Nothing in the data to date to push Draghi into action
This article is originally referred from iForex News.
The Brexit scenario seems to have left the Eurozone pretty quiet, with better than expected German GDP data and July confidence indicators only backing the ECB’s central scenario that the modest recovery continues. Risks remain tilted to the downside, though there has been nothing in the data to date to push Draghi into action.
The markets, meanwhile, have recovered their poise. The DAX reached a 2016 high last week, while Eurozone spreads continued to narrow as peripheral yields fell to ever new lows. Yet, much of the motivation behind the rallies has been due to speculation that the ECB will be forced to follow the BoE down the path of another comprehensive easing package. Indeed, when they return from their summer holiday, Eurozone central bankers will be forced to weigh the risk of upsetting markets by staying put or by taking out yet more insurance against downside risks that will make markets even more dependent on central bank largess.
The Zew Sentiment Reading Headlines This Weeks Data
Against this background, this week’s August ZEW reading which is scheduled for Tuesday will be watched carefully. It is the first sentiment indicator for August, and should give some insight on sentiment after the dust settled over the outcome of the Brexit referendum in the U.K. It also includes investor sentiment surveys and will give some hint on rate expectations. The markets are looking for sentiment to climb out of negative territory, but only to 2.0 for the expectations reading. A better than expected number on investor confidence would be somewhat of a mixed blessing for the ECB as it will also reflect the risks of inaction in September.
Other data releases on the calendar are unlikely to have much bearing on the ECB decision as the reports are mostly too backward looking to change the outlook. The Eurozone has trade and current account data for June, which should show a slight decline in the nominal trade surplus. The final reading of Eurozone HICP inflation is scheduled for Thursday should confirm the headline rate at 0.2% year over year and core inflation at 0.9% year over year. Inflation remains far below the ECB’s target but is expected to gradually nudge higher, although the strength of the currency and the appreciation against the Pound could through a spanner in the works and give Draghi something to argue with if he wants to follow the BoE.
The minutes of the last ECB policy meeting should give some indication about the mood at the central bank and may give a glimpse of the discussion about what policy options the ECB still has left and what tweaks to the QE program could be in the pipeline. The main question is whether there is a real discussion about a move away from the focus on purchases according to the capital key towards a focus on outstanding debt and whether equity purchases are being considered.
Original Source: iForex News