Good morning and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s a big day for the eurozone, as the European Central Bank meets to set monetary policy. Top of the agenda – how, and when, to end the stimulus programme that is pumping more than €2 trillion into the euro economy.
Back in July, ECB president Mario Draghi promised us a decision on its quantitative easing programme ‘in the fall, or in the autumn’. And with the nights drawing in, the issue needs to be tackled soon.
Currently, the ECB is committed to buying €60bn of government and corporate bonds each month with newly created money, until the end of 2017.
So economists and traders are eager to know what will happen when the clock ticks past midnight on December 31. It’s possible that the ECB will decide to trim the pace of the programme, perhaps to €40bn per month from January, in an attempt to wean the markets off its stimulus without causing a crash.
BUT… we might not get the big decision today. The ECB could defer the decision until its October meeting, leaving us in suspense for a few more weeks.
Draghi may also take the opportunity to talk about the strength of the euro, which hit an eight-year high against the pound last month.
Konstantinos Anthis in the ADS Securities research team reckons Draghi has three options.
The first is that the ECB will announce a full-scale tapering of their purchases by 50 billion which would give a massive push to the Euro that will rally towards $1.21 and also change its outlook to clearly positive.
The second option is that the ECB will announce a smaller scale reduction of their program – possibly by 20 billion or so – which would be positive for the single currency, and could send the euro above $1.20 but the mixed reaction from the market would mean that gains would be capped;
and finally the third possibility would be the ECB postpones the tapering for a month or more which would be clearly negative for the euro and would send it tumbling towards or even below $1.18.
So we can expect plenty of volatility when the ECB shows its hand.
There’s no chance that the governing council will raise interest rates from their current record lows, despite Deutsche Bank’s CEO calling for the end of ‘cheap money’ yesterday.
The ECB will also publish its new growth and inflation forecasts today, for the first time since June. There’s chatter that it could raise its growth predictions a little, but trim its inflation outlook.
The financial markets look calm this morning, with some relief that a short-term deal has been hammered out on the US debt ceiling <sound of can bouncing down the road>.
We also get a new survey of UK house prices this morning, which could show if the market is cooling.
Plus, updated eurozone growth figures which will probably confirm that the region expanded by a punchy 0.6% in the April to June quarter.
Here’s the agenda:
- 8.30am BST: Halifax’s UK house price survey for August
- 10am BST: Updated eurozone GDP figures for Q2 2017
- 12.45pm BST: ECB interest rate decision
- 1.30pm BST: ECB press conference