Dovish Draghi & Co.

The euro holds firm despite cautious ECB meeting minutes ahead of today's plethora of Fed speakers

Previous Day's Market Highlights

The euro remained resilient on Thursday, as investors weighed mixed PMI figures and cautious ECB meeting accounts. Firstly, February’s manufacturing PMI survey for the single currency bloc slid into contractionary territory, falling to its lowest level in more than 5 years at 49.2. Despite services PMI figures beating expectations, the slide in manufacturing will be concerning for ECB policymakers who are battling with an economic slowdown that is broader than first expected according to minutes from their latest policy meeting. The minutes teed up the ECB’s March meeting as key for the central bank giving its verdict on the slowdown, with initial indications that growth could be subdued for several quarters.
 
Elsewhere, the pound traded flat despite the UK notching a record-high public borrowing surplus. With no new Brexit-related news, and no further political party resignations, traders took stock of recent developments hence the lack of volatility. Meanwhile, the US dollar gained around 0.15% against a basket of peers despite durable goods orders missing forecasts. The data miss was largely shrugged off by market participants, with demand for the dollar coming as a result of the currency’s safe-haven status as investors remained concerned over the lack of developments in trade negotiations between the US and China. As a result, the risk-sensitive Kiwi and Aussie dollars lost almost 1% apiece, with the latter hit especially hard after China announced a ban on Australian coal imports.
 
Away from FX, European equity markets lost ground with the Stoxx 600 losing 0.4% on continued fears of an economic slowdown. In the US, markets fell, dragged down by softer than expected economic data. The benchmark S&P 500 lost 0.35%. Finally, crude oil prices had a choppy trading day, though prices closed unchanged from their opening levels despite a 5th straight weekly rise in US crude stocks with WTI hovering near the $57bbl mark.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1485 1.1578 1.1312 2.30%
GBP/USD 1.3028 1.3200 1.2773 3.23%
EUR/USD 1.1343 1.1514 1.1233 2.44%
GBP/AUD 1.8312 1.8443 1.7844 3.25%
GBP/NZD 1.9177 1.9304 1.8701 3.12%
GBP/CAD 1.7225 1.7498 1.6960 3.07%

Today's Market Highlights

Focus will fall with the eurozone to complete the week, with final CPI figures as well as the German business climate survey set to attract most market attention. Expectations are for the former to fall in line with the previously released ‘flash’ estimates, at 1.4% for the headline and 1.1% for the core figure on a year-over-year basis. If such low inflation readings were to be confirmed, this would cast further doubt on the ability of the ECB to begin normalising interest rates this year. Furthermore, German business climate figures are expected to soften further, with consensus estimates for the index to fall to its lowest level since 2010. With Germany barely avoiding a recession in the final quarter of last year, such a low figure would be unlikely to inspire confidence in Europe’s largest economy.

Elsewhere, the economic calendars in the UK and US are devoid of any major data hence focus for the pound and dollar is likely to remain with Brexit developments and the ongoing US-China trade tensions respectively. The afternoon session’s major data point comes from Canada, with the release of December’s retail sales. Expectations are for sales to have decreased for their second consecutive month, showing the fragility of the domestic economy over the crucial Christmas trading period. 

Despite the lack of data, markets will have plenty of central bank speeches to mull over. Most attention is likely to be on ECB President Draghi’s late-afternoon remarks, especially after the caution expressed in yesterday’s ECB minutes. In addition, the annual US Monetary Policy Forum is held tomorrow, entitled “Prospects for Inflation”. The event sees speeches from several Fed members including Daly, Williams, Bullard, Quarles and Vice Chair Clarida. Any comments surrounding the extent of the Fed’s “patience” as well as those around the balance sheet run-off are likely to attract the most attention.

Finally, looking ahead to next week, data releases include GDP figures from the US and Canada as well as manufacturing PMI surveys from the UK and US. However, the main focus for the pound will be Brexit once again, with a vote due to be held in Parliament on MPs preferred ways forward next Wednesday.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00 EUR CPI (y/y) 1.4% 1.4%
10:00 EUR Core CPI (y/y) 1.1% 1.1%
13:30 CAD Retail Sales (m/m) -0.3% -0.9%
13:30 CAD Core Retail Sales (m/m) -0.3% -0.6%