Mark My Word

Good Morning.

Here is what is driving the markets today.

Tensions relating to the Ukraine and Russia abated for most of the week, so the markets had other crucial factors to consider. Yesterday’s key news item was the ECB press conference, which turned out to be more dovish (refers to the tone of language of a central bank, indicating that low inflationary pressures are not a cause for conern) than expected, and is expected to be credit supportive overt the next few trading sessions. ECB President Maio Draghi did not explicitly announce any change in policy in stance, a move which can be interpreted that a continuous period of anchored interest rates and lower-than-expected inflationary number printed earlier on this week could lead to yet another round of Quantitative Easing. Effectively, ECB President Mario Draghi said that QE fell within the ECB’s mandate and that, over the coming weeks the banks would explore its options in this regard.

What was of particular importance, most notably for credit markets, was the unanimous decision by the Governing Council in its statement that it remained committed to using also unconventional instruments in their attempt to effectively deal with the un-wanted repercussions of a period stubbornly low inflation. The reference to a “prolonged period of low inflation” and the fact that it would be sufficient for the ECB to consider unconventional measures is indicative that the hurdle to unconventional policy could in fact be lower than expected.

Meanwhile, the new French Prime Minister Manuel Valls is expected to present his policy objectives to parliament on Tuesday. Speculation is rife that he is likely to announce a acceleration of reforms and some additional social measures to reassure the more traditionally socialist members of his party. On a similar note, Arnaud Montebourg, who has been also recently promoted as economics minister, is also expected to raise the issue of the impact of financial flows into the euro zone on the value of the euro.

On the economic data from, we expect positive signals coming from Europe’s largest economy early on next week. In fact, German trade and production data is expected to be a key gauge of just how strong growth has been with recent surveys showing a consistent upside momentum despite a blip in economic and market sentiment in March.

Across the Atlantic, US Fed Chair Janet Yellen’s comments this week that the “recovery still feels like a recession” and that there is “considerable slack in the economy and labour market” were also interpreted to be clearly dovish comments However, markets have opted to focus on today’s March payrolls report, where market consensus is for job growth of 210k for the month, with the unemployment rate dropping to 6.60% from 6.70%. With unemployment consistently on the decline, the market appears more intent on focusing on the more important pace of job creation and wage growth more than anything else.

Elsewhere, next week’s Bank of Japan meeting is not expected to make headlines, but markets could well focus on Japanese monetary policy which is expected to be re-ignited at the April meeting.

Have a nice day!

Mark