Euro-area bank lending figures will also be interesting

Market movers today

• Spanish and German inflation data for August are released ahead of the euro figure on Friday. We expect a new-cycle low in Spanish inflation, which could fuel expectations of further ECB easing after Draghi’s dovish speech at Jackson Hole, see Draghi increases likelihood of further easing, 25 August. The German figure, released in the afternoon, is expected to be unchanged at 0.8% y/y. Although we expect the euro aggregate to decline further to 0.3% y/y, we do not think it is enough for the ECB to ease in September.

• Euro-area bank lending figures will also be interesting, as they determine the potential boost to liquidity from the second round of the ECB’s TLTROs starting in 2015, see ECB easing - will it work? #1: ECB's easing measures revisited, 25 August. The lending figures are also important as the better development seen recently will reduce the headwind to GDP growth in H2. We expect further small improvements in lending to non-financial corporations, while money supply should continue to grow 1.5% y/y.

• ECB’s Likanen speaks. Due to intensified focus on the ECB and as he is the only ECB member scheduled to speak this week, his comments will be followed closely.

• In the US focus is on the job market with the release of initial jobless claims. Last week claims were better than consensus expectations and the four-week average was at 300k, which is still a very low level pointing to a robust labour market in the US.

• US pending home sales are expected to move sideways, while we expect a minor correction in the second release of GDP growth for Q2 to around 3.9% q/q AR.

Selected market news

European markets were again driven by expectations of the ECB going down the QE path. Spanish 10Y government bond yields were down close to 2.0% during the day and German 10Y Bund yields dropped to an all-time low. In our view, the likelihood of further ECB easing – including QE – has increased but we only expect a very dovish stance from Draghi next week. The statement could include comments that there are signs that medium-term inflation expectations have started to be de-anchored.

Yesterday the ECB announced it had hired BlackRock as consultant to advise on a program to buy Asset-Backed Securities (ABS), see FT. One week ahead of the ECB meeting, this could be viewed as a hint that ABS purchases are currently the preferred policy tool. We believe more details about an ABS programme are likely in September.

Concerns have again been fuelled in Kiev and western capitals that Russia is stepping up its support to separatist rebels, see FT. On Wednesday pro-Russian rebels entered a new strategically important town in southeast Ukraine, while Kiev blamed Russia of sending more troops. This followed after Russia’s president Putin met with Ukraine’s president Poroshenko, which opened the door for negotiations, although no breakthrough concrete actions were agreed upon.