- Will ECB drop any tapering hints ahead of September meeting?
- BoJ in no rush to tighten as inflation target continues to elude it;
- AUD buoyed by full-time employment numbers before profit taking sets in;
- UK retail sales and US data still to come today.
It’s been a busy start to trading in Asia on Thursday and that’s not expected to ease up, as we get the ECB monetary policy decision this afternoon followed by what could be a very interesting press conference shortly after.
While we’re not expecting any changes from the ECB today, it’s €60 billion a month asset program expires at the end of the year and traders are looking for clues regarding what comes next. An announcement on this is unlikely until September when it releases its new macro-economic projections but Mario Draghi may offer some insight into what we can expect during the press conference.
The most likely decision, despite the central bank still falling well short of its inflation target, will be to cut its purchases by another €20 billion as it did in April and extend by another six months. There has been a lot of speculation about a more explicit phasing out but I think the ECB want to be more careful given the fragile nature of the recovery. The result will likely be the same though with the central bank ending its quantitative easing program either at the end of 2018 or early 2019.
The risk today comes if Draghi puts his dovish hat on and suggests the program could simply be extended in its current form. Traders seem so convinced of further reductions that the euro could be vulnerable to the downside if the central bank doesn’t follow through. We could be a lot clearer on its plans after today’s press conference.
The Bank of Japan won’t be in such a rush to end its bond buying, with inflation continuing to elude them as the timeline for when its 2% target will be achieved was pushed back yet again, this time to fiscal 2019. Given what they’ve anticipated in the past we can only take this with a pinch of salt and assume they’ll be planning to keep the 10-year JGB around 0% for the foreseeable future. Still, despite the unsurprising announcement on inflation, the yen only weakened slightly with the trade data – imports and exports exceeding expectations – supporting the currency.
The Aussie dollar is trading a little lower today, despite employment numbers having earlier in the session pushed the currency to a two year high against the greenback. The pair fell just below 80 before profit taking set in, with full-time employment more than offsetting the drop in part-time numbers to give a net change of +14,000.
While the ECB event will undoubtedly be the headline today, we will also get retail sales data from the UK as well as jobless claims and manufacturing and consumer surveys from the US.
