ECB to hold steady, Trump
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[January 13, 2017]
By Jonathan Cable
(Reuters) - European Central Bank officials are unlikely to make any
change in policy on Thursday, while data from the United States will
help the Federal Reserve decide whether to immediately follow December's
rate increase with another.
Recent data from the euro zone suggests the bloc's economy ended 2016 on
a solid footing, and last month the ECB surprised markets by saying it
would trim its monthly bond purchases to 60 billion euros ($63.86
billion) starting in April.
So none of the economists polled by Reuters this week expect any change
at Thursday's meeting. They were unanimous in saying the ECB's next
move, after April's planned cut, will be to taper quantitative easing
"Next week's ECB meeting should be a non-event. After the December
decision to extend QE at a slower pace, the ECB is almost on an
autopilot for the rest of 2017," said James Knightley at ING.
However, a rebound in prices in December is reviving calls for the ECB
to taper its bond purchases, particularly in Germany. Many Germans feel
low rates are eating into their savings and fuelling a property bubble
while inflation is already close to the ECB's target of almost 2
But protectionist sentiment is growing after Britain voted to leave the
European Union and Donald Trump won the U.S. presidential election.
Several elections in EU countries this year could have far-reaching
political ramifications and even threaten the euro zone itself. That is
likely to stay the ECB's hand for now.
In the press conference after the policy announcement, ECB President
Mario Draghi will probably also face questions over the hacking of his
email account during his tenure as governor of the Bank of Italy.
It is not yet clear what the hackers got their hands on. But the idea of
a leak of sensitive information ranging from monetary policy to
emergency measures for Greece will be of concern.
ECB officials are growing increasingly worried Trump's victory in the
U.S. presidential race may harm the euro zone by hurting trade with the
U.S and fuelling populism.
Speaking publicly and behind the scenes, officials emphasize any U.S.
shift toward protectionism could hurt the already fragile euro zone
economy and pave the way for an even stronger backlash against
globalization and the euro project.
Trump gave little new policy information at a press conference on
Wednesday, but his protectionist statements have kept many investors
from adding to risky positions.
The president-elect has threatened to impose retaliatory tariffs on
China, build a wall along the Mexican border and tear up the North
American Free Trade Agreement (NAFTA).
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European Central Bank (ECB) President Mario Draghi arrives for a
news conference at the ECB headquarters in Frankfurt, Germany,
December 8, 2016. REUTERS/Ralph Orlowski/File Photo
Trump's inauguration on Friday, and their next policy announcement on Feb. 1,
several Fed policymakers are due to speak, and they are likely to send an upbeat
Inflation, industrial production and housing-start numbers are all expected to
signal a strengthening economy, giving the Fed scope to follow up December's
rate increase with more tightening this year.
Its Federal Open Market Committee is expected to hike twice more in 2017 and
recent comments from policymakers suggest there could be a third move too.
"The FOMC continues to predict only gradual increases in the federal funds rate,
especially given the uncertainty surrounding the economic agenda of Trump's
administration," Credit Suisse economists told clients.
"We continue to see two additional hikes in 2017, but acknowledge that the
outlook is subject to change in months ahead."
BEGINNING OF BREXIT
Britain's shock decision in June to leave the European Union has sent sterling
tumbling. Although the economy has so far fared better than expected, inflation
numbers on Monday will probably show prices jumped in December as imports became
Prime Minister Theresa May has said she will trigger Article 50, starting the
formal withdrawal from the EU, by the end of March. Many think she will take a
hard line on immigration at the cost of Britain's access to the single market,
"The government has sent clear signals that the UK will leave the Single Market,
a so-called 'hard Brexit'," said Sarah Hewin at Standard Chartered.
May is due to speak on Tuesday, setting out the approach her administration will
take to Brexit. If she does indicate away from a soft Brexit, sterling will
probably fall further.
(Additional reporting by Francesco Canepa in Frankfurt, editing by Larry King)
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