Central Banks Stay the Course

Yesterday’s monetary policy decisions from the European Central Bank and Bank of Canada saw Central Bankers maintain their “wait and see” attitude as they continue to be data driven. The ECB left the benchmark rate on hold at 0.05% and maintained asset purchases despite the fact that available supply of securities remains low and scarcity of sovereign debt will prove problematic. The ECB press conference was briefly interrupted by a protestor showering Mario Draghi in confetti before being removed from the premises. Across the Atlantic, Bank of Canada Governor Poloz also maintained interest rate policy, keeping the benchmark at 0.75% as core inflation managed to stay at the 2% target. The Central Bank in its statement cited that the economy likely stalled in the first quarter as the impact of energy prices and slack in the economy hampered growth. USDCAD tumbled outside the multi-month range, breaking lower to the downside after the announcement.

According to the latest IMF warnings, margin-debt trading is at the highest levels since the late 1990s. The IMF is cautioning that another liquidity crisis might be around the corner as leverage in the US financial system could propagate the risk of sharp corrections in financial assets. Then again, taking the IMF at face value is fairly difficult especially after its latest report on the outlook for Europe showed Greece outperforming all regional peers. Volatility is increasingly evident in crude oil with prices very sensitive to inventory announcements and Middle East hostilities. The weakest inventory growth in 14 weeks sent WTI crude oil to the highest level in 5-months even though diminished storage capacity could lead to a price retreat. Meanwhile, the spread between Brent and WTI has narrowed further at just over $4.00, giving added value to the prominent pair trade betting on the spread widening to historical levels.