European market moderately pare yesterday's gains

• European market moderately pare yesterday’s gains

• Yellen unsurprisingly fails to deliver at Jackson Hole

• Mario Draghi dominates affairs, following dovish Jackson Hole speech

• Slow day for European data

European markets are expected to tread water today following a particularly strong start to the week yesterday. The unexpectedly dovish speech from Mario Draghi late on Friday caught the markets off-guard somewhat, meaning that we have only started seeing the effects in the early part of this week. This also impacted Asian shares, which enjoyed a strong session overnight due to the potential for further liquidity being pumped into the market by the ECB in the near future. European indices are expected to open marginally lower, with the FTSE100 -8, CAC -11 and DAX -25 points.

Today’s likely weak showing is as much to do with strength as it is to do with weakness. Given the substantial rise seen yesterday in Eurozone indices, there was always a possibility of seeing some of those gains pared back today. The root of all this optimism originated from a somewhat unexpected star of the Jackson Hole Symposium, which came to an end on Saturday. With the world’s eyes transfixed upon Janet Yellen, it was Draghi who delivered the message of real substance, leaving Yellen to natter on about why it is so hard to make the decisions she makes. That being said, it was never particularly likely that we were going to see that big Bernanke-esque market volatility driver given that central bankers like to announce all expansive monetary policy with a bang and tightening with a much more subtle hand. Should Yellen have sought to shock the markets with a specific date for interest rates to rise, this could have been the spark which began a major sell-off and just like with tapering, it is clear that a much more long-winded process which includes the careful management of expectations will almost certainly be the order of the day.

Unlike the FOMC and MPC, the ECB remains within an expansionary environment where historically high unemployment has been met with poor wage growth, almost non-existent GDP growth and ever weakening price growth which is threatening to bring deflation. This concoction of disappointing economic indicators place the Eurozone firmly within a place where further monetary policy is required and this is perhaps associated with the fact that Mario Draghi has so far failed to employ such drastic and expansive policies as his global counterparts. Unfortunately for him, the recovery we have seen in the likes of the UK and US has failed to drag the Eurozone with it and it is beginning to look like the time when we will finally see whether Draghi will do ‘whatever it takes’. Friday’s speech saw a more dovish Draghi than we had seen at the ECB press conference earlier this month and this gives us more emphasis as we approach the first week of the month where Draghi will once again take the stand. Let’s be clear, Draghi did not explicitly say that he was on the cusp of implementing a quantitative easing policy. However, it was his acknowledgement that with market inflation swap rates pricing price growth lower, this could be something that may also drag headline inflation lower and ultimately could bring the Eurozone back into deflation. In response to this Draghi says that the ECB remains willing to use all instruments to ensure price stability over the medium-term. Thus what this does do it set the ground for a potentially more loose monetary outlook for the ECB when they meet next week and with many of their tools already dispensed, Draghi has very few options left before QE becomes a very real possibility.

Today’s European session looks very light on economic data, following a weak start to the week which saw German business climate fall to the lowest level since July 2013. This weak German theme is expected to continue later on in the week when consumer climate, retail sales and CPI figures are all released for the eurozone’s biggest economy. However, for now the focus will likely be upon Mario Draghi’s comments and US data in the form of the core durable goods orders and CB consumer confidence figures released later today.