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LGT Navigator: Awaiting the ECB's interest rate decision

February 3, 2022

The focus of attention today is the European Central Bank, which will provide information on the further course of monetary policy in the afternoon. The Bank of England will also announce its interest rate decision today. Meanwhile, inflation in the eurozone has reached a new record level. 

Monetary policy

US stock markets continued to rally on Wednesday. The S&P 500 climbed almost +1% and technology stocks also rose. Numerous quarterly results provided momentum, with tech giant Alphabet causing a stir. In addition to strong quarterly figures, Google’s parent announced a stock split. The shares subsequently reached new record levels in daily trading and closed around +7% higher.

In contrast, the latest data on the US labor market were disappointing. Thus, the private sector cut about 300’000 jobs in January, as reported by the service provider ADP. The focus is now on the official monthly labor market report, which will be published on Friday.

ECB in focus

The focus of attention today is the meeting of the European Central Bank (ECB). The interest rate decision will be published at 13:45 (CET). At 2:30 p.m., the press conference with ECB President Christine Lagarde will take place. Of particular interest then will be how Lagarde assesses the inflation trend. European consumer prices are currently rising faster than at any time since monetary was established. The ECB has so far taken the view that special factors are primarily responsible for the high inflation and that price growth will weaken in the course of the year. In an interview at the end of January, the central bank chief had again warned against tightening monetary policy too quickly, pointing to the danger of stifling economic growth as a result. However, the minutes of the last meeting in December showed that opinions on inflation diverge within the ECB's governing council. It will therefore also be revealing to see whether the central bankers can unanimously agree on the future course of monetary policy. Meanwhile, financial markets assess the situation differently from the ECB and expect the first interest rate hike before the end of the year. 

The Bank of England is also deciding on monetary policy today. It has already ended the era of record-low interest rates in December and raised the key interest rates from 0.1% to 0.25%. Analysts expect another rate hike of +0.25% at today's meeting.

Inflation in the euro zone rises to a new record high

The inflation rate in the eurozone has surprisingly climbed to a new high at the beginning of the year. Consumer prices were +5.1% higher in January than in the same month of the previous year, Eurostat reported in an first estimate. This is the highest value since the introduction of the euro in 1999. Economists had forecast a decline to +4.4%. In December, inflation was +5.0%. Inflation was once again fueled by the massive increase in energy prices, with prices shooting up by more than +28% within a year. Food cost +3.6% more than a year ago.

If the volatile energy and food prices are excluded, the core inflation rate in January was +2.3%. This marks a slight slowdown in price growth compared with December (+2.6%). However, analysts had also expected a stronger decline here.

OPEC+ maintains production target

The leading oil producers want to continue to increase production volumes by 400’000 barrels per day in March. This was decided by the alliance consisting of oil-exporting countries (OPEC) and their cooperation partners (OPEC+) on Wednesday. OPEC+ is thus adhering to a plan developed in July which aims to gradually increase production after it was reduced during the pandemic. Faced with rising energy prices, major oil importers such as the US and India have repeatedly called for output to be increased more quickly. But already at the current pace, Saudi Arabia and the United Arab Emirates are struggling to meet the agreed targets. The shortage is fueling crude oil prices, which are currently trading at 2014 record levels.

  

Economic Indicators February 3

MEZ Country Indicator Last period
01:30 JP Purchasing manager index, services (January) 52.1
10:00 EZ Purchasing manager index, total (January) 52.4
11:00 EZ Retail sales (m/m, December) +1.0%
13:00 UK Interest rate decision Bank of England
13:45 EZ Interest rate decision European Central Bank
16:00 US ISM-Index, services (January) 62.3

 

Earnings Calender February 3

Country Company Period
CH ABB Q4
US Amazon Q4
ES BBVA Q4
US Biogen Q4
US Eli Lilly Q4
US Estée Lauder Q2
GE Infineon Q1
NL ING Group Q4
FL Nordea Q4
US Prudential Q4
US Ralph Lauren Q3
CH Roche  Q4
US Shell Q4
GE Siemens Q1
CH Swisscom Q4

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Tina Haldner, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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