Thursday 29 September 2016

Daily Market Update: Draghi talks up the prospect of further policy action and talks down the euro

Richard Ramsey

Published 04/11/2015 | 12:04

The ECB President was the focus of Eurozone financial market attention yesterday in the absence of top tier economic data.

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Mario Draghi said that ECB’s Governing Council’s will look again at its policy stance in December to assess whether enough support is being provided to the economy. He added “The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation.” Draghi’s comments have helped push the single currency lower on the currency markets although that trend was already in train before he spoke. EUR/USD has fallen by 1% since yesterday’s open an at $1.092 is down 1 cent over the last 24 hours. EUR/GBP has moved from 71.4p to 70.8p over the same time period. Cable is broadly unchanged at $1.542.

Encouraging economic data releases have been in short supply from China in recent months. However, this morning’s Caixin services PMI survey posted a pick-up in the rate of growth in October (52.0), up from 50.5 in September. This represents the fastest rate of growth in 3-months. Meanwhile comments from the Chinese central bank governor have unintentionally sparked a surge in Asian equities. The PBoC published five-month-old comments from Governor Zhou Xiaochuan that said there would be a trading link between the Shenzen and Hong Kong stock markets in 2015. This helped Chinese stocks advance at their sharpest rate in 7 weeks with the Shanghai Composite closing 4.3% higher this morning.

There is plenty of top tier economic data for financial markets to focus on both sides of the Atlantic today. In Europe we have the services PMIs for October. Already this morning we have seen the Irish services PMI slip from 62.4 in September to 60.1 last month. Despite this moderation in growth this still represents a very robust rate of growth. The equivalent survey for Spain beat expectations with the 55.9 print representing an improvement on September’s 55.1 figure. The final estimate for the Eurozone services PMI is expected to come in at 54.2.

September’s services PMI, the most closely watched of all the UK PMIs, unexpectedly fell to a 29- month low of 53.3. This was well below the 56.0 print anticipated by analysts at the time. This morning’s October survey is expected to see some recovery in service sector activity with analysts expecting growth to accelerate to 54.5. The services PMI follows yesterday’s construction PMI which came in at 58.8 in line with expectations.

There is a raft of US data due today encompassing the labour market, trade and service sector activity. This follows disappointing new factory orders figures which posted their second straight month of declines in September. Today’s ADP employment report is expected to see the rate of private sector job creation ease from 200k in September to 180k for October. Meanwhile the ISM Non-manufacturing survey (mostly services) is expected to see September’s growth rate of 56.9 broadly maintained in October. Alongside the US data, there are a number of Fed officials scheduled to speak. The FOMC’s Brainard, Yellen and Dudley are all speaking at separate events today. While Janet Yellen is speaking on bank regulation, she may stray into the monetary policy arena.

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