ECB cuts interest rates, expands QE

Despite the ECB announcing a host of measures which clearly outdid market expectations, the Euro trimmed its losses and instead closed yesterday with strong gains. After the initial announcement of interest rate cuts and QE expansion, the single currency fell to session lows of 1.0820. However, during the press conference, Mario Draghi said that he doesn't anticipate further rate cuts given the current stance. The Euro quickly recovered off the lows and traded as high as $1.12, posting a two-week high, gaining nearly 1.70% for the day. In the press conference, the ECB President noted that interest rates will remain low for an extended period of time even after the current QE purchases end. While European stocks initially gained on the news, equities fell sharply following the steady rise in the single currency. The German DAX closed lower by 2.31% erasing the gains made earlier in the day including the US equity markets.

Consumer prices in China surged 2.30% in the month of February compared to a year ago, higher than the forecasted 1.80% and up from 1.80% increase in January. Expectations remain strong that the headline inflation rate might continue to remain strong easing pressure on the PBoC at least for the time being. Food price inflation was the main contributor to the upside surprise, a similar theme which played out with Norway's inflation data as well which surged 3.10% with food inflation being the main driver in consumer prices. While CPI numbers were positive, Producer Prices continued to remain weak. For the month of February, China's PPI fell 4.90% but slower than January's 5.30% decrease. The decline in the PPI marks a fourth consecutive year of Chinese firms cutting prices on goods. Expectations are that the PBoC will likely remain on the sidelines but would continue pursuing an easy monetary policy. While the data did not have any sharp impact on the Yuan, the Shanghai Composite index fell 1.20%.