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The Global Markets Weekly – 9/14/18
ECB Remains Relatively Upbeat
The ECB surprised no one in leaving policy levers on hold, and the broad dimensions of the meeting and press conference were as expected, including 10 bps reductions in projected rates of economic growth in 2018 and 2019. In addition, language on QE was as anticipated, confirming a reduction in the pace of purchases in October with a likely cessation of runoff at year-end 2018. Discussion of reinvestment specific was pushed off until later this year.
These small changes were accompanied by a reiteration that risks were still “broadly balanced”. Draghi pointed to high debt levels, a shot across Italy’s bow, and also rising protectionist sentiment as rising risks. The staff compiling forecasts saw risks as tilted to the downside, but the Governing Council did not subscribe to that view at the moment. Neither the Italian fiscal situation nor protectionist risks are yet evident in the data flow, with PMI updates due this week.
On balance, the limited reduction to growth forecasts and Draghi’s steady tone on the economy left the market reasonably sensing the outcome as a touch hawkish, albeit in a flexible manner. If sentiment and activity do soften, risks increase, or underlying inflation fails to pick up as expected, and actions taken to date will not exacerbate weakness. If trade wars prove more bark than bite and the U.S. fiscal push allows faster global growth into year-end and beyond, ECB stimulus will be running down and decisions can be made in 3-6 months time regarding bringing forward any interest rate adjustments from the second half of 2019, into the first half.
With plenty of catalysts into year-end including emerging market financial developments and the U.S. elections, there was in any event little that was going to be decided this week. If those potential potholes can be cleared, the back half of 2019 would still be the earliest that the ECB would likely entertain a rate hike. At that point, a key question will be what U.S. growth looks like, particularly if the Federal Reserve is near or above “neutral”, just as the ECB is looking for liftoff.
Coming Week’s Key Indicators and Events
| Release | DE / Consensus | Comment | |
| U.S. | Aug Housing Data
|
Light pre-FOMC week includes housing starts, home sales, and the NAHB survey, a soft sector at the moment in terms of activity and equity market performance. | |
| Euro | Revised Aug CPI (Mo)
Sep Man PMI (Fr) Sep Svc. PMI (Fr) |
2.1% / 2.0% y/y
-0.3 to 54.3/-0.1 |
Detail forthcoming, core still at 1% y/y.
Recent readings consistent with the observed deceleration in GDP growth |
| UK | Aug CPI (We)
Aug Retail (Th) |
2.5% / 2.4% y/y
3.5% / 2.4% y/y |
Still eying a BoE on hold into 2019, growth, inflation dynamics uncertain after. |
| Japan | BOJ Decision (We)
Jul CPI (Fr) Ex fresh food Ex food & energy |
1.2% / 1.1% y/y 0.9% / 0.9% y/y 0.4% / 0.4% y/y |
No changes to policy, consumer prices edge higher on energy, but little life in ex-food-and-energy still in the 0-0.5% range. |
| Brazil | Selic Rate (We) | Hold / Hold | Currency weakness leaves a hike possible. |
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