Draghi gives a dovish speech and signals further QE

Friday, September 04, 2015

ECB’s Press conference yesterday proved to be very dovish as President Mario Draghi signalled to market participants that the ECB could expand its current stimulus if the slowdown across financial market continues to weigh heavily on economic growth. He reported that policy makers are prepared for more adjustments in order to ensure the full implementation of the 1.1 trillion-euro ($1.2 trillion) programme. Draghi mentioned that QE will continue until the end of September 2016 “or beyond, if necessary”. Furthermore, he indicated a weaker outlook for global economies, prompting investors to sell-off. The euro retreated sharply to hit a 2-week low at 1.1087, while European equity markets declined sharply in early trade this morning. The DAX, CAC, IBEX and London equity benchmark indices have reported heavy losses between 1.20% and 1.6%.

Germany’s factory orders declined sharply by 1.4% m/m in July, missing expectations of a 0.6% drop. However, Markit construction PMI was reported at 50.3 in August, holding above the key level of 50.0. France’s consumer confidence remained flat at 93 in August, missing estimates of 94. This morning, the euro remains under pressure hovering around 1.1150 against the USD.    

Asian equity markets continue their strong downtrend. The Hang Seng index declined over 0.65% towards 20,750 and the Shanghai Composite index fell 0.20% towards 3160. The Nikkei index plunged nearly 400 points (-2.2%), following disappointing economic data. Japan’s labour cash earnings rose 0.6% y/y in July against expectations of a 2.0% rise, while real cash earnings increased marginally 0.3% y/y during the same period.                                

Today, the main focus will turn to the release of the US non-farm payroll data which will set the tone in today’s trading session and could provide further clarification regarding the timing of a possible interest rates rise this year. A positive and solid reading of US employment data could signal a sooner rather than later increase of interest rates. Furthermore, G20 central bankers and Finance Ministers gather today in Ankara to discuss the global economic issues and financial markets. We expect high volatility to continue in the global financial markets for the following weeks as investors remain cautious regarding China’s slowdown and the timing and scale of Fed’s rates hike.

EURUSD hits a 2-week low

EURUSD Curncy (EUR-USD X-RATE)   2015-09-04 08-57-30

 

Events for today:

0700

DE

Jul

Factory Orders

1330

US

Aug

NF Payrolls & Unemployment

1330

US

Aug

Unemployment Rate

 

 

All times UK Local Time

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