The latest ECB meeting took place yesterday and following it Mario Draghi gave a speech. The regulator, as expected, left rates unchanged at a record low. Inflation and GDP forecasts were put down.
Eurozone growth estimations for 2015 were dropped by 0.1% from the June forecast to 1.4%, in 2016 growth is reckoned to reach 1.7% and not 1.9%, whereas in 2017 forecasts have been dropped from 1.8% to 2.0%. Harmonized inflation (HICP) in the Eurozone is expected to grow by 0.1% in 2015 against a 0.3% earlier estimation, by 1.1% in 2016 (previous forecast: 1.5%) and by 1.7% in 2017 (previous forecast: 1.8%).
From Draghi’s rhetoric it is clear that the ECB will extend its stimulus program to get inflation up to acceptable levels and give the economy more of a kick start. The differences between the monetary policies of European and US regulators is become quite marked, although it’s a little too soon to say before the US Fed has had their September meeting.
The euro fell against the dollar to 1.11 after the ECB president dropped his forecasts for GDP and inflation, indicating that any Eurozone economic recovery will take more time than previously believed.
According to data published yesterday, the US’ July trade deficit fell by 7.4% and, taking seasonal fluctuations into account, totals 41.86 billion USD. It was thought that the trade deficit in the month would stand at 42 billion USD. Exports, however, had risen by 0.4% to 118.5 billion USD, despite the strength of the USD and the continuing weakening of the US’ main trade partners, such as China and the Eurozone. Imports fell by 1.1% to 230.36 billion USD, in reflection of a loss of appetite on part of the Americans for consumer goods, as well as pharmaceuticals and mobile telephones.
International trade is weakening due to the low rate of global economic growth. The US trade deficit is, for the first in seven months of this year, up 3.6% YOY. During this period, exports are down 3.5% and imports are just behind them: down 2.2%.
The number of initial unemployment benefit applications for the week in question reached 282,000 against a previous 270,000 and an expected 273,000. The indicator is highly volatile; more important data on employment will be released later from the US Ministry for Labor.
The US service sector PMI for August was down to 59.0 from July’s 60.3. The July value was the highest since January 2008. Service sector activity in the US throughout August grew only slightly, yet stably: a sign of strength for the economy there.
During a speech today, FOMC member and president of the Minneapolis Federal Reserve, Narayana Kocherlakota, stated that putting rates up before the year’s end would be unwise, since inflation is still too low. Low rates are good for the labor market.
Manufacturing orders in Germany, taking seasonal factors and the number of days in July into account, were down by 1.4% MOM. A fall of 0.6% was expected for the indicator. June’s data was reassessed downwards. According to the most recent report, June order growth in the German manufacturing sector stood at 1.8%, not 2.0% as was stated earlier. July demand for German made goods was imbalanced, since exports were down 5.2% and domestic orders were up 4.1%, following a fall over a three month period.
Today’s attention grabber is the NFP. Strong values for the payrolls will support the dollar and vice versa. Weak values will increase doubts at the Fed as to whether to put up rates this year. In addition to this, Canada is publishing some labor market data. It might also be worth casting a glance at what Jeffrey Lacker, FOMC member, has to say.