(17 February 2020)DAILY MARKET BRIEF 2:Calling out for fiscal stimulus
Recently, the European Central Bank (ECB) President Christine Lagarde has also called European governments for putting their hands in their
pockets to help ECB reaching its growth and inflation goals.
Hence, we may be at the beginning of an era where central banks start actively
seeking governments’ help for boosting growth after more than a decade-long ultra-loose monetary policy couldn’t deliver the
anticipated results worldwide. Yet it is unsure that most governments, which have already been fighting gigantic deficits, could do much
to uplift growth.
Speaking of fiscal stimulus, the UK may lead the field as the British government is planning to spend more in the coming year
to offer the smoothest Brexit possible to the country. And the new Chancellor Rishi Sunak is well placed to help putting Johnson’s plan in
action starting from March. Higher spending should translate into a higher economic expansion and take the lower-rate pressure off the
Bank of England’s (BoE) shoulders, at least for a while. This is perhaps what keeps the pound above the 1.30 mark against the US dollar.
The
CFTC data revealed that investors increased their net speculative positions in Sterling last week.
On Wednesday, the January data
should reveal an improved British inflation to 1.7% y-o-y from 1.4% printed a month earlier. The anticipation of a better inflation read
following Boris Johnson’s victory in December should encourage GBP-bulls to strengthen their long positions above the 1.30 level into the
data release.
FTSE futures (+0.27%) point at a marginally positive start in London.
The US will be closed today
due to bank holiday.
The euro remains under a decent selling pressure as German ZEW survey (Tue) and German flash PMI figures (Fri) will
likely hint that the business sentiment and manufacturing activity in Germany have further deteriorated in February as we start seeing the
first implications of the coronavirus shock on the economy.
By Ipek Ozkardeskaya
