ECB to Decide On Rates and QE
The European Central Bank (ECB) meeting in Frankfurt is in the spotlight today. The ECB’s board is expected to announce its decisions on interest rates and the quantitative easing (QE) programme. Economists expect that the ECB will keep on hold the benchmark interest and deposit rate. Analysts are expecting to listen to the ECB’s plans on reducing gradually the QE programme that was designed to save the Eurozone from the consequences of the financial crisis. Mario Draghi’s comments in the post-meeting conference are going to shed light on the ECB’s policy.
The Pound fell against the Euro and the US Dollar after news that the UK’s car production declined for a fifth month in a row due to Brexit uncertainty. Barclays shares plunged in the morning when its chief executive, Jes Staley, said that the bank faced a difficult quarter in its investment banking division. The disappointing figures published made investors even more reluctant to believe that he can build a profitable investment bank.
Pound Sterling – UK Markets
Today, the Pound dropped against the US Dollar with the exchange rate set at $1.32. Sterling also fell against the Euro with the exchange rate set at €1.11.
Data published by the Society of Motor Manufacturers and Traders (SMMT) showed that the UK’s car manufacturing output declined in September for the fifth consecutive month. Output decreased by 4.1% and the domestic demand recorded a 14.2% drop, on an annualised basis. The SMMT report said that “declining consumer confidence is affecting domestic demand and hence production volumes. Leaving the European Union (EU) with no deal would be the worst outcome for our sector, so we urge the government to safeguard the competitiveness of the industry.”
A British Retail Consortium (BRC) report noted that UK retailers have been cutting jobs over the last three months at the fastest pace since the BRC started collecting data in 2008. The report said that retailers are employing 3% fewer workers, when compared to the same period in 2016. According to the BRC, the two main reasons for this are the technological developments and rising employment costs. Helen Dickinson, the BRC’s chief executive, stressed that “the pace of job reductions in the retail industry is gathering steam,” adding that another challenge for retailers is to maintain the pace of productivity improvement.
US Dollar – US Markets
The US Dollar advanced against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, also inched lower coming in at 93.61. Data regarding jobless claims and pending home sales are due to be released in the afternoon.
Donald Trump doesn’t consider appointing Gary Cohn as Chair of the Federal Reserve anymore, according to a Bloomberg report. The National Economic Council Director is out of the race as the US President believes Cohn’s role is very important for helping to pass the tax reform bill through Congress. When asked, Cohn declined to comment. The two top runners for the job are now John Taylor, who is a professor from Stanford, and Fed Governor Jerome Powell.
President Trump said in an interview with Fox Business Network that he likes the current Fed Chair Janet Yellen and believes that their cooperation has helped the stock market boom the last months. However, when journalist Lou Dobbs told him that maybe he should keep her for a second term, Trump answered that “I want to make my own mark, which is maybe one of the things she’s got a little bit against her.”
Euro – European Markets
The Euro inched lower against the US Dollar with the exchange rate set at $1.18. The news of the day will be coming from the ECB which will announce its decision on interest rates and the tapering of its asset-purchase programme.
Economists expect that the ECB board will keep the bank’s benchmark interest rate unchanged at 0% and the deposit rate at -0.4%. Rabobank’s analysts that the ECB will announce the tapering of the quantitative easing (QE) programme, although the inflation target hasn’t been reached yet. Their report said that “the QE will be wound down in three steps of €20bn [each], with the intention to bring purchases to zero in the second half of 2018.” They also note that it is possible that the ECB board will discuss not just the QE, but the overall monetary policy stance as some members have noted that it needs re-evaluation.
ING economists suggest that the Eurozone’s central bank will announce a “lower for longer” tapering, reducing the monthly QE purchases to €25bn and extending them until the end of the next year. They expect that Mario Draghi will stress the idea of “sequencing,” which means that interest rates are to remain low, beyond the end of the QE programme.
Other Currencies – Highlights
Sterling tumbled against the Australian Dollar, trading at 1.71 AUD. A report by ANZ bank said that the third quarter inflation data doesn’t rule out rate hikes next year, but it certainly weakens the case. ANZ economists noted that core inflation was weaker than expected and added that a stabilisation in inflation is a necessary precondition if the Reserve Bank of Australia (RBA) wants to deliver two rate hikes in 2018.
The Pound lost its value against the New Zealand Dollar, trading at 1.92 NZD. Jacinda Ardern said that the new government has already started to work on how to ban foreign buyers from acquiring existing houses in New Zealand. Her comment in the Parliament creates questions as to whether the new government can renegotiate some trade agreements with foreign countries, which would enable it to implement the policy.
Sterling lost ground against the Norwegian Krone, trading at 10.61 NOK. Norges Bank announced its decision on interest rates. Norway’s central bank kept them on hold at 0.5%, in line with expectations.