ECB Meeting And EU Summit On Brexit Take Centre Stage

Fundamental analysis of Forex market

Market movers today

It’s a busy day today with lots of data and events. The ECB kicks of the action with its meeting and press conference at 14.30 CEST. We expect Draghi to repeat his ‘delayed, not derailed’ inflation message, therefore no new policy signals from the ECB. However, we expect Draghi to strike an overall cautious tone and the ECB to keep its downside risks assessment on growth, see ECB Preview – No new policy actions expected as ‘inflation is delayed, not derailed ‘, 5 April 2019. We expect questions on a tiering system and Draghi may reflect on the recent ECB lending survey (see below).

US inflation data is also set for release at 14.30 CEST. We agree with the consensus that we will see an unchanged core inflation rate of 2.1% y/y.

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Tonight at 18:00 CEST, the EU leaders are set to meet to discuss and decide on whether to grant the UK another Brexit extension and, in that case, for how long. Yesterday, EU Council President Donald Tusk sent the EU leaders a letter suggesting a flexible approach by extending the deadline for one year with the possibility of the UK leaving earlier if the Brexit deal passes the House of Commons. While Tusk’s letter is positive, we note he is considered one of the more “soft” Brexiteers and some EU leaders including French President Macron are more sceptical. A long extension is also our base case (75%) but we cannot rule out neither a short extension nor a no deal Brexit (both 10%), see Brexit Monitor: Long extension despite Brexit fatigue , 8 April.

The FOMC minutes from the March meeting are due for release at 20.00 CEST. It was the meeting of the big dovish turn, but we doubt the minutes will add much more colour to the shift in the Fed’s message as we have had a wide range of Fed speeches explaining the move.

In Norway, it’s time for inflation for March and we get the inflation expectations survey from Sweden. The Riksbank’s Ohlsson also speaks, see page 2 for more details.

Selected market news

The risk market took a breather yesterday as equities were lower and bond yields declined. The decline in sentiment also put a halt to the rise in the oil price seen lately. Asian markets are also lower but mostly catching up with the decline in the US and Europe.

Markets faced some headwinds from a new downbeat IMF outlook , as global growth for 2019 was revised lower by 0.2 percentage points to 3.3% for 2019. However, the IMF expects a recovery in H2 19, paving the way for global growth of 3.6% in 2020. The news of US tariffs on USD11bn of EU goods, on Monday night, also weighed on risk sentiment.

The ECB lending survey released yesterday showed that credit standards were broadly unchanged for enterprises but tighter for housing loans ( link to survey ). The most interesting part was that while a clear majority of banks said negative rates weighed on profitability, a small majority also said it had a positive impact on their lending volumes. It will be interesting to see how the survey affects the ECB’s message on tiering today.

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