The ECB made no changes to its monetary policy today, as expected, but the euro fell sharply after the central bank’s president, Mario Draghi, struck a dovish stance in his ensuing press conference and announced slashed growth forecasts.
By Peter Martin
Thursday, September 3, 2015
Mr Draghi warned of ‘renewed downside risks’ to the inflation outlook and revealed that the ECB’s macroeconomic projections are now for GDP growth of 1.4% in 2015 (down from 1.5%), 1.7% for 2016 (formerly 1.9%) and 1.8% for 2017 (previously 2.0%). Similarly, the ECB’s inflation projections are for HICP at just 0.1% this year (down from 0.3%), 1.1% for 2016 (previously 1.5%) and 1.7% for 2017 (previously 1.8%).
When asked to expand on the downside risks to inflation, Mr Draghi explained that we may see negative rates of inflation in the coming months because of lower energy prices, but added that the ECB’s asset purchase scheme was flexible and the central bank was ready and willing to take action. EUR/USD plunged 1.01% to 1.1114 while Mr Draghi spoke.
Recent market volatility and downside risks to inflation will no doubt be of concern to other central banks. Up to this point, the Fed has taken succour from the strength of the US labor market, which has remained extremely encouraging while inflation has been stubbornly wedged well below target, but today we saw an unexpectedly large jump in jobless claims. Initial claims rose 12,000 last week to 282,000, the highest number for this metric since mid-July, while the week prior was revised lower by 1000 to 270,000. The four-week moving average increased 3250 to 275,500, also the highest level since mid-July, and does not compare favorably to how things were looking a month ago. Though claims are still low by long-term historical standards, and there is nothing to suggest this more than a one-week blip, it will not help expectations any heading into tomorrow’s closely-watched employment report.
A calm Asian trading session, for once, along with Mr Draghi’s dovish tone helped to raise the mood on Wall Street and following on from yesterday’s upbeat stock market close, US stocks opened in positive territory. Shortly after the opening bell in New York, the Dow Jones was trading up 86 points or 0.53% at 16,437, while the S&P 500 Index gained 0.79% to 1964.2.
Oil continues to gyrate sharply, bouncing 1.6% today to $47.00 a barrel after sharp declines yesterday in the wake of a large build in US crude inventories. The Energy Department revealed on Wednesday that oil supplies rose 4.7 million barrels in the week prior, as imports surged and refinery activity declined.
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