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Friday 23 August 2019

Daily Market Update: ECB in focus this week

Richard Ramsey

Last week’s influential German IFO survey signalled an improvement in business confidence in the Eurozone’s largest economy.

However, the German consumer is not as upbeat as its business counterparts. Friday’s GfK consumer confidence survey revealed a fall in sentiment for the fourth consecutive month with confidence following a downward trend over the last six months. The latest survey represented the lowest reading since February although it was still slightly better than the consensus forecast in a Reuters survey of analysts. According to the GfK survey the fall in morale is linked to concerns over the labour market. Over two‐thirds of respondents expect unemployment to rise due to the influx of up to one million asylum seekers this year. This morning’s German retail sales figures highlight the reluctance of Germans to part with their cash. Retail sales fell unexpectedly by 0.4% m/m in October. Analysts had been expecting an increase of the same amount.

Friday also saw the release of the latest set of confidence surveys from the European Commission. The latter cautioned that most of the data was collected before the attacks in Paris on 13th November. Overall economic confidence remained unchanged in November. However, this headline concealed a deterioration in sentiment amongst manufacturers and an improvement amongst consumers. Interestingly, however, there was a jump in inflation expectations for both the manufacturing and services sectors. On Thursday the ECB is expected to unleash more monetary policy stimulus. The ECB’s policy announcement is the key event of the week. While the ECB is set to embark upon more monetary policy loosening the Fed is expected to raise interest rates on the 16th December for the first time since 2006. The EUR/USD currency pair will be particularly sensitive to this week’s ECB news. EUR/USD is trading at $1.056 this morning which compares with $1.062 at the start of last week. Meanwhile EUR/GBP is 0.5% higher over the same time period, up from 70.1p last week to 70.45p this morning. Elsewhere in other markets, this Friday’s meeting of OPEC oil ministers will be closely watched. Pressure is on Saudi Arabia to ease production given the current oil glut.

Outside of the expected central bank action, there is plenty of top tier economic data due from the US too. Alongside the ISM manufacturing (Tues) and Non‐manufacturing (Thurs) surveys the health of the US labour market will be in focus with Wednesday’s ADP private sector employment survey and Friday’s all important nonfarm payrolls report. Today we have the Chicago manufacturing PMI for November and pending home sales data for October. This week in the UK we have the PMI surveys for the manufacturing, construction and services sectors. The Bank of England is also set to release its Financial Stability Report tomorrow. Governor Mark Carney is to lead a press conference on this tomorrow morning at 09.00. Before then we have the latest consumer credit and mortgage approvals figures for October. Friday’s UK GDP figures came in as expected with the UK economy expanding by 0.5% q/q in Q3.

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