ECB’s and MPC’s new figures impacting the markets
Final figures for Euro zone PMI released this week have shown evidence of contraction in both the service and manufacturing sectors. Most worryingly both surveys also revealed a dramatic drop off in the new orders component suggesting that the Euro zone may be about to enter in to a ‘mild recession’. The question of whether a recession in the Euro zone can be avoided will be partly answered today, when the European Central Bank (ECB) meets to announce their interest rate decision.
Those hoping for a reversal of the 25bps rate increase seen in July, such as Asset manager Carmignac Gestion who viewed his fellow Frenchman, Jean Claude Trichets final meeting as the head of the ECB, as “a last chance to leave on a positive note” in an article titled “Farewell, you certainly won’t be missed” are likely to be disappointed. As Mr Trichet treads the unenviable tightrope of pleasing several nations with one single economic policy – a task which must surely put him in line for a peace keeping job at the UN once he steps down.
The fact is, that with Euro zone inflation unexpectedly spiking up to 3% in September, a rate cut will now be harder to sell to the German Bundesbank. Also, the ECB tends to prepare the ground for a rate hike. This means that if Mr Draghi needs to prepare the ground in November, then December would appear to be the earliest opportunity for any decrease in interest rates. The belief today is that the central bank will look to loosen liquidity conditions, with 12-month Long-term refinancing operations (LTROs) being re-established.
Meanwhile, the Monetary Policy Committee (MPC) meets today in a meeting that is becoming increasingly too close to call. The September meeting of the MPC revealed that a number of members could now see the benefit of further Quantitative easing.
The Euro has been strengthening over night as the risk on sentiment continued. This follows on from Angela Merkel’s support for moves to re-capitalise euro zone banks that have been pushed to the brink of collapse by the sovereign debt crisis.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.