ECB Ending Stimulus Program; OPEC Producers Under Pressure
Published June 14, 2018
The European Central Bank outlined plans to end its massive stimulus program by the end of this year. The bank stated that if incoming data followed its forecasts, then the monthly bond purchase program would be extended through to the final quarter of the year. This means the program would likely end in December if the euro zone economy remained resilient. The quantitative easing program was scheduled to last until September, carrying monthly purchases of 30 billion euros of government and private debt. This will now be reduced to 15 billion euros during the last three months of 2018.
Yesterday’s Federal Reserve decision was the announcement that from January next year every monetary policy meeting at the bank will be followed by Chair Jerome Powell holding a Q&A with the media. Market reaction to the decision to raise rates by 25 basis points and indicate that there may be four hikes this year received mixed reactions. This morning, US 10-year treasury yields are trading relatively unchanged from their pre-decision levels. There was a surprise for markets when the People’s Bank of China decided not to follow the Fed’s lead and held rates unchanged, signaling renewed confidence in yuan stability.
US Secretary of State Mike Pompeo said that North Korea would not receive sanctions relief until after the country had completed nuclear disarmament, pushing back against suggestions in official North Korean media that the economic pressure on the country would soon ease. This comes despite President Donald Trump saying the nuclear threat from Pyongyang is over.
The largest crude buyers in Asia are considering teaming up to buy US supplies and counter OPEC’s dominance in the world’s biggest oil market. India and China are discussing ways to boost imports of US crude to Asia, a move aimed at reducing their dependence on cargoes from members of the Organization of Petroleum Exporting Countries. The two nations want to put pressure on OPEC producers to keep prices under control. The potential collaboration between the two major oil buyers would present another challenge for OPEC, which is facing competition for market share in Asia from the flood of crude pumped in the Gulf of Mexico and shale fields of Texas. West Texas Intermediate was trading at $66.94 at the time of writing.
The Canadian dollar has shown little movement this morning, currently trading at 1.2978. Today, there is the release of the New Housing Price Index, which is expected to rise to 0.2%. Meanwhile, in the US consumer spending is expected to improve in May, with Retail Sales expected to rise to 0.4% and Core Retail Sales predicted to rise to 0.5%. The markets had priced in a rate hike from the Federal Reserve on Wednesday, with the central bank raising interest rates by a quarter-point to a range between 1.75% and 2.00%. Fed Chair Jerome Powell sounded hawkish in his press conference, saying that the economy was performing well and that “overall outlook for growth remains favorable [sic]”. This message echoed the rate statement, in which policymakers said that “economic activity has been rising at a solid rate”, pointing to stronger consumer spending and business investment.