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Economists Read ECB Flip-Flop as Concern Over Weakening Momentum

10 March 2019

Asian stocks also shuddered lower after shockingly weak export data from China heightened market fears about global growth. Citic Securities Co. advised clients to sell the shares, saying they are "significantly overvalued" and could decline more than 50 percent over the next year.

While the market widely expected a downward revision in growth from the ECB, the central bank had perhaps taken the extent a notch further than expected.

Analysts cautioned the timing of the Lunar New Year made it hard to draw a true signal from the noise but the scale of the miss was alarming. Exports tumbled 16.6 percent year-on-year in yuan terms, while imports fell by 0.3 percent. Japan's Nikkei. closed 2 percent lower. The S&P 500 was down 20.54 points, or 0.75 percent, to 2,728.39. Financials also nursed losses for a second day after the European Central Bank cut its growth forecasts and pushed out an interest-rate hike. The bank indicated it would keep interest rates at historic lows at least until next year and potentially indefinitely and set out a new program to offer cheap loans to euro zone banks. "It will be very hard for the European Central Bank to shift inflation much higher to 1.5 percent and beyond". Meanwhile, Italian sovereign 2-year bond yields dropped to their lowest level since May 2018.

The February U.S.jobs report, to be released at 1330 GMT, could stack more pressure on the floundering euro.

A weaker-than-expected report could send prices sharply higher as this news would likely drive the Treasury yields and stock prices lower, weakening the dollar. There was also a chance the jobless rate could fall by more than forecast given the recent strength in employment.

The Australian dollar trod water at US$0.7015, having declined 0.9 per cent this week and hitting a two-month trough of US$0.7005 after data showed the economy grew at its slowest pace in two years last quarter.

The numbers are still likely to highlight the relative outperformance of the US economy, especially against the European Union, and further encourage dollar bulls.

"The ECB's updated forecasts imply that, at best, growth slowly returns to trend over the next few years, meaning it will be very hard to get underlying inflation up", wrote analysts at ANZ in a note.

Gold futures on the COMEX division of the New York Mercantile Exchange jumped back on Friday as weak US job data dragged down the dollar and equities. So far, oil demand has remained steady, where imports of crude oil remained above 10 million barrels per day (bpd).

Economists Read ECB Flip-Flop as Concern Over Weakening Momentum