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ECB promises more of the same

Published Friday, September 4th, 2015

Risk assets across the eurozone were given a helping hand in what was another classic case of “bad news is good news” as investors lapped up dovish comments from Mario Draghi who left the door open to yet more QE. The President of the ECB hinted for the first time that its unprecedented €1.1 trillion QE programme may be expanded after admitting that the bloc’s economic recovery continues to be weaker-than-expected. The downbeat outlook was reinforced by its first downward revisions of the year to growth and inflation projections with the zone’s GDP forecast for this year trimmed to 1.4 % from 1.5 % and 1.7% from 1.9% for 2016. The fallout from prospects of further monetary support jolted the regions stock indices, sending the Eurofirst 300 surging over 2% while the single-currency headed in the opposite direction to end the session down 1%.

As the ECB seemingly sets itself in for the long QE haul, its US counterpart is inching ever closer to policy normalisation. Today’s non-farm payroll number is likely to provide the biggest clue yet as to whether it will pull the trigger on a rate hike late this month. Despite a recent batch of mixed US economic data, the market consensus is that its labour market continues to strengthen hence expectations for another solid report showing 220,000 net additions in August. Caution leading up to this afternoon’s crucial update has weighed on US stocks which endured an erratic session yesterday after paring strong gains to end the day largely unchanged. This came in spite of some encouraging US economic releases which revealed its trade deficit in July shrank to a 5-month low on rising exports while an ISM measure of its services activity growth remained pinned close to a 10-year high.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.