ECB meeting and Draghi undercut remaining interest in the final PMI readings - BBH

Analysts at BBH explain that the ECB met last week and Draghi recognized the optimism conveyed in surveys and noted that downside risks emanated primarily from abroad.  

Key Quotes

“Aggregate growth is not a problem, even though the surveys probably are running ahead of the actual situation.  Growth in the first three months may disappoint the 0.5% median forecast in the Bloomberg survey.  The three big economies that reported Q1 GDP at the end of last week (the US, the UK, and France) all were softer the expected.  Eurozone growth has been remarkably steady. Consider that over the past four, eight, and 12 quarters, growth has averaged 0.45%, 0.46%, and 0.43% respectively.”

“The ECB meeting and Draghi's comments undercut much of the remaining interest in the final PMI readings after the flash report.  Barring a significant shock now, there is only one thing that is important, and that is measures of inflation.  The day after the ECB meeting, the preliminary estimate of Eurozone April consumer prices was reported.  It jumped more than anticipated, with the core rate spiking to 1.2% from 0.7%. It matches the strongest pace in nearly four years.  The data appears to be skewed by the Easter holiday, and often such seasonal spikes are retraced.  Investors may have to wait until late May before getting a clean read on CPI.”

“The ECB continued its line that kept open the possibility of providing more accommodation if needed, but no one believes it is true.  There is speculation that this could change in June.  Even if it does, it is a minor step that merely confirms what investors already know.  Some creditors at the ECB want to consider raising the deposit rate or exiting some of the unorthodox measures early.  Now it may push for a change in the balance of risks and/or drop reference to rates moving lower.”

“The June ECB meeting, at which the staff presents updated forecasts, will be held on June 8, three days before the first round of the French parliamentary elections.  Macron's party is a micron, it is a party of one, with no other members of parliament.  It is the same day at the British elections and a few days before the FOMC meeting (June 14). The second round of the French election will be held on June 18.”

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