has held rates steady with Mario Draghi pointing to risks from geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.
The European Central Bank lived up to expectations. It left rates unchanged and repeated that rates are likely to stay unchanged at least through the summer of 2019 which is identical to the October statement. They also confirmed that the “net purchases under the asset purchase programme (APP) will end in December 2018.”
In his press conference, ECB president Draghi summed up the bank's outlook by saying "continuing confidence with increasing caution." He said ECB staff tweaked growth projections lower, forecasting 2018 GDP would grow 1.9%, 2019 by 1.7% and 2020 at 1.7%. He kept his usual dovish bias by saying "the balance of risks is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility". EURUSD chopped about in a 1.1340-90 range during and dropped to 1.1345 when Draghi left the stage. Arguably, Draghi’s dovish leanings may have fortified EURUSD resistance at 1.1440 and opened the door to further losses.
Wall Street opened on a positive note, due to increased optimism around the US/China trade talks. China’s concession to lower tariffs on US cars and to buy American soybeans gave hope that a deal could be reached. This morning’s better than expected Initial Jobless Claims report (Actual 206,000 vs forecast 225,00) added to the upbeat sentiment. However, traders are painfully aware that at least this week, equity market strength at the open does not translate to strength at the close.
WTI oil prices cannot get any upside traction. In the past two week’s Opec announced production cuts of 1.2 million barrels per day, a major Libyan oil field closed, and Alberta Canada chopped production by 370,000 barrels. Prices were unable to sustain gains on that news. This morning, the International Energy Agency (IEA) forecast that demand would exceed supply in 2019. Unfortunately, they also said that the US dominance would continue to grow and that’s what became the focused. WTI fell from $51.55/barrel in early European trading to $50.38/b in New York. Prices have since ticked higher.
In his press conference, ECB president Draghi summed up the bank's outlook by saying "continuing confidence with increasing caution." He said ECB staff tweaked growth projections lower, forecasting 2018 GDP would grow 1.9%, 2019 by 1.7% and 2020 at 1.7%. He kept his usual dovish bias by saying "the balance of risks is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility". EURUSD chopped about in a 1.1340-90 range during and dropped to 1.1345 when Draghi left the stage. Arguably, Draghi’s dovish leanings may have fortified EURUSD resistance at 1.1440 and opened the door to further losses.
Wall Street opened on a positive note, due to increased optimism around the US/China trade talks. China’s concession to lower tariffs on US cars and to buy American soybeans gave hope that a deal could be reached. This morning’s better than expected Initial Jobless Claims report (Actual 206,000 vs forecast 225,00) added to the upbeat sentiment. However, traders are painfully aware that at least this week, equity market strength at the open does not translate to strength at the close.
WTI oil prices cannot get any upside traction. In the past two week’s Opec announced production cuts of 1.2 million barrels per day, a major Libyan oil field closed, and Alberta Canada chopped production by 370,000 barrels. Prices were unable to sustain gains on that news. This morning, the International Energy Agency (IEA) forecast that demand would exceed supply in 2019. Unfortunately, they also said that the US dominance would continue to grow and that’s what became the focused. WTI fell from $51.55/barrel in early European trading to $50.38/b in New York. Prices have since ticked higher.
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