European Central Bank Interest Rate News & Analysis | TOPFXinvest

European Central Bank (ECB): Interest Rate News & Analysis

Central Banks Fundamental Outlook

BankRateChange *Date of changeNext MeetingInflation TargetExpectation
Federal Reserve (FED)0.25%-10015-Mar-2022-Sep-212%4
European Central Bank (ECB)0.00%-510-Mar-169-Sep-213%2
Bank of England (BoE)0.10%-1519-Mar-2023-Sep-212%3
Bank of Canada (BoC)0.25%-5027-Mar-208-Sep-212% +/- 1% 3
Bank of Japan (BoJ)-0.10%-1029-Jan-1622-Sep-212%1
Reserve Bank of Australia (RBA)0.10%-153-Nov-207-Sep-212%-3%1
Reserve Bank of New Zeeland (RBNZ)0.25%-7516-Mar-206-Oct-212% +/- 1%4
Swiss National Bank (SNB)-0.75%-5015-Jan-1523-Sep-21<2%3

* The latest change in the policy rate in basis points


Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

EU inflation is 6.1% and rate hike is mandatory. From the previously forecasted values of 3%, we have a deviation of 3% which is caused by multiple factors:

  • Russia & Ukraine conflict
  • Energy Price
  • Supply Chains disruption

Goldman Sachs also cut their US economic growth forecasts from 2.6% to 2.4% this weekend.

Slowdown in growth should help lower job openings, it is also likely to raise the unemployment rate a bit.

Blankfein former chief executive of Goldman Sachs and currently senior chairman of Goldman Sachs says "firms should be prepared for a recession this year" and also:

"We're certainly heading - it's certainly a very, very high risk factor. And there's - but, you know, there's a path. It's a narrow path. But I - I think the FED has very powerful tools. It's hard to finally tune them and it's hard to see the effects of them quickly enough to alter it."

https://www.cbsnews.com/news/lloyd-blankfein-face-the-nation-transcript-05-15-2022/

FITCH says that the global recovery is to slow down in 2022 and 2023. Policy interest rates are rising, and FITCH believes that this marks an end to an era of very low borrowing costs for governments.

Remarks from Powel has changed a lot from the last year when he considered that the inflation was transitory and some pain is needed.

“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control. The process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels.”

This week, CPI is lowering from 8.3% to 6% (Core CPI). This means that inflation will not decrease, it will slow the pace of growth, and the price of goods are not going to decline. The price of goods will grow with a moderate pace.

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ECB Lagarde: See Inflation Higher 5,1% from 3,8%

ECB Lagarde: See Inflation Higher 5,1% from 3,8%

Today ECB meeting, The tone was somber, with repeated risks on lower growth and higher inflation. Risk apetite is down 👇 because Russia-Ukraine war. 

Inflation forecast:

  1.  2022 Inflation 5.1% instead 3.2% in december 
  2.  2023 2.1% vs 1.8%
  3.  2024 1.9% vs 1.8%

Most important conclusions from Lagarde meeting are:

  • Growth to remain weak in Q1
  • Growth revised down in near term
  • Energy costs pushed up Feb inflation 31% and prices have risen further
  • How long high prices will last is uncertain
  • Risks to the economic outlook have increased substantially and are tilted to the downside
  • We have risk of a loss of economic confidence
  • Path for rates will be determined by forward guidance

Conclusion according to Lagarde is  'highly uncertain'

Rate hike could come 'months after' or 'weeks after' the end of QE. Euro is forecast to be down in short term.

ECB-meeting-10march-EUR-chart

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ECB Valleroy: The decision on rate hikes is not needed before June meeting

ECB Valleroy: The decision on rate hikes is not needed before June meeting
  • The decision on rate hikes is not needed before June meeting
  • Any speculation about calendar of future lift-off is at this stage premature
  • We will retain our full optionality about pace of normalization
  • Its calendar will remain a gradual, state-dependent and open in moving from one stage to the other
  • Keeping net asset purchases open ended from October would not be appropriate
  • APP purchases would end in Q3
  • another way to enhance optionality could be to remove the word "shortly" from the forward guidance on asset purchases
  • Optionality would mean that lift-off could possibly take more time if warranted

Decision on partial troop withdrawal has been taken added some optimism on markets (SP500 +1,58% NDQ +2,58) but we still have questions about inflation and growth

Oil & gold come back to previous levels

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Risk-off tone will persist in February: ADP & EU Inflation in focus

Risk-off tone will persist in February: ADP & EU Inflation in focus

 The ADP job data surprised to the downside this month: - 301K versus +200K estimate.

All economic branches were down this month:

  • Goods -27K
  • Manufacturing -21K
  • Services -274K
  • Transportation and Utilities -62K
  • Leisure and Hospitality -154K
  • Construction -10 K (Also Canadian Building Permit felt -0.3 over estimate)
  • Education & Health Services -15 K
  • Small firms -144K decline
  • Medium firms -59K decline
  • Large firms -98K decline

The fell was the largest since April 2020 because Omicron outbreak, according to FED officials.

BOE has increased official bank rate by 0.25 points to 0.5%, today.

Eurozone inflation hits new record 5,1% CPI versus 4,4% expected (Highest since 30 years), that will put more pressure on ECB today.

Bidden sent 3k US Soldiers to Romania Poland and Bulgaria.

IMF Chief Georgieva: Geopolitical tensions make uncertain outlook for global economy.

Regarding our portfolio, we shrink our exposure to growth stocks and closed some losing positions on companies that have large debts or lower growth expectation (ASAN, BILL, W, NVCR, RDFN), and further, we closed two days ago our grains exposure with 20% percent profits in three months. We expect to 💪 our dividend stock's exposure's and add to precious metal positions if we see another 2k points decrease in Gold and Silver after FED rate increases. We think market will retest soon, lower point from January and US Dollar 💵 will stay in upper zone. US dollar speculative positioning and bullish sentiment are surging. SP500 Retest Of January Lows  is about to begin.

You can check real-time  our risk-on/off tone indicator .

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ECB Meeting Today Preview September 2020

ECB Meeting Today  Preview September 2020

The ECB has a monetary policy announcement on Thursday and many investors are wondering if euro will fall as the CAD or AUD.ECB was one of the most dovish central bank because of COVID spread and low performance economy.

What we need to watch today:

  • Consensus looks for a slowdown in the pace of PEPP purchases during Q4
  • A decision on the future of PEPP is not expected to take place at the upcoming meeting
  • Economic forecasts are set to see upgrades to 2021 growth and inflation. 2023 inflation is set to remain sub-target

Focus for PEPP will instead fall on the Q4 pace of purchases which is set to be lowered from the current "significantly higher" level of EUR 80bln/month

The press conference will likely see President Lagarde caution that any slowing in the pace of purchases for PEPP will not be regarded as a "taper" as purchases are not on track to reach zero and policymakers will vow to maintain favorable financing conditions.

Policymakers were not expecting to make a decision on the future of PEPP bond purchases in September given the persistent uncertainty posed by the pandemic but. , a decision in October or December was seen as more likely.

Chart below you can see nomura forecast on PEPP

Ecb Tapering Forecast

What about Rates

Rates according to Lagarde will “remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term."

Ing case scenario on ECB Forecast
ING ECB meeting forecast

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ECB's Villeroy says that France and the EZ should be back to pre-COVID levels in early 2022 or maybe before this

ECB's Villeroy says that France and the EZ should be back to pre-COVID levels in early 2022 or maybe before this

ECB's Villeroy says that France and the EZ should be back to pre-COVID levels in early 2022 or maybe before this

  • No risk of higher inflation at this stage
  • PEPP will remain until at least March 2022; not urgent to decide on it at the September gathering
  • Financing conditions have improved since June 

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