ECB: Q1 BLS Suggests Limited and Predictable Impact From QT
Apr-15 08:28
The Q1 BLS suggests a limited and predictable impact of ECB QT on banks market financing conditions and liquidity positions:
- “The reduction in the ECB monetary policy asset portfolio had a small negative impact on euro area banks’ market financing conditions and liquidity positions over the last six months, contributing to an increase in the holdings of euro area sovereign bonds for the first time since early 2015”.
- “Banks expect these developments to continue over the next six months, while the impact on lending conditions remains muted, reflecting the measured and predictable adjustment of the ECB monetary policy portfolio”.
- Amid recent bond market volatility, there are differing views on the outlook for QT, with some looking for a continuation of the currently prescribed rundown, alongside playing down the impact of U.S. trade policy on ECB rates, while others are more open to the idea of the Bank slowing its balance sheet runoff. Speakers since April 2 (Knot, Villeroy, de Guindos, Cipollone and Lagarde) have appeared relatively relaxed around the state of recent market/liquidity conditions, but highlighted that the ECB is ready to use all tools at its disposal if required.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
Mar-14 21:28
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Mar-14 21:25
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
Mar-14 21:17
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
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