Trading with point and figure

time for tea and biscuits

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ECB and the art of manipulation aka guidance - So very unsurprisingly the statement dropped the easing bias, which as Draghi noted was a 'backward looking' measure, and in doing it was in effect an admission of still deep divisions on the council between 'hawks' and 'doves', with the doves effectively conceding that this should have happened at the latest in January, perhaps even December.

2) Forecast update - in this era of hypersensitive, 'guidance' junkie markets, the removal of that guidance was always going to need to require something which leant against markets' instant and very Pavlovian assessment that this was 'hawkish' rather than the removal of what is / was obviously an unwarranted 'easing bias', from the context of the obviously positive economic activity and labour data. Tweaking the 2018 CPI forecast marginally would have been logical in the wake of the softer than expected Jan/Feb CPI data, and indeed EUR 'appreciation' (though mostly vs the USD, rather than in TWI terms). Vut instead it was the 2019 CPI forecast which was lowered to 1.4% (the same as 2018) from 1.5% y/y, and this was clearly market guidance. In effect the message to markets is/was: 'If you were thinking H1 2019 for an initial ECB rate hike, maybe you should think H2 2019 (or later)' - but that was a council decision, not a staff projection, and aimed at constraining the markets' ECB rate trajectory, as well as any Euro appreciation.
Link to ECB staff March forecast update: https://www.ecb.europa.eu/pub/pdf/other/ecb.ecbstaffprojections201803.en.pdf?

3) The comments on Trade disputes, the stock of QE and associated reinvestment flows offered nothing that has not been articulated by other central banks officials (cf. Fed's Powell and Dudley, RBA's Lowe) on Trade, or Coeure in his as ever thoughtful observations on the subject - https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180223.en.html.

4) The ECB can effectively kick the decision on whether to end the QE programme in September, or alternatively to opt for a taper to an EUR 15 bln per month APP (QE) pace during Q4, to the June meeting (with another fresh set of forecasts), and hopefully some clarity on what will be happening with trade tensions. It does however put an even greater focus on what and how it deals with September's €432 Bln LTRO expiry, in so far as a simple rollover is not really an option, given that this would tie the council into a policy trajectory that would not be commensurate with its forecasts.

Next up tomorrow's US labour data, where the simple thought is this: the anecdotal evidence from Claims, ADP, the Beige Book and pretty much any and every survey's Employment indices suggest the risks are all to the upside - so should markets be taking a contrarian view, in so far as Payrolls are a very erratic beast, and the risk that last month's Average Hourly Earnings bump may indeed have been a quirk / distortion related to weather effects?

..........................................................................

Marc Ostwald
Global Strategist
ADM Investor Services International
 
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