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ECB plays hardball

Published Thursday, February 5th, 2015

Investor sentiment was once again at the mercy of the political brinksmanship taking place in the eurozone as hopes of a looming deal between Greece and its creditors faded. The day started on a positive tone following “fruitful” talks between Greece’s finance minister and Mario Draghi. However, the mood quickly soured after the ECB subsequently took the unexpected decision of refusing to accept Greek bonds as collateral for lending. The move, seen by many as a response to Athens’ decision to roll-back anti-austerity policies, dashed expectations that the ECB would be forthcoming on a debt compromise and leaves Greece’s banks facing a potential liquidity squeeze.

A raft of encouraging economic data releases did little to bolster the downbeat mood as a promising uptick in service sector activity across the eurozone and the US in January was largely shrugged-off. Moreover, a robust private-sector US jobs report pointed to a creation of 213,000 positions in January, slightly below estimates of 225,000 additions but above the psychologically important 200,000 level. As the world’s largest-economy continues to display solid growth prospects, China pressed on with its efforts to stimulate its cooling economy. The widely-expected move, which came after a recent batch of poor factory and services data, saw the country’s central bank cut its reserve requirement by 0.5% in the hope that it will help spur lending and in turn boost growth.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.