Connect with us

Markets

ECB Stimulus Will Include Corporate Bonds Starting Next Week

Published

on

stimulus

The European Central Bank will start buying corporate bonds next week as officials’ stimulus program announced in March broadens to a new asset class in their struggle against deflation.

The Governing Council, meeting in Vienna, left the main refinancing rate at zero, the deposit rate at minus 0.4 percent. As a component of its asset purchases of 80 billion euros ($89 billion) a month, the ECB will begin buying corporate bonds on June 8, according to a statement. President Mario Draghi will hold a press conference at 2:30 p.m. local time, when he’ll also release updated economic projections for the euro area.

Two months after announcing fresh stimulus measures, policy makers are putting them into action while at the same time warning that all monetary policy can do is to buy time. Officials have been increasingly vocal in their criticism of governments for failing to use fiscal room or implement the structural reforms that are critical to lifting the currency bloc’s growth potential.

“We had all the big policy announcements couple of months ago and now is the time for implementation,” Sarah Hewin, chief European economist at Standard Chartered Bank in London, said on Bloomberg Television. “Draghi will reiterate that governments need to do more. We know that the European Central Bank, the Governing Council feel it most strongly that they’ve done all the heavily lifting so far and governments need to take action.”

The ECB’s new economic forecasts may highlight the central bank’s struggle to return inflation to its price-stability goal of just under 2 percent. The rate was at minus 0.1 percent in May.

One euro-area official, who spoke on condition of anonymity because the forecasting process is private, said that the inflation and economic-growth outlook will probably be upgraded mildly for this year and then stay unchanged over the rest of the horizon.

Such an outcome would leave the estimate for average inflation in 2018 at 1.6 percent. An ECB spokesman declined to comment on the projections.

While that would at least be the first time in a year the central bank has been able to avoid downgrading its outlook, a failure to lift the forecasts significantly would still be worrisome. The previous projections in March didn’t incorporate the effect of an enlarged stimulus program, and Vice President Vitor Constancio said only last week that he personally believed consumer-price growth in two years would exceed estimates.

More to Come

Policy makers still have stimulus to come. Corporate-bond purchases are scheduled to start next Wednesday and a new program of long-term loans to banks will begin on June 22, the ECB said on Thursday. It will release further details of the loan measures after Draghi’s press conference.

Most economists surveyed by Bloomberg said the ECB will probably announce new measures before the end of the year, most likely extending QE past the current end-date of March 2017.

Still, Draghi said at his previous press conference in April that the Governing Council was putting a “renewed emphasis” on the need for structural reforms. He may well reiterate that when he briefs reporters. He’ll also speak at 4:15 p.m. at an event to mark the 200th anniversary of the Austrian central bank.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Published

on

Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

Continue Reading

Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Published

on

Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

Continue Reading

Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Published

on

oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

Continue Reading

Trending