Eyes on the ECB... Stock Market Watchpoints for Next Week

On the 16th, when the KOSPI index surpassed the 3,200 mark during the session, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. The KOSPI started at 3,194.08, down 0.25 points (-0.01%) from the previous close, and is showing an upward trend. Photo by Moon Honam munonam@

[Asia Economy Reporter Junho Hwang] On the 22nd (local time), the European Central Bank (ECB) will hold its April monetary policy meeting. At last month's meeting, it was decided to increase bond purchases through the Pandemic Emergency Purchase Programme (PEPP), and this month, attention is focused on what judgment will be made about the market.

Hana Financial Investment pointed to the ECB meeting results on the 17th as a key point to watch in the stock market this week. The focus is on what judgment ECB officials will make about the market.

Last month's meeting did not give much significance to the market. The ECB viewed that the rising interest rates could potentially lead to tightening financial conditions, which might hinder economic recovery. Accordingly, it decided to increase bond purchases through PEPP in the second quarter of this year. However, no specific purchase guidance was provided, and the PEPP purchase limit (€1.85 trillion) was not adjusted.

Hana Financial Investment forecasted that in this meeting, the nature of ECB officials (emphasizing price stability and avoiding market intervention) might resurface to some extent. Firstly, considering that the United States is faithfully playing the role of a pillar for global economic normalization, different views may arise. The US has announced large-scale economic stimulus plans and is focusing all efforts on vaccination. The Federal Reserve (Fed), the US central bank, is supporting economic optimism by stating that "real progress in the labor market and other areas must be confirmed before tapering asset purchases."

Also, it is expected that the calming of COVID-19 spread within the region after the Easter holiday, the largest festival in Europe, will have an impact. Furthermore, the bond purchase volume under PEPP, which was decided to be expanded at last month's meeting, has been lower than expected. The monthly purchase volume in March was €65.9 billion, only about €6 billion more than in February. As of the 9th, the April purchase volume is only about €27.7 billion (an average of €3.96 billion per day). At the current pace, the April purchase volume is likely to be at the February level. ECB President Lagarde's remark at the International Monetary and Financial Committee on the 8th that "if favorable financial conditions are maintained, it may not be necessary to use the full amount of PEPP" is interpreted in the same context.

President Lagarde's statement on the 9th to CNBC that "lockdown measures to prevent the spread of COVID-19 are obstacles to growth, but a rapid recovery movement will be seen in the second half of the year" also adds weight to this outlook.

Researcher Jinhyeok Na of Hana Financial Investment analyzed, "If, unlike the Fed, the ECB relies on premature optimism and repeats the experience of January, it is necessary to be somewhat cautious as it could be perceived as the beginning of decoupling among major central banks, along with the People's Bank of China's somewhat different approach."