The real test for the ECB is about to begin

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European Central Bank

Financial markets remain spellbound by the central banks. On 9 March, the European Central Bank (ECB) and national central banks will start with the actual purchasing of bonds. Positive reactions are already being seen in both equity and bond markets.

Economically speaking, the past week saw some mixed signals. In the United States, this was mostly due to the steady rise of the US dollar. Ben Steinebach Ben Steinebach Head of Investment Strategy

In a way, Mario Draghi's press conference was a bit of a disappointment, as he barely dipped into the technical details of the purchasing programme. Draghi indicated that the programme also allows for the purchasing of bonds with negative yields down to -0.2%, and this prompted a rise in bond prices on Thursday. However, Draghi did not mention exactly which bonds and maturities would be purchased, and whether he expects sufficient bonds to be on offer. On the other hand he talked at length about the improving outlook for the eurozone economy. The ECB has upwardly adjusted growth expectations from 1.0% to 1.5% for this year, and from 1.5% to 1.9% for 2016 . Draghi considered the weakening of the euro (which is clearly a result of ECB policy) to be a major driver of this positive trend. Additionally, the ECB expects inflation to accelerate this year (also thanks to its own policy), from its current level of 0% to 1.5% in 2016 and 1.8% in 2017.

Other central banks, too, made the headlines. In both India and Poland, policy rates were lowered in order to weaken the local currency. In India this went hand in hand with expansive fiscal policy, under new prime minister Modi, with a focus on infrastructure. That will increase the weight of the Indian economy in the region, to the point that it will be rivalling China. For this year, China has presented an economic growth forecast of 7%, as compared to 2014's realisation of 7.4%. Of course, this is not a huge difference, but on financial markets it is raising some concern. Firstly, the figure is significantly lower than it was a few years ago, and secondly, trade relations between China and the West have grown tremendously in importance in the past decade.

Economically speaking, the past week saw some mixed signals. In the United States, this was mostly due to the steady rise of the US dollar. Meanwhile, low energy prices are weighing on the prospects of the US oil sector in particular. Europe's data was slightly better overall, with reasonable growth in retail sales in January, and industrial production growth in Germany in the same month. However, German industrial orders dropped by 3.9% in January in the wake of December's surge of just over 4%. Looking back at the United States again, on balance equity markets posted flat results, with the S&P-500 declining by 0.16% and technology index Nasdaq gaining a modest 0.4%. Last Monday, Nasdaq positively crossed the 5000 mark again, for the first time since 2000's dotcom crisis. In Europe equity markets fared favourably again, with gains ranging from 0.2% to 1%. In bond markets, on balance we saw prices decline. Up until Wednesday yields edged upwards, subsequently easing somewhat after Mario Draghi's words on Thursday.

TomTom establishes itself in automotive sector

In the past week, European equity markets outperformed their US counterparts, as the former continue to be buoyed by the ECB's upcoming bond purchases. Especially Frankfurt and Amsterdam thrived. With the bulk of Q4 results now published, business newsflow is down to a trickle. In the Netherlands, midcap Vastned stole the show with exceptionally strong results over the quarter. However, these better-than-expected results were accompanied by cautious statements on the outlook for 2015 . TomTom garnered attention as well by bagging new contracts with car manufacturers during the Geneva Motor Show. In particular, TomTom added Kia (part of the Hyundai group) to its partners after recently having struck deals with Toyota and Volkswagen.

In Amsterdam, over the past week up until Thursday, the AEX gained over 1% compared to last Friday, making it Europe's strongest performer. Amsterdam was followed by the German DAX index, which rose by 0.9% over the same period. The AEX is nearing the threshold of 500 points, standing at 490 points on Friday morning, which is a 15.5% increase so far for 2015. On 23 March, the AEX's composition will be adjusted again. Newly added will be Nationale Nederlanden, Vopak and Aalberts Industries, and dropping out of the AEX will be SBM Offshore, Fugro and Klépierre. The midcap index showed some changes as well, the most important one being the removal of Nutreco and Exact, which are being acquired.

Interesting data from the United States

Next week, we can expect a few late business results. Undoubtedly, most eyes will be on the macro-economic indicators to be published, though they are not plentiful either. It will be interesting to see how financial markets will actually respond to the bond purchasing programme that kicks off on 9 March. Next week, only two more Dutch businesses will post their results over last year's final quarter: TKH (Twentse Kabel Holding) and Boskalis. In addition, French cable and telephony company Altice will present its results. Macro-economic news is modest in volume as well. The major news will likely be data from the United States, especially with regard to consumer spending. Retail sales over February will be announced on Thursday, and consumer confidence (University of Michigan) over March on Friday. These figures will likely show whether volatility is gradually decreasing.

Furthermore, investors will keep an eye on developments in German labour costs, now that in Baden-Würtenberg a wage increase of 3.5% has been agreed upon. This can trigger quite a significant reaction in the German as well as the European economy. Lastly, data will be released regarding industrial production in the European Union and in the Netherlands, and about producer prices in the United States in February. But first, this afternoon, we will look at employment data from the United States. At the time of release of this newsletter the outcome was not yet available, but by the time you read this, you will know what they look like.

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