Britain’s June 23 vote to leave the European Union has raised concerns that trade with the eurozone might suffer, hurting European growth.
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Brent LCOc1 rose to as high as $50.14 per barrel on Thursday and last stood at $49.63, down 0.7 percent from Thursday’s close but still up nearly 6 percent so far this week. NY time, the highest in a month on an intraday basis, according to Bloomberg Bond Trader data.
“For the time being, the changes (in forecasts) are not substantial (enough) to warrant a decision to act”, Draghi told a news conference, adding that an extension of the ECB’s asset buys was not discussed.
The bank left all its main rates unchanged, with its key refinancing rate remaining at 0%, and the key deposit rate left at -0.4%.
“The ECB has gone from “jumping the gun” to “wait and see” mode and that has taken the market a little bit by surprise”, said David Schnautz, a rates strategist at Commerzbank. He had used similar language at the October 2015 meeting, which was followed by an easing package six weeks later. They trimmed their inflation projection for next year to 1.2 percent from 1.3 percent, but left its outlook for 2018 unchanged at 1.6 percent. With most central banks following a tradition of caution, it should be no surprise if the ECB adopts an inactive stance in Thursday’s policy meeting.
In his effort to underline governments’ responsibilities, Draghi read from this week’s joint statement issued by the Group of 20 most advanced nations in which they said they were ready to use “all policy tools – monetary, fiscal and structural” to improve growth.
Prolonging the purchases is controversial because it risks further distorting market prices and even that the stock of eligible bonds will run out.
The choice is then between tweaking purchase rules or going for a bigger redesign.
“The monthly asset purchases of 80 billion euros are meant to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim”, the European Central Bank statement said.
“But the sell-off has gone beyond that today with talk about the BOJ wanting a steeper yield curve, so there is the threat of a sea-change in how central banks operate”.
Markets expect the worrying outlook to force the European Central Bank into unveiling yet more stimulus aimed at saving the economy from descending into disaster – despite fears previous measures have not worked. US shares were set to drift lower with Dow futures slipping 0.1 percent and S&P 500 futures down 0.2 percent.
This seems quite weird given they have lowered their inflation forecasts for 2017 to 1.2% and, while this is a mere rounding issue from its June forecast of 1.3%, it simply pulls it further and further from their inflation mandate.
He said that implementation of “structural reforms” – that is, steps to make economies more business and growth-friendly – “needs to be substantially stepped up to reduce structural unemployment and boost potential output growth”.
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‘The economic recovery in the euro area is expected to be dampened by still subdued foreign demand, partly related to the uncertainties following the United Kingdom referendum outcome, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms, ‘ he said.
