Oil prices moved a bit higher

Market Movers

The ECB meeting is finally here and the suspense will be over as the ECB announces its new round of stimulus. We expect the ECB to cut the deposit rate by 10bp to -0.4%, to introduce a two-tier deposit rate system aimed at reducing the cost to the banking sector and to signal that the deposit rate could go even lower. We also look for the ECB to front load QE purchases by EUR20bn per month in the spring.
The market reaction to this ‘package’ is likely to be a small disappointment in fixed income markets, where a slightly bigger deposit rate cut is priced in and some analysts are looking for a 20bp cut. However, it seems that many equity investors have feared a ‘December deja vu’, when the ECB disappointed, and have been reluctant to buy ahead of the ECB meeting. Hence, the measures we look for in combination with a clear easing bias might be a small relief for the stock market.
We will also have data on German trade balance, German labour costs and US jobless claims. But it will be overshadowed by the ECB meeting.
In Scandi, inflation data in Norway is due, see page 2.

Selected Market News

Stocks have continued to move broadly sideways over past days ahead of the ECB meeting as markets await further guidance from the ECB as to how much stimulus we are likely to get. Asian markets have seen small gains in Nikkei and offshore Chinese stocks.

Oil prices moved a bit higher yesterday, hitting USD41 per barrel again as the market is setting its hopes on an OPEC/Non-OPEC meeting later this month or early April. No date has been confirmed though. The lift to oil gave some support to risk sentiment yesterday.

Chinese CPI inflation increased more than expected to 2.3% y/y in February (consensus 1.8% y/y) from 1.8% in January. The increase was purely due a jump in food prices while core inflation declined to 1.3% y/y from 1.5% y/y. Hence, outside food there is very limited inflation pressure in China. The newly announced inflation target for 2016 is 3.0%. PPI inflation in China rose to -4.9% y/y in February from -5.3% y/y in January. We expect PPI inflation to continue to move higher over the next six months as it is highly correlated with global raw materials prices, which have shown decent increases this year.

The UK RICS housing survey rose to 50 in February as expected from 48 in January. It is quite a high level and points to a continued robust housing market in the UK.

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