The Daily Update - Dovish ECB and Mixed US Employment

Amid slowing global growth and looming recession concerns, the ECB yesterday got in line behind the US Fed and Bank of England, in effectively freezing interest rates. Appearing more dovish-that-expected, the central bank announced that interest rates will be kept at current historical levels (0% core and -0.4% deposit) for the remainder of 2019. Eurozone growth forecasts were also dramatically sliced to 1.1%, from 1.7% for 2019. ECB President, Mario Draghi stated that Q4’18 growth within the region had fallen to 0.2%; half that achieved in the first two quarters of 2018. US-China trade wars and uncertainties over the Brexit outcome were highlighted as two key drags on eurozone growth.

Inflation forecasts were also revised lower, from 1.6% to 1.2% for 2019. The ECB announced a fresh round of cheap bank loans via a series of targeted long-term refinancing operations (TLTROs); commencing in September and running through to 2021. The euro took a massive plunge following the policy meeting, falling to a four-month low against the dollar and the yield on the benchmark 10-year Bund traded at its lowest level since 2016.

It is clear to us that a global slowdown remains a growing concern, especially amid uncertainty surrounding the US-China trade talks. Just this morning we had China’s weaker-than-expected trade releases for February; albeit once Lunar holiday seasonality is split out, the numbers do not look as bad that they initially appear. The difference here is that with interest rates at these depressed levels the ECB has nowhere to go if further easing is required, whereas China still has an array of firepower to deploy, including its stable USD 3.09tn fx reserves.

This afternoon's U.S. employment data was a rather mixed bag with just +20k jobs added in February, against expectations of +180k and the outside report of +304k in January. The unemployment rate fell to 3.8% from 4% previously and the all-important average hourly earnings reading picked up to 0.4% mom moving from 3.3% to 3.4% yoy. Strangely the participation rate was stable at 63.2%, which given the headline number we would have expected some movement.

The US Treasury market is rallying on the headline number with the 10-year up immediately around 20 cents in price, however, even as writing prices are trading back to levels before the release. Broadly, it does feel as though the market is looking for reasons to rally at the moment and does have a positive undertone. Yet to be proven, but the US dollar carry trade could be one of the reasons as the DXY broke through the technical target of 97.20 level last night on the back of the ECB statement.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.