Read full technical analysis report here
- The minutes of the ECB’s October policy meeting strongly echo the message of numerous recent speeches by Governing Council members signalling further monetary stimulus at the next meeting on December 3rd. Aside from generally dovish comments on the economy and outlook for inflation – downside risks increased; rebound in underlying inflation stalling; policy measures may not be sufficient to reach target etc – the minutes repeated President Mario Draghi’s recent statement in a speech that the Governing Council would “re-examine the degree of policy accommodation in December” and is “ready to act if necessary” On the precise form of more policy support, possible options mentioned included adjusting the size and range of asset purchases and cutting interest rates, “in particular the rate on the deposit facility”. Further analysis was required on the effects of both of these options, but – judging by recent comments – that analysis has not thrown up any obstacles. In the meantime, the Governing Council made a deliberate decision at the meeting to step up its communications and underscore its determination to act – hence the plethora of speeches. Presumably that determination has only been strengthened by subsequent developments, including the Paris attacks. Overall, the minutes strongly support our long-held expectation that the ECB’s QE programme will be expanded at December’s meeting. We expect an increase in monthly asset purchases from €60bn to €80bn or more. And this looks very likely to be accompanied by another cut in the deposit rate, of 10bps to 20bps.
- The dollar steadied against the yen and euro on Friday after retreating from a recent rally that took the greenback to 7-month highs against a basket of peers. The Bank of Japan’s decision not to ease monetary policy further weighed mildly on the U.S. currency, though it was still enroute to scape out a 0.2 percent gain this week. The Japanese financial markets will be closed on Monday for a public holiday. The euro was still on track to lose 0.5 percent on the week after being buffeted by heightened prospects of the Federal Reserve hiking interest rates and the European Central Bank easing monetary policy next month.
- The New Zealand dollar, one of the strongest G10 currency performers this week, gained 0.5 percent to $0.6597 NZD=D4, adding to a gain of 1.4 percent on Thursday when upbeat domestic producer prices data triggered a rally. In August the kiwi slumped to a 6-year low of $0.6200 against the dollar in wake of global risk aversion following a tumble in Chinese stock markets, but it has since gained about 6.5 percent. The Reserve Bank of New Zealand has cut interest rates this year, but the country’s government bonds still offer comparatively higher yields than debt from other industrialized economies.
- The Federal Reserve has telegraphed its imminent interest rate hike so well that central bankers elsewhere have even begun to get impatient about it, the Fed’s second-in-command suggested on Thursday. “In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates,” Fed Vice Chairman Stanley Fischer told the San Francisco Fed’s biannual Asia Economic Policy conference. “While we at the Fed continue to scrutinize incoming data, and no final decisions have been made, we have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to ‘just do it’.” The U.S. central bank is widely expected to raise rates for the first time in nearly a decade when policymakers meet in Washington on Dec. 15-16. Sentiment for a December hike took firm hold at the Fed’s Oct. 27-28 policy meeting, according to meeting minutes released on Wednesday.