Back off boys

Less than a week after the European Central Bank president wound up investors with the prospect of higher interest rates, she spent ten minutes yesterday trying to bring those expectations back to earth. In a presentation to the European Parliament’s Economic and Monetary Affairs Committee, she was all about caution and process.

At her press conference after last Thursday’s Governing Council Meeting and the decision to keep monetary policy on its existing track, Christine Lagarde led investors to believe that the ECB had modified its no-hawks-allowed protocol. She gave the impression that record-high inflation had forced the central bank to consider raising interest rates. A couple of days later, the Dutch central bank governor spoke of rates beginning to head north in October. The newly hawkish tilt was positive for the EUR, even if it did not move very far.

Monday’s speech, ostensibly to European politicians but clearly with a financial market audience in mind, was apparently intended to nip rate hike expectations in the bud. The text was shot through with caution and prudence: “quarterly growth slowed”; pandemic restrictions “are likely to continue”; “supply bottlenecks and high energy costs”.

The key points of Ms Lagarde’s speech were: 1) A rate hike will not occur before net asset purchases finish; 2) Policy is data-dependent; 3) Any policy adjustment will be gradual. In other words, back off boys – don’t get carried away. The EUR was flat on the day against the USD, GBP, CHF and JPY.

Dull data

Most of Monday’s ecostats had been done and dusted before London turned up for work. Investors had little to work with so they did little work. The premier league currencies, as noted, went nowhere while the Commonwealth commodity dollars all firmed by around 0.3%.

Sentix’s survey of Eurozone investor confidence was better than expected and two points higher on the month at 16.6. Unfortunately for the EUR, investor confidence does not loom large on investors’ radar, perhaps because they do not need to be told by somebody else how confident they are.

Data released overnight covered UK retail sales and Australian business confidence. The BRC’s Retail Sales Monitor showed annual growth of 8.1% in January “despite ongoing consumer uncertainty”. The increase was exaggerated by Covid shutdowns at the beginning of last year. NAB’s Monthly Business Survey found Australian business confidence improving from -12 to 3, even as business conditions deteriorated from 8 to 3 as a result of Covid.

North American trade

Today’s statistical highlights are not really highlights at all. Once upon a time, the FX market used to get terribly excited about the US trade figures. That passion withered and died 30 years ago when the question changed from whether the States had a monthly deficit to how big the deficit was. The equivalent Canadian figures come out at the same time.

This morning’s European data cover Italian retail sales, French international trade and Spanish industrial production. After lunch, the NFIB prints its index of small business confidence in the United States. Australian consumer confidence and NZ inflation expectations are due tonight.

Anyone hoping for some monetary policy guidance from the Reserve Bank of New Zealand this morning will have been disappointed. Governor Adrian Orr did make a scheduled appearance but his topic was “Innovation key to the future of money and cash”. The Bank is apparently “commencing Central Bank Digital Currency (CBDC) proof-of-concept design work”. The revelation did not have investors on the edge of their seats.