By William Watts, MarketWatch
Traders appeared to slumber through European Central Bank President Mario Draghi’s Thursday news conference, but there was at least one wrinkle worth noting.
As expected, many of the questions centered on the Governing Council’s interpretation of soft first-quarter economic data out of the eurozone.
Draghi’s opening statement played down the concerns, tying the apparent moderation of the pace of growth to a pullback from the previous high rate of growth and the possibility that “temporary factors” were also at work. During the Q&A, he said that policy makers were “cautious” but with “unchanged confidence” in regard to their expectations eurozone inflation would eventually converge to the ECB’s target of near but just below 2%.
ECB live blog recap : Draghi cites ‘caution tempered by unchanged confidence’ after soft first quarter
Eurozone economic growth in 2017 was the strongest in a decade, but first-quarter figures from across the region—both survey-based and hard data—have softened, though they still point to growth. Investors, meanwhile, are looking for the ECB to wind down its asset-buying program by the end of the year, with interest rates set to rise in 2019.
Investor somnambulance was likely encouraged when Draghi said the council didn’t even discuss monetary policy, “per se,” in Thursday’s meeting.
The wrinkle, however, came when Draghi later said the reason for the lack of discussion was a desire to see whether the softness in first quarter data was “temporary or permanent” and the result of supply issues or weakening demand. Understanding the factors behind the moderation is “essential for informing our next decisions,” Draghi said.
The ECB made no changes to its policy statement earlier Thursday, reiterating that its bond-buying plan is set to continue through September, or beyond, if necessary, and that it expects rates to remain at present levels for an “extended period” past the end of its asset purchases.
The euro held its ground during Draghi’s news conference, but subsequently took a leg lower to fall 0.4% on the day. The yield /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y -0.20% on the 10-year German government bond, or bund, fell 4.5 basis points to 0.593%, while the pan-European Stoxx 600 equity index /zigman2/quotes/210599654/delayed XX:SXXP +0.02% was up 0.9%.
There’s nothing outrageous about taking a wait-and-see attitude after a run of softer data. But it could also be interpreted as a sign that the ECB’s timetable for wrapping up its quantitative-easing program now depends on second-quarter economic reports, said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, in a note.
“That is a dangerous position to be in, especially since it is perfectly possible that survey and hard data remain soft, even as GDP growth slows only modestly towards 2% to 2.2% year-over-year,” Vistesen said.
In other words, investors may want to set their alarms to ensure they don’t nap through coming second-quarter data.