25 bps rate hike in June seems definite!
Ahead of Wednesday's major central banks' governors' meeting, today's Lagard speech was significant for many market participants, especially those trading in European stock markets.
European Central Bank governor Christine Lagarde announced a new Bond -buying program and re-investing of the earlier 1.7 trillion euros Yields bought Pandemic Emergency Purchase Programme in countries with wide spreads. However, she did not give any detailed information about how they would do it, but it would start on July 1.
While Lagard and ECB are worried about inflation, this new plan will not help the inflation be tamed, while more diversion between the ECB and FED will bring even more pressure on Euro, as it happened in the second part of the day. On the stock markets, it can be seen as a support plan and help them, at least for the short term. Especially when she said 'the flexibility is integral to the process of normalizing our monetary policy," market participants gained more confidence that ECB would not act so sharp.
After the speech, Germany's 10-year bond yield - often seen as a critical marker for euro zone borrowing costs - increased to 1.628%, while the Italian 10-years bond yield edged up to 3.555%.
Leading European indexes closed higher after today's meeting, mainly waiting for tomorrow's speeches. German DAX gained 0.35%, CAC 40 in France closed higher by 0.64%, and US FTES100 also gained 0.9%.
On the currency markets, the Euro again came under pressure, as was expected. For now, our expectations for EURUSD is not changed, and the downtrend is expected to continue.