A look at the day ahead from Julien Ponthus.
It’s now most likely those born in the euro zone in 2011 won’t get to see an interest rate hike until their teens (imagine the FOMO!).
Indeed, the European Central Bank said on Thursday it would not hike borrowing costs until it sees inflation reaching its 2% target.
And because it only forecasts prices to rise by 1.4% in 2023, the first rate hike since the debt crisis isn’t expected before 2024 when ‘Generation T’ (for former ECB President Jean-Claude Trichet) will reach teen age.
Truth be said, expectations were low prior the ECB meeting with Paul Donovan, Chief Economist at UBS GWM, sarcastically writing that markets would be eager to know how the ECB intended to miss its new target this time.
Negative rates, trillions of euros worth of monetary and fiscal stimulus, labour shortages, production bottlenecks, a global shipping container shortage, commodities and oil prices rising and still the outlook for inflation is muted.
Now with growing fears the Delta variant could slow down the pace of the recovery, investors find themselves paying to hold Germany bonds with 10-year yields at -0.41% and near their lowest levels since February.
A slew of business activity surveys due on Friday are expected to show a slight softening of activity in Europe. That could weigh on the euro, which fell after the ECB meeting and is trading at $1.1773 — not far from recent three-month lows.
Attention is expected to shift to the U.S. ahead of next week’s Federal Reserve’s meeting.
News on Thursday of an unexpected hike in the number of U.S. workers filing first-time applications for unemployment didn’t derail Wall Street, which saw its three major indexes end the session within 1% of their record closing highs.
Asia shares slipped overnight, but futures for Europe and the U.S. point higher, meaning losses sustained during Monday’s Delta variant selloff have been recouped.
Key developments that should provide more direction to markets on Friday:
– UK consumers back to pre-pandemic confidence
– POLL-S.Korea likely posted biggest annual growth since 2010 in Q2
– UK June retail sales
– July PMIs: France, Germany, Sweden, euro zone, UK
– Vodafone posts 3.3% rise in Q1 revenue as Europe returns to growth
– Eyeing IPO, Geely’s Volvo Cars swings to profit in H1
– Russia tipped to hiked rates.
Graphic: Benchmark German 10-year yield – https://fingfx.thomsonreuters.com/gfx/mkt/mopanmkeeva/Pasted%20image%201627023030561.png
(Reporting by Julien Ponthus, editing by Dhara Ranasinghe)