Euro makes gains, market awaits Yellen’s comments for guidance

  • French Flash Manufacturing PMI: 50.4
  • German Flash Manufacturing PMI: 52.5
  • CAD Core Retail Sales m/m: 0.0%
  • ECB President Draghi Speaks
  • US Crude Oil Inventories: -1.9M
  • NZD Trade Balance: -1035M

Yesterday the Euro pushed higher across the board as ECB President Draghi tapered expectations for further QE. Draghi acknowledged that risks to Europe's inflation and growth outlook have increased due to the emerging market slowdown but more time is required before deciding on further stimulus. Draghi said price growth will probably take longer than previously expected to rise back to the ECB's near 2 percent target. However, more evidence is needed to conclude whether China's slowdown and falling oil prices will divert inflation from its projected path. The current QE program isn’t due to conclude until September 2016 so it fair to say that that the ECB have a bit of time on this matter.

Whilst Draghi’s comments pushed the Euro up, data from the region showed that economic growth is still soft which in the long term could add pressure to the ECB if the trend continues. Flash manufacturing and services from the Eurozone and Germany both missed the market survey. The readings were still posting numbers above 50 which mean that the sectors are still expanding albeit at a slower pace than expected.

Sterling remains on the back foot as economic data of late has been softer than expected pointing toward a slower quarter of growth. However, Deputy Gov. of the BoE Broadbent yesterday talked up the UK economy. He stated that weakness in productivity growth in the UK may not be a sign of something inherently wrong with the economy, but could be due to more subtle changes in the jobs market. He went on to say that the laying off of staff and subsequent hiring of low-skilled workers “has imparted a bias to average pay”. The market will continue to debate whether the UK will raise rates in Q1 2016 and as a result continue to monitor economic data for clues.

  • German Ifo Business Climate
  • EUR Targeted LTRO
  • US Core Durable Goods Orders m/m
  • US Unemployment Claims
  • US Durable Goods Orders m/m
  • US New Home Sales
  • Fed Chair Yellen Speaks

Looking to the day ahead there are some key events and data. The German IFO will give the market a handle on business confidence over the next 6 months as it is an index based on surveyed manufacturers, builders, wholesalers, and retailers. Given the economic backdrop of the emerging markets crisis and immigration problems this could be quite key. In the afternoon the US weekly jobless claims, durable goods and new home sales are set for release. However, the key event in the market today will be a speech from FOMC Chair Yellen. The USD dollar is near its strongest level in 6 weeks against major peers after comments from various Fed officials have raised the likelihood of a rate hike over the next two meetings (Oct and Dec). The market will be looking for further clues on “lift off”.