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ECB MEETING

The European Central Bank said it will offer more cheap loans to banks and keep interest rates at record-lows for longer as a weakening economy derails its plan to withdraw stimulus. Officials left their key interest rates unchanged, and said they’ll stay at current levels through the end of the year, several months later than previously anticipated. The change of gears reflects slowdowns in large economies such as Germany and Italy amid the global rise of protectionism and populism

Fresh projections showed growth at just 1.1 percent in 2019, less than half of what the ECB expected just a year ago. “We are (in) a period of continued weakness and pervasive uncertainty,” Draghi told a news conference. Operation (TLTRO III) consisting of two-year loans aimed partly at helping banks roll over 720 billion euros in existing TLTROs and so averting a credit squeeze that could exacerbate the economic slowdown. “Like the outstanding TLTRO programme, TLTRO-III will feature built-in incentives for credit conditions to remain favourable,” the ECB said.

U.S. TRADE BALANCE

The Commerce Department released its latest trade data on Wednesday, dealing a blow to President Trump’s protectionist agenda. The US trade deficit grew 12.5% to $621bn in 2018, the largest gap in a decade, with a 7.5% rise in imports offsetting a 6.3% increase in exports. The rising trade gap can be attributed to the pace of economic growth, with greater spending on consumer goods and capital goods. The country posted a $891bn goods deficit, with China accounting for almost half that total; the deficit with China increased $43.6bn to $419.2bn, defying Trump’s hopes of narrowing the gap as pledged in his presidential campaign

CHINA TRADE BALANCE

The China’s February trade data showed a sharp loss of momentum in exports, even after ironing out Chinese Year New Year holiday related wrinkles. Given the tough global environment, the risk of a further sharp downturn in exports is high. However, import data pointed to signs of stabilization in domestic demand. Exports contracted 20.7% year on year. In the first two months of the year combined they fell 4.7% year on year, a sharp turn from an increase of 3.9% in 4Q 2018. The drop in imports mainly reflected weaker imports related to processing (import of materials for processing) trade. Imports for domestic use were broadly stable. By the way even in a positive scenario of a deal, Bloomberg’s analysts expect the current 10% U.S. tariffs on imports from China to stay in place. Bloomberg’sanalysts see no impetus for China’s exports from a deal

U.S. PAYROLLS

Countering the plunge in payrolls was continued strength in average hourly earnings topped both monthly and annual estimates with a 0.4% rise from January and 3.4% from a year earlier (hiher since GFC!!), the fastest pace of the economic expansion

The labour force participation remained unchanged at 63.2% during February. At the same time the unemployment rate fell to 3.8%

Source: Bloomberg

Important News

  • Michele Geraci, undersecretary in the Italian economic development ministry has told the Financial Times that Italy is preparing to sign a memorandum of understanding endorsing China’s Belt and Road initiative. While negotiations are still ongoing, Geraci hopes that it will be ready in time for President Xi Jinping’s visit to Italy at the end of March
  • In an attempt to try and invigorate its slowing economy, China is to slash taxes and increase infrastructure spending, as announced by Premier Li Keqiang on Tuesday. Some 2 tn yuan ($298.3 bn) will be cut in taxes and company fees, after Li said that China’s fiscal policy would become “more forceful”

Source: Bloomberg e EFG AM

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