ECB Rates Left Unchanged

Daily Analysis - 22/01/2016

More Stimulus in the European Central Bank Pipeline

The European Central Bank has opted to keep monetary policy steady amid concerns of energy prices impacting inflation in parallel with the Chinese economy affecting global stocks. Unstable financial markets and a drop in oil prices has the ECB willing to inject more stimulus into the economy in order to avoid deflation from encircling the region during the year ahead.

Russian Ruble Slump Expands

The Russian Ruble fell to a new all-time low, reaching 85.9230 versus the US dollar as oil prices continue to plunge. According to the latest inventory figures from the American Petroleum Institute and Energy Information Administration, reports show more inventories piling up, potentially leading to a further price drop in for Russia’s leading export commodity despite a massive rally to the upside after the latest EIA figure showing 3.979 million barrels added to inventories for the week ending January 15^th. Aside from the oil glut which is crushing prices, the Ruble’s spectacular fall is also pressured by the economic links between Russia and China with the latter economy quite vulnerable. The Central Bank of Russia is expected to release its monetary policy decision on January 29^th. Central Bank officials have stated so far, that the CBR has no plans to step in, but if the declines persist, they will intervene.

ECB Leaves Rates at Record Lows

Policy members of the European Central Bank Governing Council decided to keep monetary policy unchanged. The key refinancing rate was kept at 0.05% with the lending rate remaining at 0.30% alongside the deposit rate at -0.30%. Rates were unchanged amid growing concerns of the sustained drop in commodity prices as well as rising instability in global markets in response to China’s turmoil. At the ECB Conference, President Mario Draghi stressed the fact that the Central Bank needs to strengthen their stimulus program further. Downside risks have increased once again according to his commentary, and while the ECB has more tools in hand to fight the ongoing threat of deflation, the Central Bank is still trying to evaluate the impact of policies. Economists now expect fresh measures to be announced at the ECB’s March meeting. During the speech the Euro saw momentum versus major currencies reverse with EURUSD tumbling to lows of 1.0777.

US Jobless Claims Rise

Initial US jobless claims for the week ending January 16^th saw the number of individuals applying for unemployment benefits rise to 293,000, a 6-month high. Americans filing unemployment for the first time, climbed by 10,000 from the previous week’s revision higher to 283,000. The 4-week moving average also rose, climbing to 285,000 from previous week’s revised 278,500. The Department of Labor commented that while claims have risen during the past weeks, levels are still below the healthy labor threshold of 300,000 for the 46^th consecutive week. With the dollar gaining in strength, demand for exports is slowing down, widely impacting the manufacturing sector. As the global economy stalls and energy prices continue falling, the energy, mining and manufacturing sectors continue to cut costs with layoffs. The Labor Department reassured that despite the dismissals happening in recent weeks, the labor market remains robust.

Turkish Consumer Pessimism

Turkish consumer confidence dropped has dropped substantially in January according to the Turkish Statistical Institute report released on Thursday. The decline marks the second consecutive drop since November’s high of 77.2. December declined to 73.6 whereas the most recent value for the month of January fell below the previous month to 71.6. Rising unemployment with a small deceleration in the employment rate seems to be the predominant factor contributing to falling confidence amongst Turkish consumers. Analysts were not concerned with the results as the Turkish Lira is weakening and may help improve confidence in the near future. Expected wage growth alongside stronger domestic demand and stabilizing inflation are driving the current round of expansion. Upon the announcement, the recent strengthening of the Lira was halted, reversing lower versus the US dollar, closing at 3.0473.