Eurozone: ECB Meeting to provide details on purchase programs

Eurozone: Leading indicators weaken further

US: Labor Market Data to determine interest rate expectations


Eurozone – ECB Meeting

For the Eurozone, the most important event next week will be the ECB’s monetary council meeting on Thursday. At the beginning of September, meeting details on the purchase programs for ABS and covered bonds were announced for the coming meeting. The crucial factor will be how the criteria for eligible securities are set. Consistent with its mandate, the ECB needs to avoid any credit risk; accordingly, the criteria for the ratings will be set high. However, this limits the potential volume of purchases further within already relative small markets. As a result, markets might be disappointed. This is even more likely, as the ECB will not announce the envisaged total volumes of asset purchases, which can be concluded from statements made by ECB Vice President Constancio only a few weeks ago.
So, markets might assess little impact of the measures in place so far and this could fuel speculation on broad-based asset purchases in the future.
However, we do not expect any new hints in this direction from ECB President Draghi at the upcoming meeting. At the same time, markets might get some indications on the likelihood of further monetary stimulus from the assessment of the first TLTRO by Draghi, about which he definitely will be asked at the press conference.


Eurozone – economy/PMIs

The PMI flash estimates for September have declined slightly and show a prolonged divergence between the service sector (stable trend) and industry (declining trend). In Germany, the survey data indicates subdued growth for 3Q14 compared to 2Q14. The French poll data in 3Q14 has on average dropped and now indicates a shrinking economy for 3Q14. For the entire Eurozone industry, 3Q14 survey data declined on average and the weak dynamic currently points towards stagnating industry production for 3Q14. The service sector poll data so far implies slight growth.

Furthermore, consumer confidence for the Eurozone is also declining.
Based on flash estimates for September, consumer confidence declined further and data 3Q14 on average now ranges well below 2Q14. We thus expect no positive impulse for the Eurozone economy from consumption.

In our view, based on current available indicators, slight negative growth of the Eurozone economy in 3Q14 is very likely. This is in line with our recently significantly lowered Eurozone growth forecast of 0.6% for the FY14. We, however, consider this a temporary weakness on the road to a modest recovery. In 2015, we expect that the finalization of the banking review, as well as the targeted measures from the ECB (TLTRO) and the weakness of the euro should support the Eurozone economy. Nevertheless, the pressure to execute reforms remains high for countries like France and Italy, since economic weakness in connection with low inflation exerts pressure on public finances. After France already missed its deficit targets, according to media reports, Italy will have to scrap its deficit targets for 2014 and 2015 next week as well. We expect that, in such an environment, the question regarding debt sustainability could come back into focus for markets.


US – Labor Market Report

Next week’s US labor market report will be crucial for interest rate expectations. The upcoming release should either confirm or fuel interest rate expectations, in our view. Data that calms the already moderate interest rate expectations is hard to imagine. Currently, markets expect the unemployment rate to have remained unchanged in September and a monthly non-farm payrolls increase slightly below this year’s average. So, expectations are not set high. Better numbers would confirm opinions (including ours) of a tighter labor market and earlier interest rate hikes than is currently seen by the FOMC and the majority of the market. The latter currently expects the first rate in 3Q15, while we aim for the end of 1Q.

This document is intended as an additional information source, aimed towards our customers. It is based on the best resources available to the authors at press time. The information and data sources utilised are deemed reliable, however, Erste Bank Sparkassen (CR) and affiliates do not take any responsibility for accuracy nor completeness of the information contained herein. This document is neither an offer nor an invitation to buy or sell any securities.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD drops below 1.0800 after German Retail Sales data

EUR/USD drops below 1.0800 after German Retail Sales data

EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus. 

EUR/USD News

GBP/USD stays weak near 1.2600 amid market caution

GBP/USD stays weak near 1.2600 amid market caution

GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull. 

GBP/USD News

Gold price bulls keenly await US PCE Price Index on Friday before placing fresh bets

Gold price bulls keenly await US PCE Price Index on Friday before placing fresh bets

Gold price (XAU/USD) continues with its struggle to make it through the $2,200 mark on Thursday and oscillates in a narrow trading band through the early part of the European session. 

Gold News

XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC

XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC

XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase. 

Read more

Portfolio rebalancing and reflation trades emerge into Q2

Portfolio rebalancing and reflation trades emerge into Q2

Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.

Read more

Majors

Cryptocurrencies

Signatures