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Tuesday 24 October 2017

Daily Market Update: ECB stimulus needs time to boost inflation - Constancio

Vice President of the European Central Bank at a press-conference for the summit G20 on February, 16, 2013 in Moscow, Russia
Vice President of the European Central Bank at a press-conference for the summit G20 on February, 16, 2013 in Moscow, Russia

David O'Reilly

The main economic data yesterday came from Europe where German industrial orders rose more than expected in March due to strong foreign demand.

Industrial orders were up 1.9% on the month versus a forecast of 0.7% and a previous reading of -0.80%. While domestic orders fell by 1.2%, orders from foreign countries rose 4.3%. The euro zone Sentix index survey was also released yesterday morning and showed sentiment had improved marginally in May, rising to 6.2 from 5.7 in April, however expectations remained subdued suggesting stimulus from the ECB is so far failing to offset worries about global growth.

ECB Vice President Vitor Constancio was speaking in London at ‘City Week’ yesterday and said that the latest stimulus needs time to boost inflation in the euro zone, “We have to allow some time for the package of measures adopted in March to produce its effects, while closely monitoring external developments”, he added that “the ECB will continue to do what is necessary to achieve its goal of reaching a level of inflation close to 2 percent and enough policy tools can still be used”. At the same event in London, the Fed’s Charles Evans (president of the Chicago Fed) said, “While the fundamentals for US growth continue to be good, uncertainty and risks remain. In my opinion, the continuation of ‘wait and see’ monetary policy response is appropriate to ensure that economic growth continues”.

Greek politicians yesterday passed a package of unpopular pension and tax reforms that the country's government hopes will persuade official creditors to unlock bailout cash. The approval came just hours before euro zone finance ministers were due to discuss Greece's reform progress and whether it had met terms of a multi-billion euro bailout. A positive sign-off on the reform review will unlock more than €5 billion to ease Greece's finances and allow the country make debt repayments in June and July. Greece hopes that the signoff will also launch discussions on debt relief but chairman of euro zone finance ministers Jeroen Dijsselbloem said, “We won’t do a debt cut. But one can always talk about maturities and interest. We will try to make a breakthrough on May 24”.

Closer to home and after a record month in February, the pace of growth in activity in the Irish construction sector has now eased back for both March and April. The latest purchasing manager’s index from Ulster Bank fell to 56.4 in April from 62.3 in March. While the latest reading continued to signal marked growth of construction activity, the rate of expansion slowed for the second month in a row and was the weakest since last November.

In the UK evidence has emerged of a slow-down in UK house prices in April, as the Halifax said growth eased to 9.2% compared to last year. A month ago, the Halifax said house prices were rising by 10.1%. The Halifax also said that the slow-down follows a rush to beat the new stamp duty tax rates for buy to let and second homes at the start of April. Compared with March, prices actually fell in April by 0.8%.

In the US, the labour market conditions index (designed to gauge the strength of the jobs market) was released coming in at -0.9 slightly ahead of the forecasted -1 and an improvement on the April figure of -2.1

Overnight Chinese PPI fell -3.4% yoy in April versus a consensus of -3.7% and better than the reading of -4.3% in March. CPI rose 2.3% yoy, in line with consensus expectations and the same as in March. The British Retail Consortium survey showed that retail sales fell 0.9% yoy on a like for like basis in April, while total sales were unchanged for a second consecutive month.

The economic calendar is light today, German industrial production was released at 7:00 and fell more than expected in March down 1.3%, the strongest monthly decline since August 2014, this was well below the consensus figure of -0.2%. At 9:30 the UK trade balance figures are released and in the US the NFIB small business optimism indicator is published at 11:00, expectations are for 93.1 in April following 92.6 in March. At 15:00 the JOLTS job vacancies are released for March and expectations are for a repeat of the 5.4M print in February.

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