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.
Key Quotes
“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.”
