Eurozone growth revised up to 2-year high

Saturday, 10 Jun, 2017

According to the ECB's Thursday press release, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

The ECB Governing Council met in Tallinn, Estonia, yesterday, where it formally dropped its guidance that interest rates might fall further, saying only that it now expects borrowing costs to stay at present levels for an extended period.

It also confirmed that it would continue with its €60bn per month asset purchase programme until at least the end of 2017 - and maintained the pledge to expand it if conditions deteriorate.

But the focus was always going to be on Mario Draghi at the European Central Bank press conference. Mario Draghi stated that tapering was not talked about during the meeting and continued to tie the future monetary policy steps closely to the inflation outlook.

The same pattern was repeated with a spike in April, to 1.9 percent, before a retreat in May. The ECB chief said nothing had substantially changed with regards to the outlook for underlying inflation, adding that the path remains low and flat.

Euro-area unemployment is dropping faster than projected, with the rate now falling at nearly one percentage point a year and more people joining the workforce.

The eurozone economy is expected to grow at a faster rate than previously expected.

The Dow Jones Industrial Average.DJI was last up 66.28 points, or 0.31 percent, at 21,239.97.

That's why the inflation forecast outweighs signs of growing economic momentum.

Draghi told European Parliament lawmakers in May he is "firmly convinced" the eurozone´s newfound robustness depends on ECB interventions.

"Downside risks, mainly related to global macroeconomic developments, continue to exist", Mr Draghi said.

"Nevertheless, with headline inflation rates rolling over and core inflation still subdued, the central bank does not need to hurry in removing accommodation".

Evidence is piling up that growth in the eurozone has kicked into a higher gear and the region is recovering from the Great Recession and the ensuing crisis over high debt that pushed some eurozone countries, notably Greece, to the brink of bankruptcy. Those officials, who include German Finance Minister Wolfgang Schäuble, argue that years of easy money are inflating asset prices while harming German savers and pensioners. A break above has the potential to bring more buyers into the market, as this would result in a breakout above the spike high established on November 9th, at the time of the US Presidential election.

Germany, in particular, is the real victim of the ECB's low interest rate policy. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary.

If and when the central bank starts to roll back its balance sheet, capital markets will be affected the most and, in the worst-case scenario, a market crash may precipitate.

If we look at the indicators, monetary easing isn't necessary anymore.

Economic growth this year was seen at 1.9 per cent versus an earlier 1.8 per cent forecast.