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LGT Navigator: The ECB's dilemma

March 10, 2022

The European Central Bank (ECB) will announce its monetary policy decision today. The central bank is, to a certain extent, caught in a dilemma in an environment that has changed significantly because of the war in Ukraine. On the one hand, the conflict with Russia is causing massively higher uncertainties, while on the other hand, the subsequent sharp rise in commodity prices is reinforcing the inflationary dynamics that have already intensified in advance. In addition to the ECB decision and the further course of the Ukraine/Russia crisis, the focus today is also on the latest inflation data from the United States.

The ECB's dilemma

The ECB should have had the normalization of its monetary policy on the plan. However, the war in Ukraine and the associated geo- and energy-related uncertainties could now thwart this plan. In view of the risk of stagflation, it is unlikely that key rates will be raised any time soon. Rather, ECB chief Lagarde, who has propagated a dovish monetary policy anyway, could continue to adopt a wait-and-see attitude. The challenge for central banks, and the ECB, will be not to lose their credibility when it comes to fighting inflation. In this respect, the capital markets will be eagerly awaiting the press conference (14:30 CET) and the ECB's medium-term inflation forecasts.

Equity markets stage brilliant recovery rally

Europe's stock markets launched an impressive rally in midweek thanks to hopes of a cautious rapprochement between Russia and Ukraine. The EuroStoxx 50 gained almost +7.5% to 3'766.02 points, making up a good part of the previous losses. In New York, the stock indices also recovered. The Dow Jones Industrial closed +2.0% higher at 33'286.25 points and the S&P 500 gained +2.57% to 4'277.88 points. On the Nasdaq, the indices posted an even stronger increase of around +3.5%. The recovery also continued Asia's stock markets. In Tokyo, the 225-stock Nikkei index traded almost +4% higher compared to the previous day. 

A background to the relief rally is certainly the decline in oil prices after the recent high. The price of the US variety WTI by more than -11%. At the same time, the yield of ten-year US government bonds climbed to 1.94%. The gold price fell on Wednesday again below the mark of USD 2'000. On Tuesday, the yellow metal reached the highest level since August 2020 at USD 2'070.

However, how long the easing on capital markets will last is extremely questionable because the consequences of rising energy and commodity prices for global economic growth, the inflation outlook and the monetary policy of the major central banks could intensify.

Top-level meeting fuels hopes for rapprochement in Ukraine war

Today, Russian Foreign Minister Sergei Lavrov and Ukrainian counterpart Dmytro Kuleba are scheduled to meet for talks in Turkey. According to media reports, Ukraine may already be negotiating a neutrality status. In return, the Kremlin is said to no longer seek a change of power in Ukraine.

Russia's central bank restricts currency trading

Against the background of the sanctions, the Russian central bank has been forced to drastically restrict foreign exchange trading. Accordingly, Russian banks are no longer allowed to issue foreign cash to citizens. In addition, bank customers may only withdraw amounts of up to USD 10'000 from all foreign currency accounts.


Economic Indicators March 10

MEZ Country Indicator Last period
08:00 SZ SECO Economic Forecasts
11:00 EZ State and Government Heads Meeting
13:45 EZ ECB Monetary Policy Announcement
14:30 EZ ECB Press Conference
14:30 US Consumer Prices (February, m/m) +0.6%
14:30 US Consumer Prices (February, y/y) +7.5%
14:30 US Core Consumer Prices (February, y/y) +6.0%
14:30 US Initial Jobless Claims (weekly) 215,000


Earnings Calender March 10

Country Company Period
SZ Clariant Annual
GE Hugo Boss Annual
GE Hannover Rück Annual
GE K+S Annual
IT Autogrill Annual
US Ebay Investor Day


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
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