Euro retreats on dovish Draghi

Yesterday’s markets

4th September 2015

  • UK Services PMI: 55.6
  • EUR Minimum Bid Rate: 0.05%
  • CAD Trade Balance: -0.6B
  • ECB Press Conference
  • US Trade Balance: -41.9B
  • US Unemployment Claims: 282K
  • US ISM Non-Manufacturing PMI: 59.0

Due to the erratic price action and high volatility (due in large to China’s intervention) both investors and analyst were keen to assess the rhetoric from the ECB Press Conference. The single currency fell to a two-week low as the European Central Bank signaled that it’s able to increase stimulus to counter the risk of slower growth and inflation. Policy makers also lowered economic forecasts and raised the limit on bond purchases under their quantitative-easing program to 33 percent per issue from 25 percent previously. The ECB also highlighted that they can adjust the size of QE if needed and also signalled that September 2016 may not be the end of QE. European growth could ultimately be hampered by the market intervention from China as they weakened the Yuan and their manufacturing sector continues to be contracting. In addition, sliding energy prices continues to weigh on inflation.

Meanwhile, the UK’s service sector growth slowed to its weakest rate for more than two years in August, a survey has indicated. The sector still continues to expand  but this is a concern as it contributes between 70-80% of the UK’s economic activity. This could be quite key in the decision as to whether or not an early rate hike is on the cards in 2016. If this trend continues then there expectations of a Q1 hike will be pushed out. 

Today’s markets

3rd September 2015

  • German Factory Orders m/m
  • G20 Meetings
  • FOMC Member Lacker Speaks
  • US Average Hourly Earnings m/m
  • US Non-Farm Employment Change
  • US Unemployment Rate
  • CAD Ivey PMI

Today the main focus will be on the US economy with a further insight into how well the labour market is performing. The all-important Non-Farm figure is set to remain above the 200k mark whilst the unemployment rate is expected to decline. Given the economic backdrop we feel that it is highly unlikely that we will see the FOMC raise interest rates in September. However, if we see positive numbers here and the current volatility settle then October could be on the cards.