Markets

Bank of Ireland Dealer Comment

14:17 14 Mar 2024
Today's Talking Points 14.03.24

Market Commentary

The euro and sterling have remained in relatively narrow ranges against the dollar over the course of this week, having popped higher at the end of last week following the US employment report. They are trading just shy of $1.0950 and a touch above $1.28 respectively this morning, with the euro-sterling cross still at about 85.5p.

 

Yesterday’s Events

US bond yields have continued their post-US inflation data ascent, with 2- and 10-year yields up another 5bps or so yesterday, while German and UK yields have followed some of the way higher. In equity markets, European stocks gained almost 0.5% albeit ending off the highs of the day, while the S&P 500 gave up earlier gains to end slightly lower overall.

ECB member Stournaras says “we need to start cutting rates soon so that our monetary policy does not become too restrictive,” adding that “it is appropriate to do two rate cuts before the summer break,”. This would mean moving at the April and June meetings, though for its part, the market is currently attaching only a small chance to a cut in April.

Staying with the ECB, following a review of its operational framework for implementing monetary policy, it has announced, among other things, that it will continue to “steer the monetary policy stance by adjusting the deposit rate” (currently 4%), and will reduce the spread between the deposit rate and the refi rate to 15bps from the current 50bps from 18 September this year. The reserve ratio for determining banks’ minimum reserve requirements remains unchanged at 1%. This outcome was largely anticipated by the market, with little impact in the near term.

The Euro area economy started off 2024 on a weak footing judging by the latest industrial production data in the zone. Output fell by 3.2% in January (albeit not helped by a very sizeable decline in industrial output in Ireland) and was down almost 7% on the same month in 2023.

 

The Day Ahead

There are some important data due today including retail sales and producer prices in the US, with the latter likely to garner some attention following Tuesday’s firmer than expected CPI inflation data. We also get February CPI inflation data in Ireland, while there are a number of ECB speakers due on the wires.

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Author:Ellen Moloney