The ECB hiked by 50 bp key rates and remained confident on the banking sector
US: Initial jobless claims (March 11): 192k vs 205k expected (prior: 212k revised from 211k)
- Continuing claims: 1684 k after 1713 k the prior week.
US: Housing starts (Feb.): 1450k vs 1310k expected (prior: 1321k revised from 1309k)
- A strong rebound driven by multifamily houses (from 500 k to 620 k), and a more modest rise in single family houses (from 821 k to 830k).
- Building permits have also rebounded under the same process, driven by multifamily houses.
- The decrease in bond yields could favor demand but it could face tougher credit conditions from banks, and this should maintain pressure on housing.
US: Philadelphia Fed. (March): -23.2 vs -15 expected (prior: -24.3)
- Business sentiment remained depressed contrary to expectations.
- The sentiment has decreased on both current and 6-months situations.
- Opinions have deteriorated on new orders, shipments, and largely on employment; prices paid and received were also down in parallel.
ECB decision: key rates increased by 50 bp on remaining inflation concerns
- The statement focused on a “too high for too long” inflation and pointed to ECB’s determination to drive inflation back to 2%.
- The three key rates have been increased by 50 bp: main refinancing operations at 3.50%, marginal lending facility at 3.75% and deposit rates at 3.0%. The ECB reiterated being data dependent in its rates strategy.
- The ECB is ready to respond as necessary to preserve price stability and financial stability through liquidity support if needed given current turbulences in markets and rising uncertainties.
- The ECB also mentioned that the banking sector is resilient with strong capital and liquidity positions.
- The ECB has revised up its 2023 growth outlook (from 0.6% to 1%) but growth should remain around 1.6% in 2024 and 2025; inflation has been revised down : from 6.3% to 5.3% in 2023, from 3.4% to 2.9% in 2024, and from 2.3% to 2.1% in 2025; the 2% target looks now closer in 2025 than in previous forecasts; core inflation has been revised up to 4.6% in 2023 (from 4.2%),but down for 2024 (2.5% instead of 2.8%) and in 2025 ( 2.2% instead of 2.4%).
- The growth and inflation outlook are based on lower energy prices, less pressure in industry and lower constraints on purchasing power and confidence. The ECB called for a reduction in government supports to energy prices as this could interfere with medium-term inflation and further rises in key rates.
- The tone was to reassure markets on both resilient banking sector and constructive economic outlook.
- From the Q&A:
- The core inflation is seen as too high with limited signs of easing; under the current bas case scenario adopted by the ECB, the bank should continue to hike rates further.
- Risks are skewed to the downside due to tensions in markets and still geopolitical concerns with Russia.
- MS Lagarde mentioned the ECB’s reaction function is based on inflation outlook, core inflation and monetary policy transmission; financial and market conditions are supposed to influence inflation outlook, to mention the ECB is aware of current situation; this was a way to say that the ECB is not repeating past mistakes in hiking rates just ahead of a financial crisis. The situation is different from 2008 as the banking sector is viewed as being stronger with larger active regulation.
- Ms Lagarde mentioned this is not a liquidity crisis and De Guindos has mentioned that positions and concentration of banks on US small banks and Credit Suisse are limited and no concentrated with no particular fragility (contrary to a Bloomberg news).
- Ms Lagarde mentioned that there is no conflict between price stability and financial stability: to pause on rate hikes, more indicators are needed to confirm the path of underlying inflation to 2%.
- Governors have adopted today decisions, but 3-4 governors would have preferred a wait and see situation before deciding a rate hike.
Italy: CPI (Feb.): 0.1% m/m (prior: -1.5%)
- Final data confirmed firmer monthly inflation due to higher food, transport, and communication prices. Prices of clothes and utilities were down over the month.
- Yearly trend has marginally decreased from 9.9% y/y the prior month to 9.8% y/y.