European Markets Flat After ECB Minutes Show Lack of Consensus
Lack of ECB agreement levels European markets while the wait continues for Fed’s Powell speech on tapering and for definitive guidance.
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- ECB officials fail to reach an agreement over the new forward guidance
- Financial markets today expect to hear Fed’s Powell speak on tapering
The European Central Bank could not reach a consensus over the new guidance aimed to pull the eurozone economy out of the recent pandemic-induced slump. This became clear yesterday when the ECB released its minutes from the latest policy meeting. According to the minutes from the July 21-22 meeting, the ECB’s governing council members have suggested a revision of the forward guidance which alters several elements of the primary policy, including raising the inflation target to a more tolerant level.
The future path of the ECB’s monetary policies aims to keep interest rates at current near-zero levels until inflation persistently lands at or moderately above the new goal of 2%, revised upwardly from just below that level.
While a “large majority” of council members were in favor of the revised forward guidance, the proposed amendments, particularly the higher inflation threshold, did not sit well with some policymakers. The holdouts among the governing council have raised their concerns over “the implied likelihood and persistence of overshooting” above the ECB’s inflation goal if prices were allowed to climb on the back of lower rates.
According to the members who did not support the revised guidance, keeping interest rates “at the present or lower levels” could hurt the European economy if they were maintained “for a very long time period without an explicit escape clause.” Moreover, they warned that actively keeping inflation at or above the target would cause price levels to “intentionally overshoot”, leading to a deviation from the ECB’s strategy. The latest inflation report for the eurozone showed consumer prices spiked 2.2% in July, effectively landing above the 2% inflation goal. The August report on inflation will be published this Tuesday.
Digital Assets Trade Slightly Higher
Meanwhile, European markets opened Friday’s equity trading virtually unchanged. The region-wide Stoxx 600 hovers right at the flat line, while major European indexes trade little changed to slightly higher.
While Europe is hitting its stride early Friday, US futures pointed higher in pre-market activity ahead of the bell. Dow futures are on track to pare a large part of yesterday’s losses. Futures contracts tied to the Dow Jones Industrial Average jumped over 100 points. S&P500 futures and Nasdaq futures were higher by 0.30% each.
In contrast, stock indexes’ performance on Thursday was largely risking off as investors retreated their bets on stocks sitting at record highs. The decreased risk appetite resulted in a losing session for all three equity gauges. The 30-stock Dow Jones slipped about half a percent. The S&P500 and the Nasdaq Composite retrenched from all-time highs and ended five-day winning stretches.
Looking ahead into the day, the financial markets around the globe are turning to Fed chair Jerome Powell’s big speech. Mr. Powell is scheduled to open today’s agenda of the Jackson Hole symposium, an annual central bankers conference that this year would be held virtually. Federal Reserve Chairman Jerome Powell is widely expected to comment on the central bank’s tapering framework.
In cryptocurrency action, bitcoin and peers are trading slightly higher on Friday after a sharp decline erased about 4% from bitcoin’s price yesterday. The leading token is now gravitating toward $47,500, up about 1% on the day.