Vidya Ranganathan's forecast for the day's European and global markets Despite overnight clarity from Federal Reserve Chair Jerome Powell, the ECB appears more divided and reluctant to commit to monetary easing during its meeting today.
Expectations are high that the European Central Bank will maintain its record-low policy rate of 4.0%. Officials will likely reiterate their need for further proof that inflation is under control and that further wage rises will not help the situation.
In view of recent economic forecasts indicating slower growth and inflation this year, ECB President Christine Lagarde may need to make a small adjustment to her message. The market is bracing for three or four interest rate decreases before the year ends.
With an anticipated 88 basis point reduction for the year, interest rate futures nearly guarantee the European Central Bank's first rate decrease in June. Markets had anticipated 150 basis points in January, so that's a more reasonable estimate.
Data on manufacturing orders and production from Germany is scheduled for later today; it is expected to further highlight the euro zone's biggest economy's fragility and the cause behind the ECB's divisions.
In the meanwhile, U.S. bond yields have been trending lower and Powell has left the door open to interest rate reduction later this year, so risk assets and global stocks are rallying in Asia.
Although continuing progress on inflation "is not assured," Powell remained true to form by stating that the Fed still plans to decrease rates later this year.
The Nikkei 225 index of Japan's stock market is falling as speculation mounts that the Bank of Japan may take action this month to remove negative interest rates, sending the yen soaring to its highest level in a month.
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