ECB Signals More Stimulus Coming in March

Daily Analysis - 16/02/2016

ECB Increasingly Concerned Over Global Economic Conditions

The European Central Bank reaffirmed its readiness to expand quantitative easing measures further in March if recent turmoil in financial markets or the long-term impact of low energy prices threaten to keep inflation at low levels. ECB President Mario Draghi remained adamant that the central bank will provide stimulus over the year but that fiscal policy needs to follow suit.

ECB Ready to Stimulate More

European Central Bank President Mario Draghi reaffirmed the growing concerns of the central bank arising from recent financial market turbulence. At the quarterly hearing before the Committee of Economic and Monetary Affairs, the ECB president reiterated that monetary policy has been one of the key determinants of economic health over the Euro Area in the past few years. The economic bloc will require robust fiscal and monetary policies in order to overcome the recent slowdown in the global economy and also to achieve the inflation target. According to Draghi’s remarks, the ECB will not hesitate to implement additional asset purchases if commodity and energy prices persistently decline, adding to existing deflationary pressures. Policymakers convene in early March to determine the central bank’s monetary policy trajectory. The Euro showed weakness during the press conference, falling to as low as 1.1128 versus the US dollar during the question and answer session.

New Zealand Retail Sales Miss the Mark

New Zealand's retail sales for the final quarter grew less than expected according to the latest release from Statistics New Zealand. The final quarter saw sales rise by 1.20%, missing the previous quarter’s revised value of 1.50% and underperforming relative to consensus estimates of 1.40% expansion. The major components contributing to the gains were tourism and household improvement with the largest impact coming from hardware, building, and garden supplies. The slight deceleration did not reflect badly on retailers anticipating that strong population growth amid low interest rates set by the central bank will bolster spending significantly over the coming months. Declines were reported in pharmaceuticals, recreational goods, motor vehicles and parts. On an annualized basis, retail sales climbed 5.30% over the final quarter but were markedly lower when compared to the same period last year which recorded a 5.70% increase.

Russian Industrial Output Improves

The latest industrial production figures released by the Russian Federation Federal State Statistics Service climbed slightly in January in comparison to the prior month. Industrial output fell by -2.70% for the first month of the year, slightly up from December’s -4.50% plunge while also outperforming estimates of a -3.10% slide. Output and new orders were reportedly on the rise but still remained in contractionary territory. With exports in particular decelerating, most of the output produced was for domestic use. The report also highlighted that despite the slight improvement in the measures, job losses in the industrial sector continued to mount. The data in many ways mirrored recent manufacturing readings with the purchasing managers’ index indicating a modest improvement but remaining below the critical 50 threshold that separates contraction and expansion. The Ruble continued to strengthen following the release of the report, with the USDRUB touching an intraday low of 77.3218.

Turkish Employment Stagnates

Turkey's latest reading on joblessness saw the unemployment rate remain unchanged for the month of November at 10.50%. The value matched October’s value, beating expectations of the figure rising to 10.70% and showing modest improvement over the prior year. According to the report, the total number of employed individuals over 15 years old was at 26.676 million in November 2015, a rise of 802,000 people in comparison to last year’s values. Turkstat, the Turkish statistics office, did however remain concerned with the persistent difficulties in tackling youth unemployment, even if the reports showed a slight improvement after the rate fell by -0.20% to 19.10%. Nevertheless, the overall situation requires caution and additional action from both monetary and fiscal policy to stabilize the labor economy and add to job creation. However, it will require a delicate strategy especially with headline inflation nearing 10.00%.