ECB's Draghi hints at possible QE to address chronic low inflation

Notes/Observations

- ECB chief Draghi hints of possible QE to combat low inflation

- China PBOC assures that system has ample liquidity ahead of IPO issuance next week

Economic Data

- (UK) Oct Public Finances (PSNCR) better: -£2.6B (surplus) v ++£17.7B prior deficit; Public Sector Net Borrowing: £7.1B v £7.0Be; Central Government NCR: -£3.7B v +£21.7B prior; PSNB ex Banking Groups: £7.7B v £7.7Be

Fixed Income:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1%, FTSE 100 +0.5% at 6,712, DAX +1.3% at 9,612, CAC-40 +1% at 4,274, IBEX-35 +1.5% at 10,377, FTSE MIB +1.2% at 19,444, SMI +0.6% at 9,040, S&P 500 Futures +0.3% at 2,057]

- Market Focal Points/Key Themes: Equity markets open slightly higher following positive leads from the US and ahead of possible Draghi comments, Markets hold gains amid the Draghi comments as peripheral spreads generally tighten, Cautious outlook commentary weighs on STMicroelectronics

By Sector

- Industrials [Airbus AIR.FR +1.5% (order from Delta), Bouygues EN.FR +3% (renewed speculation related to telecom unit)]

- Technology [STMicroelectronics STM.FR -2% (cautious outlook commentary)]

- Energy [Salamander Energy SMDR.UK +2% (offer from Ophir Energy)]

- Utilities [E.ON EOAN.DE +1% (broker commentary)]

- Stoxx50 sectors [Energy +1.8%, Telecom +1.3%, Basic Materials +1.3%, Industrials +1.2%, Consumer Cyclical +1.1%, Utilities +1%, Financials +0.9%, Technology +0.4%, Consumer Non-Cyclical +0.4%]

Speakers

- ECB chief Draghi stressed that the inflation situation was increasingly challenging and would seek to raise inflation as fast as possible; reiterated view that Council was ready to step up action if needed. Committed to adjust size, pace and composition of asset purchases if needed. He highlighted that large asset purchases in the US, Japan led to exchange rate depreciation.

- SNB Zurbruegg: Reiterates central bank view that monetary policy cannot do everything

- BOE's Miles: Forward guidance should not be construed as a' rate promise'

- Chancellor Osborne: More concern around, about state of global economy than a few months ago

- Greece Deputy Fin Min Staikouras confirmed that Greece and Troika had some differences on the 2015 budget; disagreed on fiscal gap next year

- China PBOC reiterated view that liquidity remained ample in the system and would provide support as necessary via multiple monetary tools

- Bank of Korea (BOK) Gov Lee stated that volatility was increasing in global financial markets stemming from divergence in various govt policies

- Japan PM Abe: Excessive strong Yen has been corrected but If Japan returned to excessive JPY currency strength it would affect industry and led to job losses

- Japan PM adviser Hamada: Abenomics is working well but negative impact from April sales tax hike lingering longer than expected. USD/JPY at 120 was positive for overall Japan economy but steps needed to ease impact on consumers

- Russia Energy Min Novak: Govt in discussions on oil production cut; have yet to make decision

- Netherlands Central Bank amended its gold policy; to move some gold from US back into Netherlands

Currencies

- ECB chief Draghi's renewed concern over inflation and potential to act led the Euro lower in the session. Draghi stressed that large asset purchases in the US, Japan led to exchange rate depreciation. The potential for EU QE led the EUR/USD to test below the 1.2435 area and sent peripheral yields back to record lows

- GBP appeared vulnerable to increasing political uncertainties following the anti-EU UKIP Party winning its second seat in Westminster's Parliament. The upcoming May election seeing support for the more traditional parties being eroded

- The USD/JPY edged away from 7-year highs after Japan Fin Min Aso commented that the current JPY currency (Yen) decline was a bit too fast. PM Abe also noted that excessive strong Yen had been corrected. The USD/JPY was hovering around 117.70 just ahead of the NY session.

- EUR/CHF tested 1-week highs at 1.2030 on suspected SNB defense of the 1.20 floor in the cross

Political/In the Papers:

- (US) President Obama issued an executive order on immigration and announced plans for 5M undocumented immigrants to stay in the country

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- (NL) Netherlands Sovereign Debt Rating published by S&P (currently AA+ with stable outlook)

- (EE) Estonia Sovereign Debt Rating might be published by Moody's

- (DK) Denmark Sovereign Debt Rating might be published by Moody's (aaa with stable)

- (GR) Greece Sovereign Debt Rating published by Fitch (B with stable outlook

- (PT) Portugal Sovereign Debt Rating published by Canada rating agency DBRS (BBB, outlook negative)

- 06:00 (IE) Ireland Oct PPI M/M: No est v 1.2% prior; Y/Y: No est v -0.6% prior

- 06:00 (EU) ECB announces 3-Year LTRO Repayment vs. €3.5Be

- 06:00 (UK) DMO to sell combined £4.5B in 1-Month Bills, 3-Month and 6-Month Bills (1.0B, 1.5B and 2.0B respectively)

- 06:30 (IN) India Weekly Forex Reserves

- 06:45 (US) Daily Libor Fixing

- 07:00 (EU) EMA releases Drug Approvals & Safety Decisions

- 08:00 (RU) Russia Oct Real Retail Sales M/M: 1.9%e v -1.1% prior; Y/Y: 1.2%e v 1.7% prior

- 08:00 (RU) Russia Oct Unemployment Rate: 5.1%e v 4.9% prior

- 08:00 (RU) Russia Oct Real Disposable Income: 0.0%e v +0.6% prior

- 08:00 (RU) Russia Oct Real Wages Y/Y: -0.9%e v -1.0% prior

- 08:00 (RU) Russia Oct Investment in Productive Capacity Y/Y: -3.5%e v -2.8% prior

- 08:15 Baltic Dry Bulk Index

- 08:30 (CA) Canada Oct CPI M/M: -0.2%e v +0.1% prior; Y/Y: 2.0%e v 2.0% prior

- 08:30 (CA) Canada Oct CPI Core M/M: 0.2%e v 0.2% prior; Y/Y: 2.1%e v 2.1% prior

- 08:30 (CA) Canada Oct CPI (Seasonally Adj) M/M: -0.1%e v +0.2% prior; CPI Core (Seasonally Adj) M/M: 0.1%e v 0.2% prior

- 09:00 (MX) Mexico Q3 GDP Q/Q: 0.6%e v 1.0% prior; Y/Y: 2.3%e v 1.6% prior; GDP Nominal Y/Y: 6.3%e v 5.7% prior

- 09:00 (MX) Mexico Sept Economic Activity Index (Monthly GDP) Y/Y: 3.1%e v 1.3% prior

- 11:00 (US) Nov Kansas City Fed Manufacturing Activity: 6e v 4 prior

- 14:00 (AR) Argentina Sept Economic Activity Index (Monthly GDP) M/M: No est v -0.7% prior; Y/Y: -0.7%e v -1.2% prior

- 14:45 (UK) BOE's Miles at economic conference in Bristol, England