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ECB keeps to gradual close to asset purchases

Khatija Haque - Head of Research & Chief Economist
Published Date: 15 April 2022


  • The ECB stuck to its plan to end asset purchases in Q3 2022, despite surging inflation in the eurozone. The market had anticipated the ECB would bring forward its policy normalization plans by ending QE earlier. In her post meeting conference ECB President Lagarde reaffirmed that rates could start to rise soon after the end of QE, saying this could happen “anywhere between a week to several months” later. She seemed concerned about rising eurozone inflation expectations and indicated that the June meeting would be when a decision on ending asset purchases would likely be taken. Bloomberg reported that policy makers were likely to agree to a 25bp rate hike in Q3, citing unnamed sources. This would open the way for two rate hikes by the ECB before the end of the year.
  • Turkey’s central bank kept its benchmark one-week repo rate unchanged once more at 14.0% yesterday. This was in line with expectations, despite inflation exceeding 60% in the March reading, resulting in deeply negative real rates. The recent stability in the lira over the past month or so made any action by the central bank even less likely as the authorities have long made clear their support for lower interest rates.
  • US retail sales rose by 0.5% m/m in March, slightly slower than the market had been expecting and also slower than the upwardly revised February reading of 0.8% m/m. However, this rise was partly due to higher gas (petrol) prices, with gas station sales up 8.9% m/m.  Excluding autos and gas, retail sales rose just 0.2% m/m in nominal terms. In inflation adjusted terms, retail spending likely contracted last month.  
  • The University of Michigan consumer sentiment index showed an unexpected improvement in consumer confidence in April, with both the current situation and the expectations component rising from March. The improvement reflects a strong job market and expectations of higher wages especially amongst consumers under 45 years of age. Consumers also expect recent fuel price increases to be reversed over the next year. Both one-year and 5-10 year inflation expectations were unchanged from March at 5.4% and 3.0% respectively.
  • The PBOC kept its one-year policy rate unchanged at 2.85% this morning, surprising the market which had anticipated a 5-10bp cut. The Bank may choose to lower the reserve requirement ratio for banks instead.
  • In an interview with Bloomberg, IMF chief Kristalina Georgieva confirmed that the Fund ‘will sit with Sri Lanka, we will sit with Egypt, we will sit with Tunisia and we will discuss what realistically needs to be done.’ The three countries have sought the IMF’s assistance as they struggle with the financial pressures wrought by the pandemic, developed market monetary tightening, and the high commodity costs which have been exacerbated by the Russian invasion of Ukraine.

Today’s Economic Data and Events

16:30 US empire manufacturing index (Apr) forecast 1.0

17:15 US Industrial production (Mar) forecast 0.4% m/m

Fixed Income

  • US Treasury yields moved up sharply in the final day of trading for the week as president of the New York Federal Reserve, John Williams, added more support for a 50bps hike at the May FOMC meeting. Yields on the 2yr UST added almost 11bps on the day to close at 2.4539% while the 10yr yield spiked almost 13bps to 2.8275%.
  • European bond markets weakened as the European Central Bank outlined its plans for tightening policy though with no specific timeline. Interest rates look set to move higher in Q3 while asset purchases will also come to an end. Yields on the 10yr bund added almost 8bps to 0.837% while OAT yields jumped up 7bps to 1.327%. In the UK, gilt yields moved up 9bps to 1.887%.
  • In emerging markets South African bonds weakened marginally with yields closing up 4bps at 10.091% while Indian yields also edged higher, adding 2bps to 7.215%.
  • Fitch affirmed their ‘A’ rating on Saudi Arabia’s sovereign credit while also changing the outlook to positive from stable.


  • The ECB failed to give the market anything new or more hawkish than expected and even as they signalled tighter policy ahead, EURUSD declined. The single currency fell 0.55% to 1.0828 as markets will still price in a much more aggressive Federal Reserve relative to the ECB when it comes to normalizing policy. The yen continues its rampant weakening with USDJPY adding another 0.2% overnight and pushing up 0.4% this morning to 126.44. The yen is now at its weakest level since 2015.
  • Sterling also dropped amid broad dollar strength with GBPUSD down 0.35% at 1.3071. In commodity currencies, there was weakness across the board with USDCAD up 0.29% to 1.2603 and AUDUSD falling 0.4% to 0.7419.


  • East Asian equity markets saw strong gains yesterday as the Shanghai Composite added 0.7% and the Nikkei 1.2%. Both are heading lower in early trading today, however, after China opted not to cut its policy rate at its PBOC meeting this morning, contrary to expectations.
  • In the US, the three key equity indices sold off again after the previous day’s gains as the Dow Jones, the S&P 500 and the NASDAQ lost -0.3%, -1.2% and -2.1% respectively. The day was stronger in Europe where most indices edged higher, with the FTSE 100, the DAX and the CAC adding 0.5%, 0.6% and 0.7% respectively.
  • Locally, the DFM added 0.1%, while the ADX dropped -1.3%. In Saudi Arabia the Tadawul closed 0.6% higher and in Egypt the EGX 30 lost -1.6%.


  • Oil prices managed to hold their gains overnight to set up a weekly increase in a holiday shortened week. Brent futures added 2.7% to USD 111.70/b while WTI moved up 2.6% to USD 106.95/b. The EU is apparently considering a ban on Russian oil imports that would come into effect gradually, adding more tightening pressure to oil markets.

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