Analysts at Westpac explained today that the ECB remained on hold and retained its easing bias, disappointing those expecting hints that a QE tapering signal may be in the pipeline.
Global market sentiment: The ECB remained on hold and retained its easing bias, disappointing those expecting hints that a QE tapering signal may be in the pipeline. German interest rates fell in response, and US rates fell in sympathy.
Interest rates: US 10yr treasury yields fell from 2.32% to 2.28% following the ECB, while 2yr yields fell from 1.28% to 1.25%. Fed fund futures yields slipped, now pricing a June rate hike as a 75% chance (from 80% yesterday).
Currencies: The US dollar index initially rose and fell for little net change. EUR fell from 1.0920 to 1.0853 and then recovered to 1.0880. USD/JPY eked a sideways range of 111.05-111.57. Commodity currencies were again under pressure, coinciding with the Trump Administration’s latest attack on imports – aluminium. AUD made a fresh four-month low of 0.7440 before rebounding to 0.7470 in NY. NZD similarly fell to 0.6848 – an 11-month low – before recovering to 0.6880. AUD/NZD rose from 1.0820 to 1.0876.
The ECB left its policy rates unchanged, maintained its QE schedule at EUR 60bn per month for the remainder of the year, and retained its implicit easing bias. Draghi did not give any hints a QE tapering signal may be forthcoming at the June meeting, saying said there had been no discussion of exit strategies.
German HICP inflation jumped from 1.5% to 2.0% in April, mainly due to Easter effects. Some payback in May is likely, but combined with other survey measures of inflation pressures suggests a rising trend.
US durable goods orders rose 0.7% in March (vs 1.3% expected), with ex-transport orders falling 0.2% – the first decline since June 2016. Wholesale inventories fell 0.1% (vs +0.2% expected).”