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·         The European Central Bank will shut its hallmark bond purchase scheme by the close of the year, it said on Thursday, taking its biggest step yet towards dismantling crisis-era stimulus a decade after the start of the euro zone’s economic downturn.

But in a balanced announcement reflecting the uncertainties hanging over the economy, it signalled that any interest rate hike is still distant, raising the prospect that ECB chief Mario Draghi might leave office in October 2019 without having raised rates in his eight-year term.

 The new rates guidance sent the euro down over one percent against the dollar to $1.1644 EUR=EBS and pushed bets by investors on the timing of a first deposit rate increase back by three months to September 2019.

·         “While yesterday’s Fed hike was very much ‘hawkish’, in our view, the ECB opted to announce the end of its net asset purchases with a dovish flavour,” BNP economist Luigi Speranza said.

·         The ECB will halve its bond buys to 15 billion euros (£13.1 billion) a month from October then shut the programme at the end of the year. It also sees interest rates steady “at least through the summer of 2019” — a vague definition that gives policymakers a wide window and the flexibility to push back any move.

Adding a surprisingly dovish tinge to the decision, Draghi emphasized that uncertainty and risks were increasing, comments taken to indicate that risks were skewed towards a later hike, rather than an earlier move.

“This decision has been taken in the presence of a strong economy with increasing uncertainty,” he said of a political landscape characterised notably by rising trade tensions between the United States, Europe and China.

 

·         Highlighting the risks to the outlook, the ECB downgraded its euro zone growth forecast for this year to 2.1 percent from 2.4 percent previously, while upgrading its inflation forecast to 1.7 percent from 1.4 percent, largely as a result of rising oil prices.

While inflation has remained weak, higher oil prices, increasingly evident wage pressures and record employment suggest that prices will be moving up in the coming years, even if more slowly than the ECB had originally hoped.

 

·         Investors now price only a 30 percent chance of an ECB rate hike of 10 basis points by July 2019, compared with a roughly 80 percent chance earlier in the day. ECBWATCH

·         U.S. retail sales increased more than expected in May as consumers bought motor vehicles and a range of other goods even as they paid more for gasoline, the latest indication of an acceleration in economic growth in the second quarter.

The Commerce Department said on Thursday retail sales jumped 0.8 percent last month, the biggest advance since November 2017. Data for April was revised up to show sales rising 0.4 percent instead of the previously reported 0.2 percent gain.

·         U.S. President Trump has made up his mind to impose “pretty significant” tariffs on Chinese goods, an administration official said on Thursday, as Beijing warned that it was ready to respond if Washington chose to ratchet up trade tensions.

Trump is due to unveil revisions to his initial tariff list targeting $50 billion of Chinese goods on Friday. The list will contain 800 product categories, down from 1,300previously, according to another administration official and an industry source familiar with the list.

·         The International Monetary Fund warned on Thursday that U.S. President Donald Trump’s new import tariffs threaten to undermine the global trading system, prompt retaliation by other countries and damage the U.S. economy.

·         Mexico could strike at $4 billion in annual imports of U.S. corn and soybeans if President Donald Trump escalates a trade spat with new tariffs, officials told Reuters this week, and it is studying how to reduce the pain of such a move.

·         Tough sanctions will remain on North Korea until its complete denuclearisation, the U.S. secretary of state said on Thursday, apparently contradicting the North’s view that the process agreed at this week’s summit would be phased and reciprocal.

·         Oil prices were mixed on Thursday, with Brent slipping and U.S. crude gaining, as a stronger dollar weighed and a key supply-setting meeting of the Organization of the Petroleum Exporting Countries loomed.

Brent crude oil LCOc1 lost 80 cents to settle at $75.94 a barrel, while West Texas Intermediate crude CLc1 gained 25 cents to settle at $66.89.

·         The alliance meets on June 22-23 in Vienna, where it is expected to come to a decision on output.

·         Britain’s Brexit department set out its proposed compromise with pro-European Union lawmakers on Thursday, outlining three scenarios under which a vote in parliament on its European union exit deal would be triggered.

 “This ensures that in all circumstances parliament can hold government to account, while also allowing government to deliver on the will of the British people as expressed in the referendum,” a Brexit department spokesman said.

  “We have included three situations which would trigger a vote in both Houses: a) should parliament reject the government’s deal with the EU, b) that no agreement can be reached, or, c) there is no deal agreed by the 21 January 2019.”

Reference: Reuters, CNBC