ECB Is Stable, Jobless Claims Disappointing, Britain vs EU

23 июл. 2021 г.

The main event of yesterday was the ECB meeting results announcement. The main fear of the markets was that the Central Bank would start talking about tightening monetary policy. Although this fear was rather irrational. Unlike the US with its 5.4% consumer inflation, the situation in the Eurozone is much better. Their inflation rate of 1.9% is even lower than the ECB's target.

By the way, about the ECB's target. A couple of weeks ago, the European Central Bank updated its strategy and now by their goal they mean not just the inflation rate of 2%, but also some reasonable deviation from it. That is, say, 2.5% inflation may well be ignored with the wording "deviation is permissible and does not require immediate intervention."

Knowing this ins and outs, one could fully rely on the fact that the ECB would not change anything or announce imminent changes. Especially in conditions when the "delta" is fierce. So it is quite logical and natural, the parameters of monetary policy remained unchanged, and the ECB itself was very “dovish”. For the euro, this is a so-so signal, but the markets should have exhaled with relief, as the inevitable continues to drag on.

The exhalation of relief was somewhat spoiled by the data on jobless claims from the US. The number of initial applications for unemployment benefits in the US rose rather unexpectedly above 400K and once again raised questions about whether the US economic recovery has reached a peak and whether we are expecting weaker statistics ahead.

Another interesting piece of news is the skirmish between Britain and the EU. Britain wants to renegotiate the Brexit treaty on the Northern Ireland protocols. We will not describe in detail the groans of exporters and importers about this, we will only note that the issue of Northern Ireland and its borders was the main stumbling block on the way of the treaty between the EU and the UK. And Johnson's attempt to renegotiate the terms of the contract may be justified, but by and large it could have very bad consequences.

The fact is that the EU has already dismissed the proposal to revise the conditions. To which Britain began to threaten the use of Article 16, which allows unilateral revision. And this can already be interpreted as a direct violation of the terms of an international treaty. Considering that Johnson himself signed it, it will not be possible to attribute such actions to the mistakes of predecessors, so a very serious scandal is potentially brewing in the already strained relations between the EU and the UK. In total: we sell the pound on the rise.