Draghi Takes Off Dovish Hat - For Now

September 9, 2016

European Outlook: Asian stock markets were mostly down. The Hang Seng surged after China allowed insurance companies to invest in Hong Kong’s stock markets via an exchange link with Shanghai. But Chinese CPI figures missed expectations at only 1.3%. ВВ ВВ Japanese markets also managed slight gains, after yesterday’s dip, amid ongoing hopes that the BoJ will buy exchange-traded funds, although a stronger Yen and the North Korea nuclear test limited gains. U.S. and U.K. stock futures meanwhile are in the red and oil prices are down on the day, although the front end WTI future is still holding above USD 47 per barrel. Bund and Gilt futures headed south yesterday after Draghi not only left rates on hold, but also failed to deliver a particularly dovish press conference, which added to the raft of positive U.K. releases and dampened hopes of further central bank action in Europe, although the FTSE and Eurozone peripheral stock markets still managed to close with gains. Bund futures already managed to more slightly up from lows in after hour trade, but with markets still digesting Draghi market moves may be limited ahead of the weekend. The European calendar has trade data from Germany (see below) and the U.K., which is unlikely to change the overall outlook much. The U.K. also has Construction output and the BoE inflation expectations survey. Eurozone finance ministers meet in Bratislava with Greece high on the agenda.

German trade surplus narrowsВВ as exports slip. Germany posted a sa trade surplus of EUR 19.4 bln in July, down from EUR 21.4 bln in the previous month, with the decline reflecting a -2.4% m/m drop in exports that far outstripped to -0.7% m/m decline in imports. Data over the summer can be volatile, as school holidays in the states are staggered and the timing changes each year, which makes adjusting for seasonal variations difficult, as the timing of the holidays in the industrial centres can impact data. Still taken together with the dip in confidence numbers the data will add to concern that the manufacturing sector in particular is feeling the impact from the Brexit scenario and the stronger EUR.

Draghi Takes Off Dovish Hat – For Now:ВВ The ECB not only left policy on hold, but Draghi also refrained from an overtly dovish press conference. The central bank head left the door to further easing open, but it seems nothing is in the pipeline or has been discussed, aside from measures to ensure the smooth implementation of the QE program, which will have to face the question of how to get around the fact that at least in some countries the ECB will be running into supply constraints. Meanwhile the message to politicians to get their act together and implement urgently necessary growth enhancing structural reforms are getting louder. The euro has seen little follow through activity following the ECB’s announcement yesterday. The common currency was trading at modestly lower levels against the dollar in early European trade versus levels prevailing ahead of yesterday’s announcement, but firmer against the yen and the sterling.

Main Macro Events Today ВВ  ВВ  ВВ  ВВ 

UK Consumer Inflation Expectations & Trade Balance – ВВ Last time the UK Consumer inflation expectations figure was 2%, little change is expected today (no pun intended).ВВ  The UK Trade balance is expected to improve from -12.4 billion GBP to -11.4 billion GBP.

CAD Employment Change –ВВ No change is expected in the Unemployment Rate (6.9%) with a net increase in employment of 16,000.

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