Sunday 18 August 2019

Daily Market Update: Eurozone’s Money Supply Suggests a Brighter Future for the Euro

Darren Thornberry

A quiet end to the week in terms of Economic Data but we did have some figures out of the Eurozone yesterday regarding money supply and the data suggested that the ECB’s stimulus measures are slowly working their way through the economy.

The Eurozone’s M3 money supply, which adds up the notes, coins and bank deposits held by Eurozone consumers and businesses, increased 5.3% in October vs 4.9% expected compared with the same month last year. Money supply growth has been boosted by the ECB’s €1.1 trillion quantitative easing programme and according to the ECB there was €10.8 trillion euros in circulation in the Eurozone at the end of last month.

Despite the improvement in the Eurozone’s financial conditions, economists are still betting there will be an expansion of the QE programme at the ECB’s meeting next Thursday. The ECB is concerned by persistently low inflation – it was 0.1% in October, well below the central bank’s two per cent target. However, yesterday’s money supply figures do give the ECB additional food for thought before making any decision on expanding QE because typically an increase in money supply leads to additional spending, which in turn leads to inflation.

Attention today turns to Retail with Black Friday being the day in question quickly followed by Cyber Monday for those who would rather shop online. Throughout the recession and subsequent recovery, most households were forced to cut their cloth to measure and Retailers suffered as much as anyone as a consequence. The term ‘Black Friday’ has a few explanations but retailers going back in the black as opposed to being in the red is the most common one because it marks the start of the shopping season that Retailers wait all year for generally. The holiday shopping season is critical to major economies and it’s estimated that 30% to 40% of annual retail sales occur between Black Friday and Christmas.

In terms of levels yesterday the majors traded within tight ranges with Eur/GBP between £0.70 & £0.7040 for most of the day, Eur/Usd just above $1.06 and GBP/USD exchanging hands around the $1.51 mark. Rates start close to those levels as we open this morning. Looking ahead today we have 2nd estimates for UK GDP at 09.30am, Economic Confidence figures out of the Euro‐area at 10.00am and closer to home, Irish Retail figures out at 11.00am.

Starting this morning, and over the coming weeks the impact that the recent events have had on underlying business and overall economic activity of goods and people around Europe.

Sponsored by: Ulster Bank

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