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LGT Navigator: ECB monetary policy decision in focus

September 10, 2020

In addition to the recent turbulences surrounding technology shares, today's primarily focus will probably be on the European Central Bank's monetary policy decision. On equity markets, the lower prices following the correction in tech shares again generated increased buying interest, which stabilized the stock indices in the middle of the week after the recent losses.

ECB monetary policy decision in focus

As always, the ECB's monetary policy announcement this afternoon at 1:45pm CET is likely to be followed with great attention. The focus will primarily be on the central bank's new projections for growth and inflation, as well as on the statements by ECB President Christine Lagarde on economic developments. After the central bank decided in June to increase the volume of its pandemic purchase program PEPP by EUR 600bn to EUR 1.35 trillion and to extend it until mid-2021, the question arises as to how much ammunition the ECB still has in its arsenal. After the inflation rate unexpectedly fell into negative territory in August, the ECB may once again be called upon to announce further measures. It is also questionable how the ECB will be able to scale back the emergency monetary policy measures after the crisis.

Investors regain courage after the recent slide in stock prices

In the middle of the week, the stock markets in Europe and the US began to recover from the recent losses. The leading European index EuroStoxx 50 closed +1.76% higher at 3,324.83 points. On Wall Street, investors also took heart again after the three-day slide in prices driven by US technology stocks. After a three-day slide, stock markets in the USA began to recover on Wednesday. The Nasdaq 100 rose by almost +3% to 11,395.85 points and the Dow Jones Industrial and the broad-based S&P 500 also gained +1.6% and +2%, respectively. Asia's stock markets continued their positive trend. In Tokyo, the Nikkei 225 gained just under +1%. However, the short-term recovery seems to be losing momentum again and, in view of the recent setback and the clouded hopes for a Covid-19 vaccine, the mood on the trading floor is likely to remain tense for the time being.

Another Brexit crisis meeting in London

Today, chief negotiators of Great Britain and the European Union are to meet again for talks and negotiate about the relations after the Kingdom's withdrawal from the EU. This is already the eighth round of negotiations and so far it does not look as if real progress can be made. In particular, the changes to the current Brexit deal introduced by British Prime Minister Boris Johnson caused red heads in Brussels. The main issue is the contract clauses on Northern Ireland, which were controversial from the start. Today, EU Commission Vice President Maros Sefcovic is to travel to London to request clarity from the British government on the full and timely implementation of the withdrawal agreement. After the end of the transition phase at the end of the year, there could still be a hard Brexit.

Canada's central bank confirms course

The Bank of Canada left its key interest rate unchanged at +0.25%, as expected. The central bank continues to assume that the recovery after the lockdown will be followed by a protracted and uneven recovery phase, which will depend heavily on political support. The speed of the recovery continues to depend to a large extent on the course of the corona crisis and on the countermeasures taken to contain the pandemic. While key interest rates remained untouched, the Bank of Canada is continuing its quantitative easing (QE) program and is buying large amounts of Canadian government bonds in the amount of at least CAD 5bn per week. Canada's economy recorded a quarter-on-quarter contraction of -11.5% in the second quarter.

 

 

Economic Indicators September 10

MEZ Country Indicator Last
08:45 FR Industrial Production (July, y/y) -11.7%
10:00 IT Industrial Production (July, y/y) -13.7%
13:45 EZ ECB monetary policy announcement -0.5%
14:30 US Producer Prices (August, y/y) -0.4%
14:30 US Core Producer Prices (August, y/y) +0.3%

Earnings Calendar September 13

Country Corporate Period
US Oracle Q1

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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