ECB holds steady, playing down inflation risks

Sverre Holbek, CFA Danske Bank A/S

Market movers today

President-elect Donald Trump will be sworn in today as the 45th President of the United States. The world will be watching the ceremony, which starts at 17:30 CET, and the inauguration speech in particular. It will be interesting to see whether Mr Trump provides more information on his actual economic policy, as the press conference last week was sparse on concrete information (see Flash Comment US: No major economic news from President-elect Trump – back to monitoring Twitter, 11 January). While this is by no means a given, we may soon get an updated 100-day plan.
In Scandinavian markets, Danish retail sales (09:00 CET) is the only release of interest.

Selected market news

ECB holds steady, playing down inflation risks. In line with expectations, all policy measures were kept unchanged. During the press conference, the main message from President Mario Draghi was that price pressures remain subdued, despite the increase in inflation in December, which was driven by energy price increases. In this regard, the ECB concluded that it ‘will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability'. Draghi also made it clear that higher inflation will not automatically result in QE tapering. Only if four conditions are met will the ECB conclude that inflation is on a ‘sustained adjustment', namely that the higher inflation (1) is affecting the medium term, (2) is durable, (3) is self-sustained and (4) is region wide. For further details, see ECB Review: Draghi remains dovish until core inflation rises, 19 January.

Chinese GDP growth on target. According to data released overnight, Q4 GDP growth was 6.8% y/y, following three consecutive quarters of 6.7% growth and neatly in line with China's growth target of 6.7-7.0%. However, we do not put a lot of weight on the official GDP statistic as a measure of economic activity. We believe the true number is somewhere between 6.0% and 6.5% currently, up from 3-4% in early 2016.

Yesterday's US macro data releases pointed to labour market and manufacturing strength, sending Treasury yields higher. Initial jobless claims fell 15,000 to 234,000. The four-week moving average declined to 246,750, the lowest figure since 1973. The Philly Fed index rose to 23.6, the highest level in the current cycle, pointing to US manufacturing strength, in line with other soft indicators. Housing starts rose 11.3% in December, although this was driven by a 57% increase in the volatile multifamily component, while single-family housing starts were weak, falling 4%. However, the overall strong data lifted Treasury yields again on Thursday.

US stocks closed slightly weaker yesterday, as markets remain in wait-and-see mode. While yesterday marked the fifth consecutive day of minor losses, US equities have generally been trading in a fairly tight range since early December, as investors await further details on Trump's political agenda.

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Author

Sverre Holbek, CFA

Danske Bank A/S

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