ECB under pressure, market attention will now tend to switch towards the ECB.

ECB under pressure - 23-01-08

Following the Fed move to cut rates by 0.75% on Tuesday, market attention will now tend to switch towards the ECB. There will be increased pressure on the European central bank to consider an interest rate cut, especially as a co-ordinated move would strengthen credibility. The ECB rhetoric held firm in comments on Tuesday, although there were reservations over the growth outlook.

The Euro-zone PMI data was mixed as there was a small improvement in the manufacturing index over the month while the services-sector index fell to 52.0 in January from 53.1 the previous month. The net impact will be to maintain expectations of a steady slowdown in the economy and there has been further speculation that there will be another round of debt write-downs by the European banks. Overall confidence in the Euro-zone economy has weakened significantly.

ECB President Trichet also stated that the bank must be prepared to deal with a crisis situation which will reinforce expectations of a sharp slowdown in the economy. Euro confidence will also be dented by the inability to sustain gains against the dollar.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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