BOE and ECB meetings today – Bank of England has more potential to surprise


MAJOR HEADLINES – PREVIOUS SESSION

  • US Feb. Challenger Job Cuts out at -77.4% y/y vs. -70.4% expected

  • US Feb. ADP Employment Change out at -20k, as expected vs. revised -60k prior

  • US Feb. ISM Non-manufacturing out at 53.0 vs. 51.0 expected and 50.5 prior

  • JP Q4 Capital Spending out at -17.3% vs. -18.4% expected and -24.8% prior

  • AU Jan. Trade Balance out at –A$1176m vs. –A$1600m expected and revised –A$2174m prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • HK Retail Sales (0830)

  • Denmark Unemployment Rate (0830)

  • UK Halifax House Prices (0900)

  • EU Euro-zone GDP (1000)

  • UK BOE Rate Announcement (1200)

  • EU ECB Rate Announcement (1245)

  • CA Building Permits (1330)

  • US Non-farm Productivity (1330)

  • US Unit Labour Costs (1330)

  • US Initial Jobless Claims (1330)

  • EU ECB’s Trichet News Conference (1330)

  • CA Ivey PMI (1500)

  • US Factory Orders (1500)

  • US Pending Home Sales (1500)

Market Comments:

The details of the Greek austerity plan helped put a floor under the EUR though related comments took some of the wind out of the rebound. While the EU is urging coordinated backing for Greece, Germany in particular still appears reluctant to support. The Greek plan includes a 2% hike in VAT rates, cuts in public sector bonuses, increases in taxes on fuel, tobacco and alcohol as well as a freeze on state-funded pensions for this year. The measures are expected to slash the deficit by €4.8 bln and late in the session Moody’s commented it would maintain their A2 rating if the austerity measures were acted upon.

GBP continued its rebound from oversold conditions on the back of a strong services PMI number in Feb and has managed to crawl it way back to the point where it fell off the cliff on Monday. However today’s MPC meeting will likely cause some uncertainty, although no change in rates is expected. An extension to QE measures will undoubtedly put the skids under GBP though we do not think that that such an outcome is likely, given the current elevated CPI levels and the risk the a GBP fallout would result in a technical easing far greater than the BOE is comfortable with.

On the data front, the ADP employment report showed private-sector payrolls falling by 20k, in line with expectations, but a sharp downward revision to the previous month’s data put a dampener on any positives. The ISM non-manufacturing index was quite firm, rising to 53.0 with all sub-components posting gains. More encouragingly, the employment sub-index showed a sizeable gain of 4 points to 48.6. The Fed’s Beige Book showed economic conditions continued to improve though February’s bad weather has clouded some of the data inputs.

The Asian session was a very moribund affair with currencies trading in tight ranges. Of the data releases, Australia’s trade deficit narrowed to A$1.18 bln in January from A$2.17 bln the previous month and was better than the consensus estimate. No real reaction in the AUD with a convincing move above the 100-day MA so far proving elusive.

Japan enjoyed some better data as well, for a change, as capital spending in Q4 was not as bad as feared.
Capital spending fell 17.3%, better than the -24.8% last time out and beating forecasts of -18.4%. No reaction in JPY crosses though with USDJPY confined to a 20 point range all session.

Looking ahead, on the data front the European session features Q4 Euro-zone GDP data followed by interest rate announcements from the Bank of England and the ECB. As mentioned above, the BOE meeting is likely to stir up more interest with possible QE chatter to keep things uncertain. While the BOE may still be considering further QE measures, the ECB could announce the next steps in its process of withdrawing liquidity provided during the financial crisis. The US session has Canada building permits scheduled along with US unit labour costs, weekly jobless claims, factory orders and pending home sales.