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The Marketplace - 11th March 2016
11/03/2016
Following yesterday’s ECB meeting, today’s economic calendar is light with second-tier UK releases providing the key focus. January release of external trade and construction output data will provide additional colour on the outlook for UK GDP in Q1. Data for January industrial production released earlier this week, showed a smaller-than-expected rise of 0.3% m/m, chiming with UK survey data which so far point to a risk of slower economic growth in Q1.
Today’s UK data releases are expected to support this view. UK construction output ended Q4 on a strong note, rising by 1.5% in December and survey evidence from the construction PMI remains consistent with ongoing gains over the coming months. However, following December’s firm gain, there is a risk that activity in the sector contracted in January. Meanwhile, the UK’s goods trade deficit is expected to have widened in January.
European Central Bank
Yesterday, we seen an aggressive move from the European Central Bank (ECB), who have cut all of their interest rates and expanded the size of their current monthly bond buying program. The overnight cash deposit rate has been cut by 10 basis points to -0.4%, whilst the benchmark rate has been cut to zero. This is in addition to increasing monthly bond purchases from €60bn to €80bn, as well as widening the net to cover corporate bonds.
It is just over a year since the ECB unveiled their bond-buying program that was designed and implemented to help inject much-needed life and stimulus into the Eurozone and yet one year on, it appears that what has been done is not enough. Since the start of the year, the markets had been anticipating today’s policy meeting. The last meeting in December was overhyped by analysts however the anticipated end-of-year euro decline did not materialise.
Markets had been pricing in a move in monetary policy from the ECB since the start of the year, especially given that Mario Draghi, Head of the ECB, has pledged that policy makers will have “no limits” on how far they are prepared to go to fulfil their objective. Inflation sits at -0.2%, far short of the 2% target and flirting dangerously with the prospect of deflation. Perhaps these concerns have caused such an aggressive move from the central bank.
The result of yesterday’s policy change caused an initial wobble for the single currency, however as the afternoon has progressed we have seen many Euro crosses strengthen significantly. The single currency had gained over 1% against the pound (GBP) and the dollar (USD). The promise of increased monetary stimulus has also seen equity markets benefit, with both the FTSE and the DAX trading up on the day. The question for now will be how much more is in the tank?
UK House Price Growth Expected to Slow
The pace of house price rises will slow when tax changes "take the heat out" of interest from investors, surveyors suggest. The Royal Institution of Chartered Surveyors (Rics) predicted that the UK housing market will slow down over the next three months.
In April, landlords and second home owners face a 3% stamp duty surcharge on new purchases. This would slow price rises, Rics said, but only in the short-term. Surveyors still expect house prices to rise by 25% over the next five years
Other surveys have suggested a pick-up in activity by landlords ahead of the stamp duty rises, but there is some disagreement among commentators over what effect this is having on the UK housing market as a whole.
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