As we start the new week markets have been relatively quiet, which is somewhat expected given the big moves witnessed post the ECB meeting last Thursday. At that meeting the ECB announced it was cutting the main refinancing rate to zero, further reducing the deposit rate to minus 0.4% as well as expanding QE to EUR80bn a month. At the press conference after the announcement Mario Draghi, the ECB Head said “Rates will stay low, very low, for a long period of time and well past the horizon of our purchases”. When grilled about how low rates could actually go he said “From today’s perspective and taking into account the support of our measures to growth and inflation, we don’t anticipate that it will be necessary to reduce rates further. Of course, new facts can change the situation and the outlook.” Along with the ECB actions last week, tomorrow we have the Bank of Japan (BoJ) Monetary Policy Statement, where the market anticipates no changes to the policy rate after the committee’s decision to move into negative rate territory at the last meeting. Haruhiko Kuroda, the BoJ Governor’s press statement may make for interesting reading.
On Wednesday we also have the FOMC March rate decision. Again the market is anticipating that the committee will say put, with the chances of a rate movement being as low as 4% now, according to the futures market. As we have mentioned before, financial conditions have eased since the last rise in December and the FOMC will be keen to keep their options open. As always data dependency will likely be the key theme.
On the same day as the FOMC announcement, here in the UK we have the budget. Hard at work composing his 8th budget and seemingly distracted by the ruckus, Chancellor George Osborne tweeted “Trying to write my Budget,despite noisy episode of @BBC_TopGear being filmed outside the Horse Guards Parade. Keep it down please @chrisevans.” One has to wonder if this is the only noise he will encounter after he warned that the UK has to "act now rather than pay later" and that the world is "a more difficult and dangerous place" saying further spending cuts are planned. On the BBC he said “My message in this Budget is that the world is a more uncertain place than at any time since the financial crisis and we need to act now so we don't pay later," adding "That is why I need to find additional savings equivalent to 50p in every £100 the government spends by the end of the decade, because we've got to live within our means to stay secure”.