The Day at a Glance | February 3 2022

The Top

*ECB maintains its stance and will not accelerate the process of withdrawing stimulus.

*Food prices increased 1.1% in January; adverse weather conditions and energy prices threaten to increase prices even more: FAO.

*Consumer confidence in Mexico fell during January (-0.9 to 43.4), but remains at pre-pandemic levels.

*Central Bank of England increased interest rates to 0.5%; several members voted for more of an aggressive increase in light of inflationary concerns.

*Economic indicators: Services ISM will be made known in the U.S. (59.5e.).

Economic environment

ECB remains firm in its position. In its most recent monetary policy decision, which was made public this morning, the European Central Bank affirmed its stance regarding the gradual withdrawal of stimulus despite inflationary surprises in the continent. The statement confirmed that rates will maintain at their current levels (-0.5% deposits; 0% refinancing) and that they will not increase until inflation can be forecasted at a sustained 2% (underlying inflation being consistent with this target). Additionally, the Pandemic Emergency Purchase Program (PEPP) is still scheduled to come to an end this March, while the conventional Asset Purchasing Program (APP) will be increased in 40 billion euros starting in the 2Q22, 30 billion in the 3Q22, and 20 billion in the 4Q22. Special conditions for targeted long-term repo operations (TLTRO) will come to an end in June. This decision goes against market expectations, which had expected a rise in interest rates to occur in July after record levels of inflation had been recorded in the block in January. The ECB reiterated that it will slowly reduce the purchasing programs and that there will be no interest rate increases until the process has finalized (March 2023). Members of the ECB seem to continue forecasting that inflation will return to levels below 2% once energy price effects disappear, and production chain issues stop impacting inflation. In a press conference, President of the ECB Christine Lagarde acknowledged that the trend seen in short-term inflation could be higher than previously expected, but expects it to decrease at the end of the year. She recognized that there are intense debates regarding inflation within the ECB, and said that the most recent data is being assessed in order to anticipate any mid and long-term effects. They don`t want to act before having evidence of considerable change in their estimates, which they are expected to update in their meeting in March. Lagarde reiterated that they are prepared to act in case their forecasts are not accurate. In contrast with previous press conferences, she didn`t consider that an increase in rates is unlikely to happen this year and affirmed that they will assess their course of action between March and July. The Euro appreciated in light of these comments.