Euro area unemployment figures for December

Market Movers

• Euro area unemployment figures for December will be released today. We expect the decreasing trend to continue, which will be supportive for the economy. Note that the unemployment rate is now close to its structural level (NAIRU), which is the level where wage pressure usually starts to pick up.

• In the evening, the Fed’s vice chair George (voter, neutral) speaks. After the FOMC meeting this week, we will look carefully for any comments on when to expect the next hike as the statement was relatively dovish without mentioning anything explicitly, see also Less ‘confident’ Fed likely to stay on hold in March as well, 27 January.

• In Denmark currency reserve figures for January will be published, see Scandi Markets.

Selected Market News

ECB QE programme returns to full speed. Data released yesterday showed that the ECB increased the run-rate of its asset purchase programme to EUR62.4bn in January, following the slowdown in December where purchases amounted to only EUR50.3bn. The data also showed that the ECB remained highly reliant on purchases of public-sector debt in January, with PSPP purchases amounting to EUR53.0bn or 85% of total purchases. In contrast, purchases of covered bonds conducted under the CBPP3 have moderated from a monthly average of EUR10.6bn until end-June 2015, to just EUR8.0bn since then. Meanwhile, at EUR2.3bn, monthly purchases of asset-backed securities reached its highest level since the ABSPP was launched, but with holdings amounting to just 2% of the total QE volume, the programme continues to play only a minor role.

Central bankers strike dovish tone. Speaking at the European Parliament, ECB President Mario Draghi yesterday added to expectations of additional easing to be announced at the March meeting, stating that inflation was ‘tangibly weaker’ than expected in December. He also reiterated remarks made last month that the bank would ‘review and possibly reconsider’ its stimulus in March. Later, across the Atlantic, Fed Vice President Stanley Fischer (voter, neutral) struck a dovish tone, casting further doubt on whether the Fed will deliver four hikes in 2016 as projected by the ‘dots’ in December. Specifically, he noted that an inflation overshoot due the unemployment rate falling somewhat below its long-run normal level would be appropriate in current circumstances.

ISM manufacturing disappoints slightly but shows signs of stabilisation. After sliding since June, the index rose in January, albeit slightly less than expected. Nonetheless, important subcomponents, including new orders also increased, the latter rising to the strongest level since August.

Reserve Bank of Australia kept cash rate unchanged, retaining an easing bias. As expected, the RBA stayed put this morning and we expect it to remain on hold for the coming 12 months.

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