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ECB lifts growth and inflation forecasts

Tesla, man and machine

The European Central Bank kept rates steady at its meeting overnight. Although the bank did not expand its bond buying program, it promised to accelerate the rate of purchases. Importantly, it lifted the forecast for 2021 European inflation from 1.0% to1.5%, and 2022 expectations to 1.2%. European stocks and bonds rallied, although the US response was mixed.

The ECB has 1 trillion Euro of bond purchases remaining on its current commitments, and said it may “recalibrate” the program at any time. The market response indicates traders interpreted last night’s statement as a reminder the central bank is still willing to do “whatever it takes” to support the continental economy. The forecast of a temporary lift in inflation may also have helped eased concerns.

US tech stocks roared back to life after recent sustained pressure. The Nasdaq index lifted by 2.5%, recapturing some of this year’s 11% decline. The S&P 500 set a new record at 3,960.2, led by technology and communications stocks.  It appeared there is still disagreement among investors about the outlook for interest rates. Interest rate sensitive real estate listings rose, but equally interest rate sensitive utilities dropped.

Currencies traded steadily, although a drop in the US dollar against other majors suggests an increase in confidence overall. Gold also held steady, but crude oil rose and copper is once again threatening to break above its highest point in a decade.

Futures point to opening gains for Asia Pacific stocks today. New Zealand shares are holding ground despite a fall in the rate of growth in the manufacturing sector in February. Inflation remains a key focus for markets, notwithstanding soothing words from central bankers this week, meaning tonight’s reads on German CPI and US PPI are “live”.

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