CPI +4.5% vs +4.5% y/y prelim The preliminary report can be found here. No change to the initial estimates as French inflation surges higher, owing much to a sharp acceleration in energy prices. That said, food prices also has increased significantly compared to the same period last year as price pressures in general are pushing higher – not helped by the Russia-Ukraine conflict.Looking at the details, energy prices showed a jump of 29.2% y/y in March as compared to the 21.1% y/y increase in February. Meanwhile, food prices were up 2.9% y/y in March as compared to the 2.1% y/y increase in February.

The Chinese military says that the drills are targeted at the ‚wrong signal‘ sent by the US about Taiwan.For some context, six US lawmakers led by Senator Lindsey Graham arrived in Taipei late yesterday evening. The rest of the delegation comprises of Senator Robert Menendez, Richard Burr, Robert Portman, Ben Sasse, and Ronny Jackson. This was a previously unannounced visit and surely will irk China even more.

For all the talk in wanting to fight against inflation, the ECB certainly isn’t hinting at much conviction. The key word yesterday was flexibility as the ECB wants to be able to be afforded policy options and not be cornered into hiking rates as soon as possible.Lagarde’s press conference made that clear when she said that rate hikes could come any time between a week or a few months after APP purchases end, which is still believed to be scheduled for Q3.It’s not like we weren’t warned. *coughs*The lack of conviction certainly leaves little room for a potential move in July, although ECB sources reported that it may still be on the table. But given the tight turnaround time, it could be unlikely unless inflation threatens to surge much higher. And even then, we may still see policymakers sit on their hands.As for the euro, it’s hard to find much optimism for the time being. With a central bank that isn’t showing much willingness to be aggressive and a rather dour economic outlook with geopolitical tensions still casting a big shadow over the region, it’s a tough one to be positive.EUR/USD is now testing the 1.0800 level once again and if that gives way, we could be on course to test the 2020 low at 1.0635 next.

It is pretty much a placeholder meeting for the ECB as they leave the timeline for APP purchases unchanged i.e. scheduled to end in Q3 while reaffirming that rate hikes will be gradual and will only come after QE ends. But the dovish kicker is more on the subtle change to the forward guidance as the ECB talks up flexibility. I outlined the changes in the earlier post here. In the grand scheme of battling inflation, it isn’t quite needed if the ECB is to eventually deliver on rate hikes. But the fact that they even felt compelled to include this in the statement does say something. If anything else, it offers some hesitation or lack of resolve in pushing for rate hikes. I would argue that is what is causing the euro to drop. That and the fact that kicking the can down the road to June means little chance of a July rate move. EUR/USD is now falling to test its 100-hour moving average @ 1.0872: Break below that and the near-term bias turns more bearish with key support seen closer to 1.0800 and the March low of 1.0806. Lagarde’s presser is the next key thing to watch and we’ll see how much she will want to talk up this supposed flexibility and what exactly does that mean for future policy steps by the central bank.

Prior decisionDeposit facility rate -0.50%Main refinancing rate 0.00%Marginal lending facility 0.25%Reaffirms that APP purchases will end in Q3Rate hikes to only come some time after APP purchases endRate hikes are to be gradualSees rates at present level until inflation meets guidance conditionsFull statementIn essence, there isn’t any change to the policy outlook or main language. So, it is pretty much the status quo.But there are some slight changes to the forward guidance as the ECB stresses on flexibility when it comes to making any future decisions. That doesn’t sound like a central bank that is posturing to move rather aggressively to counteract inflation.Here is the paraphrasing in March:“The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term.“And here is the one for April today:“The Governing Council stands ready to adjust all of its instruments within its mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at its 2% target over the medium term. The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective. Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability.“

Headlines:Elon Musk offers to buy Twitter, shares jump 13% in pre-marketWhat to expect from the ECB later today?Bond selling sees a bit of a breatherRussia says Putin to consider a range of measures if Sweden, Finland join NATORussia says ‚balance must be restored‘ if Sweden, Finland join NATOSwitzerland March producer and import prices +0.8% vs +0.4% m/m priorMarkets:JPY leads, AUD lags on the dayEuropean equities slightly higher; S&P 500 futures flatUS 10-year yields flat at 2.688%Gold down 0.1% to $1,974.80WTI down 0.9% to $103.28Bitcoin down 0.7% to $40,960It was a quiet session in terms of headlines as markets brace for the ECB policy meeting decision coming up within the hour.Talk of ‚peak inflation‘ is still ringing and that is seeing the bond selling take a bit of a breather. The dollar is also seen cooling off further though changes are relatively light on the session.EUR/USD stuck around 1.0900-10 for the most part while USD/JPY is marked down slightly around 125.20-30 levels.European equities are holding slight gains but they aren’t indicative of much, taking some optimism from Wall Street’s push higher yesterday. The ECB is the key risk event to watch out for next so that will be one to watch for regional stocks. US futures are more flattish although Twitter shares are jumping in pre-market after Elon Musk proposed to take over the company with a $43 billion bid.

In a letter delivered to Twitter yesterday, Elon Musk delivered a non-binding proposal to acquire all of Twitter stock not owned by the reporting person for all cash consideration valuing the stock at $54.20 per share.
Musk says this is his „best and final offer“ and that if it isn’t accepted, he would „need to reconsider my position as a shareholder“. Before yesterday, Musk held a 9.1% stake in the company after this move here.
Let the memes begin.

Let’s try to keep this short and simple.
There won’t be any changes in policy rates by the ECB today as policymakers are still in autopilot mode when it comes to that for the time being. In March, the ECB communicated that APP purchases should be wrapped up in Q3 with scheduled buying of €40 billion in April, €30 billion in May and €20 billion in June.
Based on that timeline and policy trigger (that rate hikes will only come after APP purchases end), that leaves some breathing space before any actual changes to policy rates. That said, with inflation still rampaging across the euro area, it is going to be a challenge for the ECB to try and maintain their composure on both fronts.
So, what can we expect from the ECB today?

In my view, the ECB will do what it does best. That is to kick the can down the road for as long as they possibly can afford to. However, there is a growing divide between policymakers in the central bank on the urgency to take action. As such, it isn’t going to be as straightforward as seeing the ECB sit on its hands.
The first thing to watch today will be any changes to the timeline of tapering. For now, Q3 remains the target but if the ECB brings that forward to Q2, that will start to see more hawkish undertones grow.
That said, the next policy meeting will be on 9 June so that does give the ECB some time to tinker with this. So, today may not likely be the day where they announce any hasty changes to the outlook and their plans.
As such, sticking with the status quo seems like the most viable option. And that perhaps poses some downside risk (or at least limits any major upside) to the euro and European bond yields, even if markets aren’t expecting much from the ECB today.
The next key thing to watch will be Lagarde’s press conference. The ECB will want to bide its time to wait on inflation data in the coming months before reacting. As such, Lagarde will have to try and communicate that in a clear and concise manner. Any error in communication could swing the euro either way and that is always a risk to be mindful about.
TLDR: Barring any unintended hawkish signals, the ECB is to stick with venting about the risks of higher inflation amid the Russia-Ukraine conflict while arguing to be data-dependent i.e. wanting flexibility. The door remains open for a rate hike later in the year but not before APP purchases are concluded, and that is still seen in Q3. That should keep EUR/USD between the 1.0800 to 1.0940 range at the moment.

China must continue strict „dynamic COVID-19 clearance“ policyMust not relax control and prevention measuresShould minimise COVID-19 impact on economic and social developmentThat won’t soothe much of the situation in Shanghai as the pressure continues in the key city, marking China’s largest outbreak since the start of the pandemic. For some context, Shanghai reported more than 25,000 cases once again in its latest update.

Prior -6.3%Market index 393.5 vs 398.5 priorPurchase index 261.8 vs 258.1 priorRefinancing index 1.109.0 vs 1,166.3 prior30-year mortgage rate 5.13% vs 4.90% priorThe average home loan rate in the US tops 5% for the first time since November 2018 as the latest survey notes that homebuyers are hurrying to make purchases before costs rise further. That said, the run up in costs has largely dampened sentiment in mortgage applications with overall activity slowing once again (the rise in purchases were offset by the drop in refinancing activity).