Market Commentary: Negative interest rates expected from Thursday's ECB meeting

This week it’s all about Thursday’s ECB meeting. The countdown started right after last month’s MPC and is nearing its end, reaching its pinnacle on Thursday at 2pm CET time where ECB’s Mario Draghi is widely expected to be market-friendly and announce a fresh round of accommodative measures.

Speculation is rife that negative interest rates are announced whilst a new tranche of LTRO, this time targeted at SMEs, is also on the cards. All eyes are clearly on the ECB right now as the market really feels that this is the opportune moment for Draghi and his time to be credible enough and at least, meet market expectations given how supportive markets (credit and equity) have been since the last ECB meeting. Anything short of market expectations could prove to be catastrophic for market prices.
 
This week started off with a flurry of PMI and ISM data. PMI manufacturing growth in the eurozone slowed to a six-month low in May as output growth in all nations, except the Netherlands, slowed, fuelling expectations that ECB is ready to counter-act this sluggish growth this coming Thursday.

China on the other hand recorded a strong month in May, as manufacturing grew at the fastest rate in five months. On the third attempt, US ISM manufacturing data showed an improvement, albeit marginal and in line with expectations, from 54.9 to 55.4, following a crucial software error in the calculation of seasonal adjusted data.
 
Today, President Obama begins a four day European trip in anticipation of the G7 meeting which is due to commence tomorrow. This meeting was originally scheduled to be a G8 meeting held in Sochi, which meeting was eventually cancelled following Russia’s annexation of Crimea.

On the data front, the market will be on the lookout for encouraging signs in the shape of inflation and unemployment numbers today, which however are still expected to propel and reinforce the ECB’s resolve in easing policy on Thursday. Elsewhere, the Reserve Bank of India meets for the very first time today, whereby rates are expected to remain on hold.
 
Meanwhile, yesterday late in the day, tech giant Apple announced the new iOS 8 software for its iPhone and iPad devices. The software includes HealthKit, which allows users monitor their health and also serves as a data hub for fitness apps.

The company also announced an updated version of its Mac operating system. The event follows last week’s announcement that Apple is in the process of buying headphones and music-streaming company Beats Electronics LLC for $3 billion.
 
This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

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