Treasuries mostly underperformed Europe as interest rates also rose with the ECB higher and as Chair Lagarde stressed that the bank is not stopping. US stock futures appear in the red with United States 30And US500 f US 100 Close to yesterday’s lows. shares backquest Bancorp is trading down – $2.67 or -41.59%. the USD rose to 101.37 Thanks to the data, from 100.74, After it fell yesterday at the FOMC. EURUSD is holding above the 1.10 mark and the reaction in general has been very mixed so far.
The European Central Bank is slowing its rate of hike by 25 basis points. With a decision as expected, the principal refinancing rate rises to 3.75%, and the deposit rate to 3.25%. The initial statement confirmed that inflation remains very high, with underlying price pressures still strong. He emphasized though that “past interest rate increases are strongly transmitted to euro area financing and monetary conditions.” Somewhat stronger indication of the impact of previous price hikes. Other decisions will remain data-driven and “based on its assessment of inflation expectations in light of incoming economic and financial data, underlying inflation dynamics, and the strength of monetary policy transmission.” There was no clear hint that further increases were in the works, but the ECB also announced that reinvestments under the APP would be phased out from July 2023, which would accelerate the reduction of its portfolio of assets accumulated under the APP.
The ECB is “not pausing” and has more ground to cover. As in the last meeting, the ECB kept the opening statement fairly neutral, but Chair Lagarde used the Q&A to make clear that the ECB did not signal a “pause” today and that more rate hikes are in the works. She noted that there was broad agreement that rates should rise today, even with a variety of opinions. Spreads in the Eurozone are widening in the wake of the comments. The ECB continues to see “significant upside risks” to inflation As Lagarde points to higher wages and profit margins in some sectors. She added that inflation expectations remain mostly stable around 2%, but she also added that some indicators have picked up and still warrant watching. The ECB highlighted both downside as well as upside risks to the growth outlook, while adding that significant upside risks to inflation remain. There are also some downside risks, but upside risks seem to dominate and while the ECB sticks to a data-driven approach, the comments are restoring expectations that more hikes are underway in the central scenario.
Lagarde confirmed that some people called for a 50 basis point hike at today’s meeting. The ECB also noted that there is no reason for interest rates to remain on hold today. Lagarde has kept the ECB on track to raise additional interest rates, but has been vague about the final rate or how far we are away from that, again indicating the dependence of decisions on data and the need to monitor the impact of previous hikes beginning to eat into the economy. . She stressed that we are not seeing a full cycle of policy transmission yet and suggested that the ECB will know when rates are sufficiently constrained when they reach that level. This indicates that the ECB does not have a specific final rate in mind at the moment. Asked about the decision to phase out the reinvestment of APP assets from July, Lagarde said the move was not part of any deal on interest rates, as there was a general view that it was the appropriate move at the moment, although some May be. They preferred to postpone the announcement until the June meeting.
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Andrea Pechedy
Market analyst
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