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Saturday 20 January 2018

Daily Market Update: ECB President says Bank will act if market volatility threatens outlook

Andrew Parsons/PA Wire
Andrew Parsons/PA Wire

John Barry

Speaking to European Parliament law makers in Brussels yesterday, Mario Draghi said that the ECB will take action to ensure its monetary policy is effective if it appears that such policy risks being affected by financial market volatility.

He further commented that euro area banks are in a “good position” to reduce their non‐ performing loans in a orderly manner over the next few years. The ECB next meets on March 10 and market participants will widely debate the probability of some kind of action at this meeting. Currently the ECB’s main interest rate stands at 0.05 percent with a negative rate of minus 0.3 percent on its deposit facility. It makes net monthly asset purchases of EUR 60 billion.

Equities in Europe and Japan rallied strongly yesterday as investors reacted to a strong close on Wall street on Friday. The Stoxx Europe 600 was up over 3% led primarily by banking and automobile stocks. Earlier, Japan’s Nikkei climbed 7.2 percent, its biggest daily gain since September, as bank shares rebounded and exporters benefitted from a weaker yen. US equity markets were closed for the Presidents day Holiday. Equity markets have been under pressure recently, underpinned by increased fears around central bank policy, the health of the financial sector and slowing global growth.

On the oil markets, prices continued to recover post the record gains on Friday when the United Arab Emirates energy minister said that the OPEC Nations were ready to cooperate on possible production cuts. Markets are speculating about the outcome of a meeting today between oil ministers from Russia, Saudi Arabia, Venezeula and Qatar. The Russian rouble opened more than 1 percent higher agains the euro and dollar this morning on hopes that some form of a cut in output would be announced.

On the currency markets, the dollar is firmer against the yen as a recovery in equities and oil saw a reversal in the risk aversion that hurt the US currency last week. The greenback has also gained more than 1 percent versus the Swiss franc this week after slipping to a 4‐month low on Thursday against the safe haven currency.

In the last 24 hours, in addition to Mr Draghi, some other Central Bank officials have signalled that they were willing to act to spur the global economy. Japanese Prime Minister Shinzo Abe warned that Tokyo would take action against “excessive currency volatility”, while Chinese Central Bank head Xiachuan endeavoured to allay investor concerns over falls in its currency reserves. The yuan has eased back against the dollar in early trading this morning post the string gains yesterday, while sterling has opened this morning firmer against the euro, after weakening in the afternoon European session.

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