ECB To Decide On Interest Rates, NFP Report Draws Attention
The European Central Bank (ECB) interest rate decision and the US Nonfarm Payrolls (NFP) for the month of February will draw investors and traders' attention in the days to come. Market analysts will focus on forecasting the ECB’s future rate moves while the NFP report will show the strength of the US labour market.
The EU Commission announced a new plan regarding defense spending, sending European aerospace and defense stocks higher on Tuesday afternoon. In other news, China and Canada retaliated with new tariffs against the US, following President Trump’s decision to impose tariffs on their exports to the US.
In Japan, the Bank of Japan (BoJ) Deputy Governor Shinichi Uchida said: “I don't have a preset idea in mind on the pace of future rate hikes.” Uchida noted that higher tariffs would have impact on Japan's economy and price levels.
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ECB Interest Rate Decision
On Thursday, the ECB’s governing board will announce its decision on interest rates. Market analysts forecast that the eurozone’s central bank could proceed with cutting borrowing costs by 25 basis points. The ECB cut its rates by a quarter of a point after last January’s board meeting. The central bank has cut 150 basis points since May 2024.
The debate between policymakers has started with some being in favour of relaxing the bank’s monetary policy further and others suggesting that a pause would be the appropriate way forward. Economists are expected to scrutinise Christine Lagarde’s post-meeting comments to get clues about how the ECB could proceed.
A report by ING suggested that “we think the determinant for market reaction will be whether President Lagarde continues to characterise monetary policy as ‘restrictive’. This is particularly relevant as a 25bp cut would take the deposit rate to 2.5%, which is the upper-bound of the neutral rate range. As shown in our scenario analysis above, we think the “restrictive” reference will remain in place for now, which could be received by the market as a moderately dovish signal.”
The Dutch bank’s economists noted that it wouldn’t be a surprise if the ECB’s head would have to reply to questions related to the EU’s plan to increase defense spending and the impact on the eurozone’s economy.
US Nonfarm Payrolls February 2025 Report
On Friday, the Bureau of Labour Statistics (BLS) will release February’s Nonfarm Payrolls report. Market analysts suggested the NFP figure could come in at 153,000, slightly higher than January’s figure. It should be noted that January’s figure had surprised markets on the downside.
Commenting on the US jobs market, economists at Ernst & Young (EY) said: “If business leaders start to adopt a wait-and-see approach, given all the unknowns regarding immigration policy, regarding trade policy, regarding tax policy, that will weigh on the labor market.”
China Aims For 5% GDP Growth With Stimulus Plan
A Chinese government report showed that the country’s authorities aim for a 5% GDP growth in 2025, while raising its budget deficit target to “around 4%” of GDP from 3% in 2024. Running a 4% budget deficit would mark the highest level in the last 15 years.
The government report revealed plans to issue 1.3 trillion yuan in ultra-long-term special treasury bonds in 2025. Around 500 billion yuan worth of special treasury bonds will be issued to support large state-owned commercial banks.
Regarding inflation, the Chinese government set the target figure at 2%, the lowest level set in the last twenty years. Economists suggest that such stimulus measures are needed as the Chinese economy has struggled to return to pre-pandemic levels.
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