Graeme Wearden 

ECB’s Draghi says risks receding and wants more help for globalisation’s ‘losers’ – as it happened

European Central Bank meeting has voted to leave borrowing costs unchanged across the eurozone
  
  

President of the European Central Bank (ECB), Mario Draghi, speaking today.
President of the European Central Bank (ECB), Mario Draghi, speaking today. Photograph: Armando Babani/EPA

That’s probably all for today (I’ll pop back if anything dramatic happens). Thanks for reading and commenting. GW

AFP: Draghi says protectionism threat 'may have somewhat receded'

AFP have a good write-up of Mario Draghi’s comments about US trade politics:

ECB chief Mario Draghi said Thursday that the threat of protectionism may be diminishing, sounding a cautiously optimistic tone amid global fears that Donald Trump’s America First policy could spark trade wars.

Asked what he had learnt about the Trump administration’s economic policies during a recent trip to the US, Draghi replied: “One has to be very tentative in this, one thing that may have come out of the meetings is that perhaps the risk of trade protectionism may have somewhat receded.”

Draghi did not go into details, but his assessment came at a time when major international organisations including the World Bank, IMF and OECD have been warning about rising risks of protectionism.

With a nationalist economic agenda, the Trump administration has vowed to upend decades of prevailing trade policy by renegotiating or scrapping trade agreements, imposing hefty tariffs and moving to bilateral trade agreements.

The US had also refused at a G20 meeting in March to renew a long-standing anti-protectionist pledge, to the dismay of the group of top developed and developing nations.

Timothy Graf, head of macro strategy at State Street Global Markets, says the ECB is unwilling to change course, even though the economy is improving and political risks are fading:

Low core inflation is clearly weighing in their minds, suggesting policymaker caution will dominate for at least a few more meetings.

While the second half of the year might get more interesting if the better run of data continues and core inflation starts to trend higher, asset purchase levels and benchmark rates will likely hold for at least the next few meetings.

Bill Adams, economist at the PNC Financial Services Group, enjoyed Draghi’s slapdown of Germany’s finance minister:

Draghi pushed back against criticism of the ECB’s monetary policy from Germany’s Finance Wolfgang Schäuble by calling it “ironic” that a supporter of independent monetary policy would criticize that the outcome of that independence.

This statement immediately followed Draghi saying he doesn’t comment on the statements of politicians. This is the closest you’ll ever see to a central banker saying “haters gonna hate.” The ECB’s monetary policymaking process is well insulated from political pressure.

Ranko Berich, Head of Market Analysis at Monex Europe, says the ECB has shown that its asset purchase programme is ‘here to stay for now’.

“The crux of today’s presser was the fact that even though growth has improved and certain Governing Council members are more “sanguine” about economic risks, the inflation outlook has not improved sufficiently for the ECB to formally consider an end to QE.

Snap summary: Not vintage Draghi

Anyone hoping for a barn-storming performance from Mario Draghi today will have been disappointed.

The simple message from the ECB today is that the eurozone recovery is strengthening and broadening, with risks diminishing ; but the inflation outlook looks subdued, so there’s little pressure to consider tightening monetary policy.

Draghi did paint an encouraging picture, saying:

The signs of a stronger global recovery and increasing global trade suggest that foreign demand should increasingly add to the overall resilience of the economic expansion of the euro area.

But despite that, Draghi insists that it’s too early to withdraw stimulus:

A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium-term. In terms of my criteria the (inflation) assessment hasn’t really changed.

The reaction of the euro says it all - rising when Draghi talked up the recovery, but diving once the ECB president sounded dovish on inflation.

Draghi was nimble enough to avoid saying anything controversial about the French election, declaring:

In the Governing Council meetings we discuss policies, not politics.

(behind the scenes, he must be crossing his fingers and hoping for a Macron win, of course).

He went a little further when asked about Donald Trump, suggesting that “perhaps the risk of trade protectionism may have somewhat receded.”.

And Draghi’s call for more help for the ‘losers’ of globalisation underlined how the ‘elite’ have woken up to the social problems building in Europe (although he made similar comments last September too).

Q: What headline would you write to sum up today’s meeting?

The headline, giggles Draghi, is...

The risks surrounding the eurozone growth outlook, while moving to a more balanced configuration, are still tilted to the downside and relate predominantly to global factors.

I’m sure some of us have written worse....

And that’s the end of the press conference. Summary and reaction to follow....

Updated

The press pack are demanding more answers from Draghi about the French elections.

Q: Surely the battle between pro-EU Emmanuel Macron and anti-EU Marine Le Pen is a concern?

The governing council discusses policies, not politics, Draghi reiterates firmly.

But he has also conceded that the ECB does ‘internalise’ information about potential political uncertainty which might affect its ability to get inflation on target in the medium-term.

Draghi is making some rather dovish noises about the inflation outlook:

He also touched on Brexit, warning against thinking that the negative consequences of Britain’s EU referendum are over.

Updated

Draghi: Don't ignore social unease across the eurozone

Draghi has called for eurozone politicians to do more to help those who have lost out from globalisation.

It would be a mistake to ignore the social unease across the eurozone, the ECB chief warns.

It is clear that globalisation had “extraordinary benefits”, Draghi explains, but “it also created losers who were not taken into account of several years”.

There should be greater social consideration for those who don’t benefit, or lose out, he concludes.

Q: What did you learn about the situation in the US during your trip to Washington for the IMF/World Bank meeting?

One thing that may have come out of the meetings is that the risk of trade protectionism may have receded, Draghi replies cautiously.

Updated

Draghi says the ECB did not discuss changing its forward guidance (to maintain interest rates at present or lower levels).

Draghi: Our stimulus programme hasn't boosted inequality

Q: Did the ECB discuss its exit strategy from its asset purchase scheme, and how it would communicate it?

We did not, Draghi says. He adds that growth is improving, the recovery is broad and solid

Draghi then takes aim at claims that its stimulus programme have created more inequality.

He points out that eurozone unemployment has fallen to its lowest level since the crisis began.

There is no better measure of increased equality than by increasing employment.

Updated

Euro rises, then falls

The euro is a little volatile as Draghi speaks.

It rose to $1.903 when Draghi declared that downside risks have fallen, only to drop back as he says there isn’t enough evidence to change the ECB’s inflation outlook.

Q: Six years ago, the ECB raised interest rates too early, forcing you to cut them. Is that experience influencing policy this time?

Draghi says he doesn’t quite understand the logic of the question. In 2011, inflation was above target - today, it’s not, so there isn’t the same pressure to raise borrowing costs.

Draghi is in a feisty mood!

He slaps down a question about criticism from German finance minister Wolfgang Schauble, saying it was ironic to hear this from someone who supports central bank independence.

Q: Did any governing council members disagree about where the ‘balance of risks’ lies?

Draghi says there was a discussion, everyone agreed that the risk outlook is improving, but still tilted to the downside.

Draghi: French election wasn't a factor

Onto questions.

Q: Did the French election, and the prospect of Emmanuel Macron becoming president, influence your decisions this month?

We don’t set monetary policy based on election outcomes, Draghi shoots back

Updated

Nice snap summary of Draghi’s statement:

Draghi ends with his usual call for eurozone governments to do their bit, saying other policy areas must contribute “much more decisively”.

The eurozone still needs a “very substantial degree of monetary accommodation” in order to get inflation back to a sustained level of 2%.

Draghi says that underlining inflationary pressures are still low, and predicts that inflation will probably remain around its current levels until the end of the year.

Draghi: Downside risks have diminished

Economic indicators suggest that the eurozone economic recovery is increasingly solid, Draghi declares.

And importantly, he adds that downside risks to the eurozone have diminished.

But... risks are still tilted to the downside - due to global factors - Draghi adds.

That means the ECB hasn’t yet reached the point where it thinks risks are broadly-balanced - a situation where it might start paring back its stimulus programme.

Mario Draghi begins by reading out the key points from today’s statement - namely that:

  • Interest rates remain unchanged.
  • The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time
  • The bond-buying stimulus programme is expected to run at €60bn per month until the end of December 2017, or beyond
  • The ECB could increase the size or duration of the programme, if needed

Mario Draghi is late! Ah...here he comes now.

Live feed: Watch Draghi's press conference

Mario Draghi is about to face the press pack in Frankfurt, to explain today’s decisions.

Here’s a live feed from the ECB’s headquarters:

With exquisite timing, Germany’s inflation rate has risen to 2% this month.

That’s up from 1.5% in March, according to figures just released by the Federal Statistics Office.

This is slightly above the ECB’s target for euro area inflation, and will put more pressure on the ECB to consider winding back its stimulus programme.

Ana Boata, European economist at trade credit insurer Euler Hermes, predicts that eurozone interest rates will stay on hold until 2019.

Here’s why:

“The Eurozone economy is strengthening, but we don’t expect the ECB to start raising interest rates until 2019. The most likely scenario is that interest rates increase to two per cent by 2022, which will push interest payments for the total private sector up by €160 billion compared to their current level, a moderate increase.

There are no significant changes in the language of today’s ECB statement, compared to the one released after March’s meeting.

Here’s some instant reaction to the ECB’s decision:

ECB leaves interest rates and stimulus package unchanged.

Newsflash: The European Central Bank has left borrowing costs across the eurozone unchanged.

That means the headline interest rate remains at 0%, an alltime low.

The governing council has also vote to leave its deposit facility rate at -0.4% . That means banks must suffer a negative interest rate when they leave cash in the ECB’s vaults.

The ECB’s marginal lending facility - charged on banks when they borrow from the ECB - stays at 0.25%.

The ECB has also voted to leave its stimulus programme unchanged, meaning it will keep buying €60bn of new bonds each month.

It adds that it could boost, or cut, the programme, depending how the recovery shapes up:

If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

Tension is building....

....up to a point, anyway....

ECB meeting: What the experts predict

Economists at Societe Generale predict that the ECB’s governing council will sound more optimistic about growth today, but resist making any major changes to their language.

They say:

“The ECB will likely acknowledge a further improvement in the balance of risks by pointing to upside risks to growth,

However, no material changes to its dovish communication are likely and we only expect the medium-term risks to be described as balanced in June.”

Kathleen Brooks of City Index also expect Mario Draghi to sound restrained:

After all, the risks to inflation - CPI dipped in March - are still tilted to the downside and this could be one reason to delay tapering. The other reason is the precarious state of the Italian banking sector.

Its banks hold the largest amount of bad debt in all of Europe. If the ECB reduces the amount of liquidity in the European financial system too quickly then it is hard to see how these banks can recapitalise themselves, and avoid selling off some of their bad debts at a book value so low that it hits their capital position. This could ultimately cause a much bigger problem for the ECB and the wider European banking sector.

Today’s ECB meeting could be rather a damp squib, I fear. The central bank won’t want to rock the eurozone boat before the French election is over.

Craig Erlam, senior market analyst at OANDA , says “very little” is expected from the ECB:

The meeting falls in between the first and second round of the French Presidential elections, with eurosceptic Marine Le Pen one of the two candidates set to battle it out for the Presidency on 7 May.

While the central bank may want to avoid appearing to interfere in the election, it will be interesting to see whether the reference to downside risks is scaled back in order to avoid playing into Le Pen’s hands, or whether they talk up the progress achieved this year and the improved prospects for the region.

Over in Frankfurt, the European Central Bank is wrapping up this month’s monetary policy meeting.

In less than 45 minutes, we learn whether the ECB’s governing council voted to change interest rates or tweak its stimulus programme (spoiler alert: almost certainly not).

There’s a small chance that it will adjust the language in today’s statement.

If not, all eyes and ears will turn to the press conference at 1.30pm BST, when Mario Draghi will field questions from the press.

The big question is when the ECB might begin the process of slowing (or tapering) its bond-buying stimulus programme.

IG Group’s Josh Mahony says:

“The big question is when we will hear from the ECB regarding a potential tapering of the current asset purchase facility. Draghi has already said that the eventual unwinding of the quantitative easing (QE) programme will involve a tapering of the asset purchase size, the timeline of which we will have to see laid out in advance.

With that in mind, it is always worth noting that at some point, we will face the repercussions of a more hawkish Draghi, and the market response to such an event. Will it be this week? Probably not.

The CBI’s monthly healthcheck on Britain’s retail sector suggests that sales jumped this month as consumers kept spending.

Around 59% of retailers surveyed said that sales volumes were up in April on a year ago, whilst 21% said they were down, giving a balance of +38%. That’s the highest balance since September 2015.

It’s a bit of a surprise, given concerns over higher inflation. This survey is quite volatile (and only tracks 112 firms), so we should be cautious.

Clothing and grocery sales were particularly strong, apparently -- perhaps warmer weather encouraged shoppers to buy summer outfits and even risk a barbeque?!

But...the CBI predicts that growth will slow in May, as rising inflation hits the high street.

Howard Archer of IHS Global Insight agrees that consumers will cut back:

There is also a strong likelihood that consumer confidence and willingness to buy major items will soften – as it is not only pressurized by weakened purchasing power but also by increasing concerns over the economy and jobs as growth likely slows and uncertainties are magnified by Brexit coming more to the forefront now that Article 50 has been triggered.

Wall Street is expected to open flat in nearly four hours time, as traders await reaction to Trump’s tax plan.

Marc Ostwald of ADM Investor Services says there’s a “clear sense of anti-climax in markets” about the lack of nitty-gritty released yesterday. That means Congress will now “chisel out” the details, he adds.

Eurozone economic confidence hits highest since 2007

Breaking: Economic confidence in the eurozone has jumped this month, to its highest level since the financial crisis struck.

The EC’s monthly economic sentiment survey, just released, has jumped to 109.6 this month, up from 108 in March. That’s the best reading since August 2007.

A narrower measure of business confidence also rose sharply, with builders, industrial firms and service sector companies all more upbeat.

This will bolster hopes that the European economy is strengthening. We’re not exactly in ‘boom’ territory yet, but recent data has definitely shown growth is pretty solid.

This probably won’t be enough to encourage the ECB to alter its policy stance at today’s meeting, but it shows why some economists expect a change in language in June.

Updated

OECD: UK should axe state pension for rich people

Pensions are a hot topic in the UK right now, with speculation that the Conservative Party might drop the ‘triple-lock’ (a pledge that pensions rise by 2.5% per year, or in line with earnings or inflation if they’re higher).

But the OECD thinktank argues that Britain should go further, and stop giving anything to richer pensioners.

Mark Pearson, deputy director of employment, labour and social affairs with the OECD, has told the Financial Times that the system is under strain, with more people reaching pension age.

Pearson says politicians face a choice - and means-testing the pension could be the answer.

“Faced with these pressures, are you going to ask people of working age to pay more, or people to work longer before they can claim their pension?

“Or another way to ensure an adequate pension is to think about whether the pension should only be paid to those who really need it, to ease the tyranny of the maths. Giving less [pension] to the people at the top would free up resources to increase general benefits.”

Here’s our story on his comments:

Britain’s housebuilders appear to be doing well, despite the uncertainty created by Brexit.

Persimmon and Taylor Wimpey have both reported solid result this morning, pushing their shares up 0.8% and 0.5% respectively.

Persimmon’s total forward sales revenue is up 11% year-on-year, while Taylor Wimpey’s order book is 2% higher.

Taylor Wimpey’s CEO Pete Redfern says he’s optimistic that the UK general election won’t disrupt the market.

As well as the tax reform plan, investors are also digesting the surprise news that Donald Trump no longer wants to abolish the NAFTA free trade agreement.

This huuuge u-turn broke last night, after talks with the leaders of Canada and Mexico:

The whole episode is a ‘shambles’, says Kathleen Brooks of City Index, who writes:

Overall, this suggests that both communication and policy decision making are a shambles at the White House right now, with extreme and more moderate forces vying to get Trump’s attention.

Overall, this Nafta issue highlights that policy implementation risk is surging under the Trump administration, and could stoke volatility if it continues.

The dollar has also dipped this morning, taking the greenback close to its lowest level in five months.

That’s pushed sterling back over $1.29.

FXTM Chief Market Strategist Hussein Sayed says investors are sceptical that Trump’s proposed cuts will get through Congress:

The lack of details contained on Trump’s single piece of paper was perceived as a publicity stunt for the President as he celebrates his first one hundred days in the Oval Office, and unfortunately, seemed more of a wish list than a serious starting point.

UK bank Lloyds is defying the selloff, with its shares jumping 4% at the open.

The City is impressed that Lloyds has doubled its profits in the last quarter, as its recovery from the financial crisis continues.

But there’s a wrinkle -- it has set aside another £350m to compensate customers who were missold PPI, plus £100m for victims of fraud at its HBOS branch in Reading.

Connor Campbell of SpreadEx sums up the problem with Donald Trump’s tax plan - Not Enough Detail!

Alongside cutting corporate tax rates to 15%, Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn revealed that the USA’s 7 tax brackets would be reduced to 3, while the alternative minimum tax would be slashed and nearly all of the current tax deductions eliminated.

Yet when pressed for more information, specifically if these reforms would be revenue neutral, the pair came up short, producing some Trumped up rhetoric about how it would pay for itself through ‘growth, reduction of deductions and closing loopholes’ and that the administration had a ‘once in-a-generation opportunity to do something really big’.

Trump disappointment pulls Europe's markets down

Here’s the damage across Europe’s markets this morning:

Hopes that Trump’s economic council would offer some surprises in yesterday’s tax plan have been dashed, says Mike van Dulken of Accendo Markets.

He adds:

In focus today will be fallout from Trump’s tax announcement, having disappointed by being merely a proposal framework and still facing the same Congressional hurdle (deficit hawks on both sides of the aisle) that he was unable to clear with Healthcare reform.

European stock markets have fallen at the start of trading as traders give their verdict on Trump’s tax policies.

In London, the FTSE 100 has shed 27 points or 0.4%, while France’s CAC 40 has lost 0.2%.

One trader joked that the ‘Trump trade’ has turned into the ‘Trump fade’, as optimism about the president’s policies weakens

Konstantinos Anthis in the ADS Securities research team says:

Investors focused on President Trump’s tax reforms were disappointed by the lack of any real detail.

Robin Bew of the Economist Intelligence Unit isn’t impressed by the lack of detail in the Trump tax plan.

Christopher Hayes of MSNBC thinks a lot more work is needed:

Broadcaster and academic Linda Yueh is also struck by the lack of detail:

Markets dip on Trump tax disappointment

After all the razzmatazz, Donald Trump’s tax reform plan has left investors rather cold.

If you’re going to promise one of the biggest tax cuts ever, you need to present more than one side of A4 paper peppered with bullet points. So the broad brush policies presented last night haven’t really impressed the City.

Japan’s Nikkei has closed in the red, down 0.2%, and European markets are expected to dip this morning too.

The top line of Trump’s plan includes slashing corporation tax from 35% to 15%, cutting a key tax on the richest Americans, reducing the number of tax brackets, abolishing most tax deductions, and lowering the rate on corporate profits brought back from overseas.

But there’s precious little detail about how the plan would be paid for -- so critics are quickly calling it a tax cut for the rich.

Michael Hewson of CMC Markets says investors wanted more:

Markets had been hoping for more in the way of specifics, in particular the percentage level of the one-off profits tax, which it is hoped will prompt technology companies to repatriate the billions of dollars in profits currently held overseas, as well as some indications on timings, and how the cuts would be funded.

These still appear to be some way off, and appear unlikely to go through this year, though we may get something on healthcare by the end of the month. In any case the effect on the US dollar is likely to be a negative one given that markets will have to wait a while longer for a repatriation boost.

Updated

The agenda: Waiting for Super Mario

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s European Central Bank Day, when the world’s investors turn to Frankfurt to listen to Mario Draghi’s view of the eurozone economy.

The ECB is expected to maintain its very loose monetary policy stance today, concluding that inflation and wage pressure remains limited.

But with Europe picking up speed, and the pro-EU Emmanuel Macron expected to become French president, Draghi may face some pressure from hawkish colleagues.

So, we might get some hints that the ECB might change their policy stance in the coming months, perhaps as early as June.

The main decisions on rates and stimulus measures are announced at 12.45pm BST (1.45pm in Frankfurt). Draghi’s press conference is 45 minutes later.

Royal Bank of Canada expects Draghi to take a relaxed approach, saying:

After the market’s ‘hawkish’ interpretation of the March meeting we expect that Draghi will purposely look to strike a more dovish tone in his press conference along the lines of his recent speech to the annual ‘ECB and its Watchers’ conference earlier this month.

He argued that, despite an improving growth backdrop, the conditions under which the ECB could begin to consider tightening policy had yet to be met, meaning that that there was no cause to deviate from the current policy path and forward guidance, including what it implied about the sequencing of policy changes

Also coming up today....

It’s a busy morning for corporate news as the reporting season enters full swing.

Financial groups Lloyds Banking Group and Deutsche Bank, Pharmaceutical firm Astra Zeneca, housebuilders Persimmon and Taylor Wimpey and advertising giant WPP are all reporting results this morning.

Later today, Google/Alphabet, Microsoft, Amazon, Ford and Starbucks will report.

There’s also some economic data which might move the markets

  • 10am BST: Eurozone consumer confidence for April
  • 11am BST: UK retail sales for April
  • 1.30pm BST: US durable goods orders for March

We’ll be tracking all the main news through the day....

Updated

 

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