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ECB Sets Sights on March

The European Central Bank Raises Specter of Additional Easing to Fight Deflation

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After reporting inflation that continues to elude the Central Bank’s target, the ECB left interest rates on hold as they attempt to better understand the impact of asset purchases while maintaining that additional monetary stimulus measures remain in the pipeline should the situation necessitate more accommodation.

Weekly Review

Data in the prior week provided very Euro and Sino-centric.  The ECB kept monetary policy on hold, with asset purchases static at €60 billion monthly and the key rate at 0.05% with the deposit rate firmly in negative territory at -0.30%.  President Mario Draghi alluded to additional actions the Central Bank could take in an effort to spur inflation which continues to languish mainly as the result of still falling energy prices.  This raises the stakes for the March meeting when the Central Bank is expected to accommodate policy further.  China released its latest fundamental data showing GDP expansion at the slowest pace in 25 years at 6.80%.  Other indicators such as industrial production and retail sales fell below expectations in a growing sign of turmoil in the real economy.  Policymakers injected a record $91 billion in liquidity to offset the pace of capital outflows as the situation becomes more precarious.  Across the Pacific, the Bank of Canada left rates on hold, citing rising inflation and the risks from the devaluation of the Canadian dollar as the reason behind the unchanged policy as the outlook crumbles further.

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The Week Ahead

uch of the data in the week ahead is focused on North America with key data points set for release from the United States and Canada.  The US Bureau of Economic Analysis is set to release the first estimate of fourth quarter GDP with forecasts currently estimating 1.30% growth during the period.  Canada will be reporting November GDP figures with the renewed slump in oil and gas prices likely to weigh on the figure.  Additionally, the US is set to publish durable goods orders figures which should give a broader sense of investment in the real economy on the part of businesses.  Pending home sales and new home sales are the icing on the cake for the US economy with the housing market increasingly indicating that the outlook might not be as bright as previously thought.  The UK is also set to report on its latest GDP numbers, with the annualized growth expected to taper to 1.90% versus 2.10% recorded in the prior report.  Lastly, the Reserve Bank of New Zealand will be issuing its latest monetary policy decision which is expected to see rates stay on hold at 2.50%.

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