ECB, US CPI, and employment
The first important meeting of the day was the ECB monetary policy meeting and as was expected, did not change the policy rate, but took a bit hawkish step in its asset purchasing plan. Market participants were expecting that ECB to end the Pandemic Emergency Purchase Programme (PEPP) in march and they did the same, but changes were in the APP timetable. In the previous schedule, ECB was planning for 40B per month in purchases in Q2, EUR 30B in Q3, and EUR 20B in Q4, which would continue indefinitely, as long as it needs, but ECB started tightening from here. In the new APP plan, ECB would continue the Asset Purchase Programme with the amount to EUR 40B in April, EUR 30B in May, and EUR 20B in June, before ending in Q3. However, they will be ready to change the plan, if it is needed. This new policy and changes boosted the euro, but the Russian-Ukrainian war effect, is yet to come, therefore we can not count on this progress of the Euro.
On the US front, inflation increased in February with the largest annual increase in 40 years, as Russia's war against Ukraine increased the costs of energy and other commodities. Core PCI on the other hand was a bit encouraging.
According to the Labor Department data, the consumer price index increased in February by 0.8% as it was expected, following 0.6% in January. Annual inflation increased by 7.9%, the biggest annual increase since January 1982. Core inflation decreased on the monthly scale to 0.5% from 0.6% in January.
However, published inflation numbers do not fully cover the spike in oil prices after Russia's invasion of Ukraine in the past days of February and the first two weeks of March so far.
Western countries have imposed harsh sanctions on Russia, while the US also banned imports of Russian oil. We should remember that Russia is the world's second-largest crude oil exporter and it can hit the market badly and increase the global energy price. Even not just the energy price, the current conflict increasing the prices of wheat and other commodities.
And finally labor market data. Labor Department report on Thursday showed that initial claims for state unemployment benefits raised 11,000 to a seasonally adjusted 227,000 for the week ended March 5, however, it was a bit higher than market expectation 217,000 applications but much less than 6.149 million in early April of 2020.
Generally, data show that economy is improving, and if we did not face ongoing geopolitical tensions, we could see a bit more hawkish policies from ECB and even expect the 0.5% rate hike from next week's Fed meeting, however with the current condition, cautious approach from central banks are more likely, as it was seen from ECB announcement.
Today's economic data followed by disappointing news from negotiations of Russian and Ukrainian foreign ministers to hold the overall negative sentiment in the market and cause another loss, after yesterday's optimism. So far, Euro Stoxx 600 closed by 1.7% loss, and now in wall street, Dow Jones trading 1% lower, SP500 and Nasdaq also respectively losing 1.2% and 1.9%.
On the other hand, US 10-year bond Yields passed the 2% following the hot CPI report, to put more pressure on the tech stocks and Gold price.
