European Central Bank rate hike bets pushed back to late-2020, money markets show

Irving Hamilton
March 10, 2019

SYDNEY, March 8 (Reuters) - Asian stocks shuddered lower on Friday after shockingly weak export data from China heightened market fears about a global economic slowdown, a day after European policymakers slashed growth forecasts for the bloc.

The Shanghai Composite Index, the world's best performing stock market in 2019, fell by 4.40 percent as markets closed.

While the timing of the Lunar New Year made it hard to draw a true signal from the China data noise, the scale of the drop was alarming, especially when coupled with sombre new data from Germany and Norway.

The worries were exacerbated as People's Insurance Company (Group) of China Ltd., which had become a poster child of the ramp-up in equities, saw its A shares dive by the 10 percent daily limit.

After the mixed messages in the jobs report, the dollar weakened for the first time in eight sessions. It has declined 1.5 per cent so far this week.

The single currency stood little changed at US$1.1197 having tumbled 1 per cent yesterday to touch US$1.1176, its lowest since June 2017. The S&P 500 was down 20.54 points, or 0.75 percent, to 2,728.39. A surprise decline in German industrial orders added concerns over the health of China's economy, while financials nursed losses for a second day after the European Central Bank cut its growth forecasts and pushed out an interest rate hike.

The crown slipped again a day after Swedish central bank governor Stefan Ingves struck a dovish note in a statement to parliament. "We were not expecting something so clear, so soon, and markets were not either, so bond yields are likely to stay low for longer". "We saw the European Central Bank wake up to the acknowledgment of a weaker growth and inflation profile in Europe, but this is sending a broad-based signal that contagion may be coming to the U.S".

Compounding concerns was a USA payrolls report that fell well short of expectations, although other measures within the report were strong, sending mixed signals to investors. The US Unemployment rate is also pegged to fall, from 4.00% to 3.90%.

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U.S. Treasury debt yields were lower in the wake of the payrolls report.

Additional support came from the decreasing US dollar index, which measures the greenback against six major peers.

Friday's rise reduced the euro's weekly loss against the dollar to 1.1 percent. The safe-harbour Japanese currency was one of the few to hold its own on the dollar at 111.40.

The ECB updates projections once a quarter.

Any further signs of a lack of consensus emerging from UK-EU negotiations over the Irish backstop could see more volatility for the pound euro exchange rate. "That is not good news for euro area banks or the euro".

Gold and the dollar typically move in opposite directions.

In commodity markets, oil prices eased as USA crude output and exports climbed to record highs, undermining efforts by producer club Opec to tighten global markets.

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