ECB Optimism Fails to Lift EUR - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that they were
not surprised by the general tone of the ECB press conference.
“Given the criticism of the stance of the ECB from German politicians in the run-up to the meeting, President Draghi was always likely to focus on ECB policy having played a key role in limiting the downside of the economy and inflation. The ECB also had the details of the Bank Lending Survey, released earlier this week, to argue its case with specific ad hoc questions on the impact of QE included in the survey results.
There was some evidence that QE-created liquidity had been used to lend funds to non-financial corporations and households. While the majority in all the QE questions indicated there was no impact, there was a minority of banks that did indicate that QE had helped “somewhat”.
Certainly, when looking at the actual lending data, released in the M3 money supply report, the extent of increase in loans to NFCs is in fact somewhat reflective of the economy as a whole – there has been an improvement but the pace of improvement has been under-whelming. Loans to NFCs are up 0.6% on an annual basis in February (compared to -3.8% in Nov 2013) but this compares to an average annual growth rate of nearly 10% in the 5-year period through to the financial crisis.
Whatever your interpretation of the press conference yesterday, the key point we would make at this juncture is that EUR/USD direction is very unlikely to be determined by the ECB. It is the shift in the Fed’s stance in March that took EUR/USD more firmly into a 1.1000-1.1500 trading range and only when that shift in stance alters is there likely to be a sustained move in EUR/USD.
We do see that US yields are beginning to stir and our sense is that with crude oil remaining well supported, China looking more stable and with the potential for some better US data in May possible (Easter appears to have played a role in weakening some data), there is a good likelihood that US yields may start to move more notably higher as the market participants are forced to consider more seriously the prospect of a Fed rate increase in June. Spreads have already started to turn in favour of the US dollar and the simple passing of time as global markets remain stable will probably be enough to start pushing US yields further higher.”