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Hawkish ECB Signaled Change in Guidance This Year Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Fri Jan 12 18 00:01 ET

Major currencies generally firmed against US dollar but euro was the best performer. The single currency was lifted as the ECB minutes for the December meeting came in more hawkish than expected. Long-dated US Treasury yields eased as core PPI surprised to the downside and speculations over Chinese purchases proved short-lived. in the commodity sector, crude oil prices have strengthened for four days in a row with the Brent contract surpassing US$70/bbl for the first time in 3 years. The strength was driven by OPEC's affirmation that it would stick to output cut. Precious metals were mixed. While the benchmark Comex gold contract added +0.24%, the corresponding silver contract slipped -0.41%, for the day.

The December ECB minutes signaled that policymakers might begin changing the forward guidance in coming months in response to a better macroeconomic backdrop. As the minutes noted, 'the view was widely shared among members that the Governing Council's communication would need to evolve gradually... if the economy continued to expand and inflation converged further towards the Governing Council's aim. The language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year'. Moreover, the minutes suggested that the members noticed 'a gap appeared to be emerging between favorable economic conditions and a policy stance that remained in a crisis configuration'.

On the dataflow, Eurozone's industrial production grew +3.2% y/y in November, beating expectations of +3% but easing from October's +3.7%. Germany's first estimate of GDP growth for 2017 is +2.2%, -0.1% weaker than market expectations. In the US, headline PPI slowed to +2.6% y/y in December from +3.1% in the prior month. Core PPI eased to +2.3% y/y from November's +2.4%. From a month ago, both headline and core PPI contracted -0.1%, compared with corresponding gains of +0.4% and +0.3% in November. Released earlier today, China's trade surplus widened to US$ 54.7B in December, beating consensus of US$ 37.4B, from November's US$ 40.2B. Meanwhile, Japan's current account surplus narrowed to 1.7 trillion yen in November, from 2.44 trillion yen a month ago. This came in weaker than expectations of 2.19 trillion yen.

For the day ahead, headline CPI in the US probably eased +2.1% y/y in December, from +2.2% in the prior month. Core CPI might have stayed unchanged at +1.7%. Downside surprises in inflation readings would lead to further weakness in the greenback and diminished speculations for Fed funds rate hikes. US retail sales probably gained +0.4% m/m in December, down from +0.8% a month ago. Excluding auto, retail sales might have also grown +0.4%, compared with a +1% expansion in the prior month.

 

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