The Euro is weaker this morning and the USD a touch stronger thanks to ECB President Draghi banging the drum about QE, the ECB staff downgrading their Euro-zone growth and inflation forecasts and a pretty comforting slug of US data. With China out yesterday (and today) for its holidays, the AUD has pivoted in a ¾US cent range around 0.70 and sits just above that figure in early trade today with no more local data this week. President Draghi would be happy with the market’s response, the Euro lower and European bonds stronger, and across markets.

Rather than increasing the rate of QE, ECB President Draghi, spoke forcefully of the ECB’s commitment to complete the €1.1tr program, continuing with it to at least September 2016, its previous commitment. Along with its downward revision to growth and inflation, it also indicating that it could buy up to 33% of a bond issue rather than 25%, though whether this has been a constraint on implementing QE to date is not known. Growth was revised down this year by 0.1% (to 1.4%) and by 0.2% for next (to 1.7%), while inflation was cut by 0.2% this year (to 0.1%) and for next year by 0.4% (to 1.1%). Inflation is not forecast to reach within sight of 2% (1.7%) until 2017.

He said that the economic recovery had continued but that it had been somewhat weaker and that taking into account the most recent developments in oil prices and recent exchange rates, there were still downside risks to their latest inflation forecasts. There was more a sense that the downshift in oil and market volatility had more than a temporary risk to the Euro area’s inflation outlook than say from most recent Fed speakers.

Whether it was thin markets ahead of US long weekend or implied threats to do more, or his forcefulness, the Euro dropped a big figure in an instant, from 1.122 to 1.112/1.113, testing below 1.11 before settling above 1.11, trading around t 1.113. The AUD/EUR jumped from 0.624 to over 0.63. This price action was strengthened by a lower than expected US trade deficit in July and a re-assuring read from the August ISM nonmanufacturing
index (59 cf 60.3) with new orders at 63.4 and employment at a more than respectable 56.0 ahead of payrolls.

Coming up today/tonight

It’s all pretty much about payrolls now until Asia opens on Monday with China coming back then after their special four day long weekend. There’s no local data today. Ahead of payrolls tonight is Fed President and monetary dove
Kocherlakota speaking this morning at 11am AEST and then at 4pm, German factory orders for July with the market expecting partial payback of -0.6% after June’s 2.0% gain. Also ahead of payrolls is Fed arch-hawk Lacker makes “The Case Against Further Delay”. That’s scheduled to start 20 mins before payrolls so may well roll into and be overwhelmed by payrolls, not that Lacker’s views are at all any surprise. He’s a FOMC voter this year, but he has not dissented from the FOMC on-hold view right through this year.
The market is not expecting any major payrolls surprise, the consensus seeing virtually unchanged headline growth of 217K after last months 215K gain together with an unemployment rate of 5.2%, down from 5.3%. While the initial focus will be on those headlines, there will be just as much if not more interest in average hourly earnings, together with any revisions and the U6 underemployment rate.  Canada also has its August labour market report tonight, the market  sensitive right now to any negative surprise. Canada’s unemployment rate is expected to remain unchanged at 6.8% with a 5K drop in employment after last month’s 6.6K gain. There is also the G20 Finance Ministers/Central Bank Governor’s meeting over the weekend in Ankara, Turkey that might well create some newswire coverage.

Overnight

European equities jumped: Eurostoxx 600 +2.4%, Dax +2.7%, CAC +2.2%, FTSE +1.8%. Dow +23 points to 16,375, +0.1%, S&P 500 +0.1%, Nasdaq -0.3%, VIX 25.61 -1.8%. Mumbai -0.2%, Nikkei 225 -0.3% and ASX 200 -1.4%; ASX SPI futures this morning +0.3%. US bond yields: 2s at 0.69% (-2), 10s at 2.16% (-2). WTI oil at $46.63 (+0.8%), Brent at $50.57 (+0.1%), Malaysian Tapis (yesterday) $52.07 (+5.3%). Gold at $1124.50/oz (-0.8%). Base metals: LME copper +2.5%, nickel +1.3%, aluminium +1.9%. Iron ore $56.5/t -0.4% Chinese steel rebar futures -0.1%. Soft commodities spot futures: wheat -2.6%, sugar +5.7%, cotton +0.4%, coffee 1.0%. Euro Dec 14 CO2 emissions at €8.18/t (0.6%). The AUD/USD’s range overnight 0.6992-0.7063; indicative range today 0.6995-0.7045 into retail trade; the AUD/USD is 0.7017 now.

The ECB left its policy rates unchanged but hinted at more QE if needed.

US Jobless claims (w/e 29/8) 282K (L: 271K; E: 275K); Trade (July) $-41.86B (L: $-43.84B; E: $-42.2B); ISM Nonmanufacturing (Aug) 59.0 (L: 60.3; E: 58.2.

For full analysis, download report:

• Markets Today: 4 September 2015 (PDF, 347 KB)

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