ECB Will Rule the Roost Today
The day has begun in a calm manner, with not much activity on the global economic calendar. However, this tranquility is not likely to continue throughout the day. The major market moving event for today, i.e. the European Central Bank’s (ECB) monetary policy decision, is waiting to unfold. The ECB is not expected to introduce any change in the key interest rate, but is likely to make a few adjustments to the parameters of its quantitative easing programme.
The UK data docket is devoid of economic releases today. Across the Atlantic, the US weekly jobless claims and consumer credit change data is awaited.
Pound Sterling – UK Markets
Yesterday, the Pound dropped to an over 2-week low level against the US Dollar, halting a 5-day advance. This was after reports showed declines in the UK’s house prices and manufacturing output, which highlighted lingering risks in the aftermath of the Brexit decision: the nation’s Halifax house price index fell for a second month in August as high prices curbed demand and sales activity weakened, and Britain’s manufacturing output recorded its steepest decline in a year for July. In contrast, industrial production printed a slightly better reading. In a knee-jerk reaction, Sterling slipped below the crucial 1.34 handle. This latest batch of data will temper optimism about the resilience of the British economy in weathering the Brexit storm.
In other economic news, the UK’s reputed think-tank, NIESR, estimated the nation’s GDP to grow by just 0.3% in the 3 months to August, down from 0.4% in July. Further, it stated that Britain could enter into a technical recession as early as next year. Separately, the Bank of England Governor, Mark Carney, defended the central bank’s monetary policy actions since the Brexit vote.
US Dollar – US Markets
The greenback reversed its previous session losses and ended higher against the shared currency and the Pound yesterday. The Job Openings and Labour Turnover survey report (JOLTS), one of the job market metrics on Fed Chairwoman Janet Yellen’s dashboard, showed that US job openings surged to a record high level in July. The nation’s private sector, particularly professional and business services, recorded more job openings during the period. However, a lag in hiring indicated that employers were struggling to find workers for qualified positions. Additionally, US MBA mortgage applications registered its second consecutive rise last week as applications for both purchases and refinances increased. Separately, the Fed’s Beige Book report of anecdotal information collected from business contacts, indicated that wage pressures in most of the central bank’s 12 districts around the country remained “fairly modest” and were expected to continue this way over the coming months.
Market participants now await the release of US weekly jobless claims and consumer credit change data for July, due later in the day.
Euro – European Markets
The shared currency is trading higher against the US Dollar and the Pound this morning, ahead of the ECB’s monetary policy meeting, scheduled to be held later in the day. There is growing pressure on the ECB with anaemic growth rates in the Eurozone and inflation numbers still far away from the central bank’s target. Expectations are that the central bank will hold the benchmark interest rate steady at today’s meeting, but will tweak its quantitative easing programme. Moreover, market participants will pay special attention to ECB President Mario Draghi’s speech, to assess his view of the Eurozone economy and his take on growth and inflation outlook.
Yesterday, data showed that German industrial production suffered its steepest drop in almost 2 years in July. This has raised concerns that the Eurozone’s largest economy is losing steam due to lower demand from emerging markets such as China, and as Britain’s decision to leave the European Union weighs on the nation’s exports.
Other Currencies – Highlights
The Japanese Yen appears to be holding firm against the greenback this morning, clinging to its gains for the fourth consecutive session. This comes after the Bank of Japan’s (BoJ) Deputy Governor, Hiroshi Nakaso, acknowledged the fact that the central bank’s monetary policy action is affecting the bottom line of Japanese financial institutions. He vowed that the BoJ will try to strike the right balance between favourable and adverse effects of its policy tool. On the data front, Japan’s Eco Watchers survey of both outlook and current indices advanced last month.
In other macroeconomic news, Japanese economy grew faster over the April-June 2016 period compared to its preliminary estimate, following upward revisions to capital expenditure and inventories. Further, the nation’s current account surplus widened in July. However, Japan’s BOP basis trade surplus narrowed during the same month. Earlier in the session, the nation’s preliminary reading of leading economic and coincident indices advanced in July.