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ECB Cuts Its Deposit Rate and Signals Indefinite Stimulus

Published September 13, 2019

The Kiwi dollar fell overnight, as the European Central bank relaunched its Quantitative Easing program. Also weighing on the NZD was a higher than expected core US inflation number.

ECB Cuts Interest Rates to Fresh Record Low

The European Central Bank cut interest rates on the deposit facility by 10 basis points to a new low of -0.50%. ECB President Mario Draghi pledged indefinite stimulus until growth returned to the Euro Zone and will start by making bond purchases at EUR20 billon per month starting in November. The move essentially ties the hands of his successor Christine Lagarde to the policy as he steps down on October 31.

President Donald Trump clearly enraged by the ECB’s move which comes soon after his calls on the Fed to adopt a negative-rate policy, tweeting “They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports…. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”

US Core Inflation Hits 1-Year High

The US consumer price index came in at 1.7% in August, missing expectations of 1.8%. However, core inflation rose to 2.4% the highest level in over a year. Markets are expecting the Fed to ignore the data and continue to cut their interest rates by 25-basis points when they meet next week to contain a slowdown should the trade war escalate.

US Jobless claims falls 15k to 204k and beat estimates of 215K.

US President Trump Returns China’s Goodwill Gesture

Markets welcomed news on Thursday from US President Donald Trump of a 2-week delay to a scheduled tariff increase on billions worth of Chinese products to avoid the 70th anniversary of the founding of the People’s Republic of China. The deadline has now been pushed out to October 15 and the goodwill gesture comes a day after China exempted some US products from its tariffs ahead of planned talks. The NZD rose to a high of .6444 on the announcement and has since reversed gains overnight on positive US data.

This morning markets will be watching the NZ Manufacturing PMI report at 10.30am, followed by tonight’s US Retail Sales, and the US Michican Consumer Sentiment survey