ECB Enters the Quantitative Easing Fray

Weekly Report - 09/03/2015


Further monetary easing dominated the headlines following a rate cut from China and the emerging details of the ECB’s quantitative easing program slated to begin today.  Employment data at the end of week was the major event, leading to increased volatility and momentum in currency markets.

Last Week in Brief

Alongside another cut in Chinese interest rates by the People’s Bank of China, the nation’s Prime Minister, Li Keqiang has lowered expected growth rates for 2015 to 7% - half a percent lower than 2014. Trade is expected to grow at a more modest 6% due to the global slowdown. One item of concern is accelerating investment outflows that will likely lead to further growth down the road. In Europe, today marks the beginning of the monthly €60 billion quantitative easing program, following the European Central Bank’s decision to hold interest rates at 0.05% for now. The key rates may drop into negative territory, however, should fears of deflation or a Greek exit from the Euro come to fruition. EURUSD fell to the weakest level since 2003, dropping below 1.1000 during last week’s ECB press conference. Fears are spreading that Greece may not be able to repay its IMF loan. The USD and US equities are trading near record highs, in spite of an apparent further delay to the much-awaited interest rate hike. The good news, though, was Friday’s nonfarm payrolls release, which beat expectations by nearly 20% - 295,000 new jobs reported, rather than 240,000 forecast. The unemployment rate fell to 5.50% but this is also reflective of declining labor force participation versus a stronger job market.


The Week Ahead

This week, expect industrial production figures from China, the UK, the Eurozone and Japan, which may disappoint in spite of growth forecasts across the board. The Reserve Bank of New Zealand is expected to announce its interest rate decision which will likely to be held at its present 3.5%; Germany will be announcing its export data; and the US will be publishing retail sales and business inventory figures. Finally, China will be releasing its consumer inflation data and the US – producer price deflation.


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