The European Central Bank's decision on interest rates will be published today. However, according to the consensus, the ECB will not decide on any new steps and will continue to look at current events. Meanwhile, stock indexes seem to be rising again.
At the April 2021 meeting, the ECB may leave interest rates at a record low. As of September 2019, the eurozone has a -0.5 percent deposit rate and a 0.00 percent refinancing rate. No changes are also expected to the 1.85 trillion euro pandemic emergency bond-purchase program (PEPP), but investors may look for hints of tapering or reducing the central bank's balance sheet.
Will the ECB reduce the pace of buying only in July?
Theoretically, their appearance could be beneficial for the euro. The common currency may strengthen as the central bank changes its stance from dovish to hawkish. This was the case e.g. yesterday after the Bank of Canada decision when the USD/CAD exchange rate dived from 1.2630 to 1.2470.
However, just last month the ECB pledged to increase the pace of asset purchases amid a surge in bond yields. Since then, central banks in the eurozone have spent an average of €17 billion a week, up from around €14 billion spent since the start of the year. Many economists expect the ECB to slow its bond buying in July. Christine Lagarde, the head of the ECB, is likely to maintain a dovish tone during her press conference, and traders will be on the lookout for any comments on the economic outlook, inflation, fiscal stimulus, and the impact of a slow rollout of vaccines.
The ECB will publish its decision at 13:45 and the press conference will start at 14:30 CET.
Stock markets near record highs
Today European stock indices seem to be rising after a series of good quarterly results of companies such as Nestle, SAP and Volvo. Germany's DAX index gained less than 0.5 percent by 11:00 am, France's CAC 40 gained less than 0.7 percent, and Spain's Ibex was up nearly 0.8 percent.
In the U.S., futures on the S&P 500 and the Dow Jones Industrial Average appear to be back near all-time highs after a day of correction.
Beijing opens up on gold
Investors seem to be turning their attention to the gold market, which has corrected since August 2020, falling nearly 20 percent. Gold slightly cheapened on Thursday to $1,790 per ounce but is still near the 2-month high reached yesterday. Gold prices appear to be supported by dollar weakness and lower US Treasury bond yields. Investors turned to safety, overvaluing the outlook for global growth, amid rising coronavirus infections and the imposition of restrictive measures in countries from India to Japan. Beijing has allowed domestic and foreign banks to import large amounts of gold into the country, which has likely helped boost Chinese demand. It appears that gold may yet return to the good graces of investors, who have been selling it off en masse through ETFs.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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