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2 Nov 2015
EUR: Market expectations high after Draghi – BBH
FXStreet (Delhi) – Research Team at BBH, suggest that the market expectations for more monetary stimulus is running high after Draghi's press conference following the ECB meeting last month.
Key Quotes
“However, while many market participants view it as a done deal, it is not clear that a consensus has been forged. The recent economic data suggests that expansion continues apace, and if not impressive, steady. Core inflation is running at 1.0% year-over-year, which while soft, is not signalling a deflationary spiral. Moreover, the European economic locomotive, Germany, is expected to have found better traction after a weak August, and both orders data and industrial output data are forecast to have bounced back.”
“As we noted last week, the euro zone economic data does not seem consistent with the sense of urgency Draghi's expressed recently. Either the economic data stream deteriorates, or it will be difficult to reach a consensus for new bold action. If the economic data is in line with consensus, suggesting that the eurozone expanded by 0.4% in Q3 as it did in Q2 (which is also the average quarterly growth since the middle of 2014), then the risk is that the pendulum of expectations will swing back to mild action. An increase in the duration of the purchases may be more likely than buying more, or cutting rates deeper into negative territory, as had seemed possible following Draghi.”
Key Quotes
“However, while many market participants view it as a done deal, it is not clear that a consensus has been forged. The recent economic data suggests that expansion continues apace, and if not impressive, steady. Core inflation is running at 1.0% year-over-year, which while soft, is not signalling a deflationary spiral. Moreover, the European economic locomotive, Germany, is expected to have found better traction after a weak August, and both orders data and industrial output data are forecast to have bounced back.”
“As we noted last week, the euro zone economic data does not seem consistent with the sense of urgency Draghi's expressed recently. Either the economic data stream deteriorates, or it will be difficult to reach a consensus for new bold action. If the economic data is in line with consensus, suggesting that the eurozone expanded by 0.4% in Q3 as it did in Q2 (which is also the average quarterly growth since the middle of 2014), then the risk is that the pendulum of expectations will swing back to mild action. An increase in the duration of the purchases may be more likely than buying more, or cutting rates deeper into negative territory, as had seemed possible following Draghi.”