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Overview

The two main events this week have come in the form of the ECB announcement and US jobs report. From a European perspective, the ECB kept rates on hold as expected before Draghi announced the expansion of the parameters of the existing QE programme by stating the issue share limit for asset purchases is to be raised from 25% to 33%. Draghi went on to state that downside risks have emerged and the ECB may extend QE beyond 2016 if necessary, as well as downgrading forecasts for CPI and GDP in 2015-17. While these comments are dovish, concerns were exacerbated by the fact that projections were made as of the 12th of August, and therefore the ECB were already downbeat even before 'Black Monday' when we saw extreme volatility over growing concerns on China.

Thereafter, Friday saw yet another volatile trading session which culminated with release of the eagerly awaited US non-farm payrolls report and while the headline reading itself wasn’t enough to assure no September rate hike, it was the average hourly earnings which jumped 0.3%, above the 0.2% consensus, that may be the indication that September is still on the table after all. As a result, Federal Feds Funds futures re-priced to a 32.0% chance of a rate-hike in September from 26.0% following the Nonfarm payrolls release. Also of note, shortly prior to the release, Fed's Lacker stated that the US does not require 0% interest rates anymore, however, he will not decide until the discussions at the FOMC meeting.

Looking ahead to next week, we will see China return to market after their recent Victory Day Holiday which last week took a sting out of the overnight volatility in the latter stages of the week. However, despite China’s return to market, things stateside will likely see a quiet start to the week with all US markets closed for the Labor Day Holiday.

Across the pond in the UK, the BoE will be releasing their latest rate decision and accompanying minutes with participants once again trying to assess the balance of views on the MPC. Given the recent comments made by Governor Carney downplaying concerns over the spillover from China, it will be interesting to see if any other members such as Weale or Forbes follow McCafferty in calling for rate lift-off. However, any pick-up in hawkishness at the central bank is highly unlikely to change the outcome of the decision itself. Finally, in Europe, things appear to be very quiet on this front with little in the form of tier 1 data.

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