ECB pledges to expand its balance sheet

Already going further than most CBs

Chart of the Day

The ECB was more dovish than some expected yesterday, and announced that it would step up the pace of its asset purchases in the short term to combat the recent rise in bond yields and tightening of financial conditions. The ECB’s balance sheet has already risen by more as a share of GDP than most central banks in the past few months, although it initially did less than most when the pandemic first hit. The ECB succeeded in pushing bond yields down, but the euro nevertheless rose.

Macro

US initial jobless claims fell to 712,000 last week, while continuing claims increased to 4.1mn in the week before.

The Job Openings and Labor Turnover Survey showed that the job openings increased by 2.4% MoM in January, to 6.9 million.

Markets

The ECB’s announcement sent yields lower. Nevertheless, over the past month, moves have ranged from a rise of 13bp in Germany to an increase of 19bp in Spain.

The fall in bond yields occurred despite a very small fall in the 5-yr/5-yr inflation swap in the eurozone, implying reduced expectations for policy rate increases in the future.

It was another day of recovery for equity markets. Moves ranged from a 0.2% rise for the FTSE 100 to a 2.5% rise for the Nasdaq. In the past week, the Shanghai SE has fallen by 1.9%, while the Nasdaq has risen by 5.3%.

Of the S&P 500 sectors, yesterday financials performed worst, with a fall of 0.3%, and information technology best, with a rise of 2.1%. Over the past week, its been a mixed picture in terms of cyclicals versus defensive sectors.

The daily moves caused the ratio of momentum stocks to dividend payers to rebound, though it was still fallen sharply in the past few weeks.

Oil prices rose again, although Brent has yet to settle convincingly above $70.

It was a strong day for the most cyclical advanced economy currencies as global equity markets rebounded.

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