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Tickmill Daily Market Notes
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[QUOTE="Tickmill-News, post: 162926, member: 55473"] [SIZE=6][B]ECB acclimatizes to decision-making in perpetual gloom[/B][/SIZE] Whichever perspective the ECB chooses to evaluate the EU economy with, the resulting estimates lie in the range of “negative” to “neutral”, virtually ruling out a bullish surprise at today’s meeting. [LIST] [*]Trump opened a new front in the trade war, this time attacking Europe for its unfair Airbus subsidies. [*]The Italian government had to say goodbye to hopes for economic growth this year as shown by government forecasts. [*]The British Parliament is stuck in growing dissent, leaving the Brexit denouement as uncertain as it was after the referendum in 2016. [*]In addition, the IMF once again cut global growth forecasts on Tuesday, which as a result increases the risks of external demand for export-dependent EU economies. [/LIST] Like last time, the ECB is likely to characterize the risks as skewed to the downside. It will no longer work as though it’s giving a fresh wake-up call. Instead mentioning the reasons that will provide more information about the dynamic assessment of some ongoing processes in the economy, as well as abroad. This may shed some light on what the ECB thinks about changes in corporate expectations, or the trend for decline in trade with its main partners, i.e. China and the United States. A welcomed communication from the ECB would be the evaluation of the tariff threat from the US (for example, “external risks increased”), as the regulator can’t implement policy decisions while isolating foreign trade. Shifts in policy are not expected at today’s meeting, as officials are mulling over the program for offering new loans to the banking sector (TLTRO) and are seeking ways to protect the profit of the banking sector. Nevertheless, warnings about the risks to growth and inflation may take on gloomier tone. The economy is facing increasing difficulties and complacency would be an unreasonably bold step. In order to prepare the markets for possible easing measures, the communication policy must also be built correctly, especially in light of the clear bearish bias of both TLTRO and compensation to banks on their interest on for excess reserves. Although US tariffs still remain a distant threat, their emergence should definitely reflect on corporate sentiment, which could potentially delay economic recovery. The Eurozone is one of the weak points in the global economy, in part due to Italy, which is in recession and Germany unsuccessfully trying to reinvigorate activity in the manufacturing sector: [IMG]https://blog.tickmill.com/wp-content/uploads/2019/04/1-9-1024x575.png[/IMG] Source: Bloomberg The IMF cut its forecast for global economic growth from 3.5% to 3.3%, as shown in updated data released on Tuesday. A decline in the first half of the year is expected to change to a pickup in the second. The head of the ECB, Draghi, will need to somehow respond to growing rumors about the intention of the Central Bank to support profits of the banking sector. The measure could work as a “progressive taxation” of excess reserves, which commercial banks park in the ECB. Negative rates force commercial banks to pay the ECB for the reserves. Reimbursement of these costs could help banks, in the situation of shrinking net interest income, which creates an incentive for excessive risk taking: [IMG]https://blog.tickmill.com/wp-content/uploads/2019/04/2-6-1024x501.png[/IMG] Source: Bloomberg Draghi may refrain from commenting, in the light of statements by Klaas Knot, the head of the Danish Central Bank, who urged his colleagues to abandon the discussion of this measure due to difficulties in its implementation. The disorderly withdrawal of Britain from the European Union remains one of the main threats to economic growth, weighing heavily on corporate and consumer sentiments. This is understood by all 27 countries of the bloc, however, there is still no consensus on the mechanics of the exit. Today the leaders of European Union will meet again to discuss possible solutions, which should satisfy both sides, as well as UK political forces. Risk Warning: Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky. [/QUOTE]
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