All talk and no pantaloni, Mr Draghi?
As expected there were no changes to monetary policy by Mario Draghi at yesterday’s meeting, though he did hint at tweaking the current quantitative easing programme at the central bank’s March meeting. In the press conference, Draghi referenced the downside risk of current global conditions since the start of 2016. Again the talk was tough – “We have the power, willingness and determination to act. There are no limits how far we are willing to deploy our policy instruments”. So just as tough as the build up to December’s announcement where the lack of tough action sent the Euro soaring against Sterling and Dollar.
The comments seemed to be well received however as the Euro did decline against both the Pound and the Dollar. Although we will have to wait and see in March as to whether the European Central Bank’s (ECB) alteration of the programme is significant enough compared to market expectations.
US Initial Jobless claims rose again yesterday to 293k for January, above last month’s 283k and not a fall to 278k as expected. As this is figure has steadily risen since October we will be closely watching initial claims in the coming weeks to discern whether the current blip is little more than seasonal volatility.
Global PMI figures are the main economic data out today. German PMI has already come in just under expectations this morning, while Manufacturing and Services PMI for the single currency bloc are expected to remain unchanged from the month before. US PMI due this afternoon is also expected to stay the same at 51.2.
Bank of England Monetary Policy Committee member Martin Weale stated yesterday that inflation was unlikely to return to target without a marked improvement in wage growth, although he did expect wage growth to accelerate due to the fall in unemployment. He warned that a weaker exchange rate could easily offset the impact of lower energy costs. Could Weale be signalling he’s ready to start voting for higher interest rates again?
Today’s UK Retail Sales data will be key to see if the Pound can retain its meek rally against both the Dollar and Euro. UK retail sales (month-on-month) are seen contracting 0.3% while year-on-year retail turnover growth is seen slowing to 4.3% from 5.0%. Core retail sales are also seen contracting. If the results do print negative as expected, then we are likely to see a renewed sell-off in the GBPUSD pair. On the other hand, a positive surprise could see the pair head towards 1.43 levels.
Data to watch: 9am Eur Manufacturing & Services PMI. 9.30am UK Retail Sales month-on-month & year-on-year. UK Public Sector Net Borrowing. 2.45PM US Markit Manufacturing PMI.