Mar. 25, 2017 (Tempus Inc.) – ECB – Will they, or won’t they?
There are signs in the euro zone that monetary policy may soon be changing course. Even the doves on the ECB Council are talking of possibly raising rates more rapidly than previously envisaged once bond purchases come to an end. This could happen if the economy and inflation fare better than the ECB is currently predicting. However, there are strong counter arguments against this optimistic scenario. Inflation, for example, will probably fall more rapidly over the coming months than the ECB is assuming.
Outlook for the week of 27 to 31 March 2017
- Economic data: The core inflation rate in the euro zone is likely to have fallen from 0.9% to 0.7% in March, though a (temporary) surge to 1.0% is likely in April. This is all down to the timing of the Easter holidays, which fall in April this year against March in 2016.
- Bond market: Government bond yields are edging lower again as markets put reflation expectations from Trump’s stimulus plans to the test. Ten year Bund yields look likely to push the floor of the recent trading range lower. Elsewhere, the Corporate Schuldschein segment should continue its growth.
- FX market: US and euro zone politics recently provided tailwinds to EUR-USD. However, amid ongoing political risks in the euro zone, the further euro upside should be limited. As the UK announces its Brexit intentions, GBP should also come under renewed pressure.
- Equity market: Amid the still-very positive overall conditions, German companies should make further acquisitions this year. This will push goodwill on DAX company balance sheets still higher. Under gloomier general economic conditions, write-downs might become necessary, which could painfully reduce the equity capital of some companies.
- Commodity market: Brent is likely to fluctuate around USD 50 per barrel next week. While we are likely to see signs that OPEC also cut production in March as agreed, the likely further rise in US inventories will show that supply remains ample, arguing against a price recovery.