Prospect of emergency supply chain measures in the EU, interest rate decision from the ECB today, US GDP figures released this afternoon, and geopolitical tensions impact oil markets.
EU Look at Emergency Supply Chain Measures
Talks in Brussels are continuing over the prospect of the EU placing emergency supply chain measures, which could force certain companies to prioritise the production of essential products.
This follows the European Commission’s proposals to introduce such measures following the full-scale Russian invasion of Ukraine and Covid-19 pandemic which exacerbated supply-side shortages.
According to Reuters, citing Andreas Schwab “mandatory information requests obliging companies to share information on sensitive products and supply chains with an advisory group will be part of the draft”.
The EU’s proposals follow similar measures from the US and Japan, which look to better firm up the stability of supply chains with special economic importance and comes at a time when many governments have looked at reshoring measures.
ECB Expected to Hold
Today will see the ECB make their latest interest rate decision, where the general market consensus is projecting that Frankfurt will hold. Such a decision would mean that their main refinancing operations rate would stay at 4.5%, while their marginal lending facility and their deposit facility is maintained at 4.75% and 4%, respectively.
While Frankfurt stated their latest tightening cycle in July 2022 – and subsequently enacted 10-consecutive rate hikes – the ECB have since held rates two consecutive times.
The consensus, which points to a hold, comes as the Eurozone faces challenging economic headwinds with stagnant growth across many of its member states. Nevertheless, inflation continues to be above the central bank’s 2% target rate having averaged 2.9% in December 2023. This print was particularly concerning for policy makers given that it marked a ½ percentage point increase from the previous figure in November.
Looking further ahead, the general market consensus is forecasting that Frankfurt will make 130bps of cuts this year, with their first monetary loosening taking place in April or June.
At 1330 this afternoon, attention will turn to US GDP figures for Q4 where the market consensus is pointing to 2% annualised growth over the last three months of 2023. This comes against expectations that the world’s largest economy grew 2.5% over 2023, marking a considerable uptick from 2.1% growth in 2022.
Notwithstanding the impact of tighter monetary conditions, it is expected that the strength of the labour market will have supported relatively strong household consumption.
Geopolitical tensions and US inventory level data continued to impact oil markets yesterday, with WTI Crude Futures rising around $1 per barrel over the last 24 hours, appreciating to their highest level in just under a month. This came as US crude stockpiles sank at their largest level since August, dropping 9.2 million barrels in the last week. Moreover, oil prices were further supported by the news that the PBoC would put measures in to increase liquidity in the banking sector by reducing their reserve ratio, which could see demand for oil increase as the measures feed into increased economic activity.
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Thought for Thursday, House of Commons ceasefire vote decision, minutes released from Federal Reserve monetary policy meeting, geo-political update in Russia and Gaza, and looking at today's data.
Word of the week Wednesday, data indicates public sector net borrowing in surplus, this afternoons House of Commons vote for a ceasefire in Gaza, and release of FOMC policy me.eting minutes
Travel Tuesday, changes for China's property market, attacks on Red Sea Vessels cause further shipping disruption, EU defensive naval operation launched, and US propose a UN Security Council Resolution in the Middle East.
Macro Monday, update on Israel-Gaza conflict, town in Ukraine in full control of Russian forces, and pressure for creation of more public-private partnerships in the UK from insurers.
Friday Feeling, Labour take comfort in by-election results, potential for income tax cut plans to be dropped, president of European Commission speaks on European Union defence production.
Thought for Thursday, data released this morning shows UK in technical recession, Sunak's pledge for economic growth takes a blow, increasing number of MPs not looking for re-election for the Conservative party, and Labour party lead drops seven percentage points.
Word of the week Wednesday, hotter than expected US inflation, inflation data in the UK comes in double than BoE's target, US Senate agrees foreign aid package, and today's data.
Travel Tuesday, plight of US commercial real estate owners according to Bloomberg, data shows increase in UK wage growth, easing UK unemployment, and talks to revive negotiations in the Middle East.