Daily Brief: The ECB Just Took A Punt On Inflation. Let’s Hope It’s Right About What’s To Come...

Daily Brief: The ECB Just Took A Punt On Inflation. Let’s Hope It’s Right About What’s To Come...

over 2 years ago3 mins

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The European Central Bank (ECB) raised its inflation target on Thursday in a high-stakes gamble on the future health of the continent’s economy.

What does this mean?

For the past 18 years, the ECB’s aimed for annual price rises to come in “below but close to 2%” – an objective it’s undershot for almost a decade. Now, however, Europe’s central bank is opting for a more tangible target of 2% flat. That’s a slight escalation on paper – but may be greater in reality, given that the ECB has said it’ll allow inflation to overshoot when economic conditions require it.

Falling short

The increase allows the Bank to carry on with its current policies of ultra-low interest rates and ultra-large bond buying, supporting the European economic recovery even if that means higher inflation in the short term. But Thursday’s strategic shift went deeper: the ECB is also sharpening its focus on climate change, including by taking into account sustainability criteria when purchasing company bonds.

Why should I care?

For markets: Infectious? Hold ‘Em.

The prospect of more quantitative easing and lower rates for longer helped European government bonds rally on Thursday. But investors also fled to their relative safety as stock markets sank on fears that fresh restrictions to counter the fast-spreading Delta variant of coronavirus could take the shine off the global economic recovery.

European stocks

The bigger picture: Casino Royale.

The world’s major central banks are at sixes and sevens over how to withdraw extraordinary economic support measures introduced at the height of the pandemic. The ECB gave no indication as to when it’ll start raising interest rates again – but the US central bank reckons it’ll have increased them twice by 2023. China, meanwhile, hinted earlier this week that it may soon reduce the amount of cash its banks have to keep in reserve, boosting local lending. The big risk for the ECB is that it’s caught out by another economic hiccup before things get back to normal.

Keep reading for our next story...

Deliveroo Upped Its Forecast

Deliveroo image

Food delivery app Deliveroo raised its revenue growth forecast on Thursday – but it wasn’t enough to stop investors throwing its stock on the barbie.

What does this mean?

Doorbell dining has been one of the biggest winners of the pandemic, with would-be eater-outers forced to eat in instead. But as restaurant restrictions recede, so too has Deliveroo’s growth. While gross transaction value, a.k.a. GTV – the total amount of customer spending in the company’s app – rose 130% in the first quarter of 2021 compared to 2020, it was just 76% higher in the second quarter.

Investors had been expecting that growth to slow further still – but Deliveroo’s latest figures suggest things won’t be as bad as thought. The firm now anticipates GTV to be 50-60% higher than last year across the whole of 2021, up from previous forecasts of 30-40%. That positive update initially sent Deliveroo’s beleaguered share price up 5% on Thursday – before broader market declines helped drag it back down into negative territory.

Deliveroo stock
Source: Google Finance

Why should I care?

The bigger picture: Apples and oranges.

GTV growth is one thing, but profitability is another – and Deliveroo also warned extra investment in unspecified “growth opportunities” would hurt its profit margin this year. It’s previously shown interest in setting up more takeout-only kitchens, as well as grocery delivery partnerships with major supermarket chains. While investors may balk at the expenditure involved, Deliveroo’s controversial dual-class share structure means the company’s executives can press ahead regardless.

Zooming out: Dim sums.

Deliveroo’s share structure was one reason its initial public offering (IPO) flopped – and its shares remain stubbornly below their opening-day price. But Chinese IPOs on US stock exchanges are flopping for a different reason: the Chinese government is cracking down further on overseas listings, just days after it hit Didi with a blindside that sent the ride-hailing firm’s shares down 20% from its own IPO price.

The PGJ tracks US-listed shares of Chinese companies
The PGJ tracks US-listed shares of Chinese companies
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