• Euro area PMI composite fell to 52.8 in June
• Inflation and bank lending are main concerns
• New policy measures unlikely
The last couple of European Central Bank (ECB) meetings have been eventful, with the president Mario Draghi promising action in May and then delivering on that pledge at the meeting of the Governing Council in June. Both stocks and currencies responded with (relatively) heavy movement to both those events, with EURUSD moving 160 pips intraday on May 8 and 167 pips on June 5. In comparison, the average intraday range in May and June was 59 pips.
Inflation and bank lending are primary concerns of the ECB at the moment, and data released in the past month did not help to assuage the concerns. Consumer inflation was unchanged at 0.5 percent in June, according to Eurostat, though core inflation did rise a little to 0.8 percent, while private sector (non-financial) loans dropped 2.6 percent year-on-year in May following a drop of 2.8 percent in April. The June announcements of rate cuts (main refinancing rate: 0.15 percent, deposit rate: -0.1 percent, and marginal lending rate: 0.4 percent), new rounds of targeted long-term refinancing operations (targeted LTROs) and suggestions of upcoming action in the ABS market were more than anticipated, but clarification regarding the latter two are still needed. I expect ECB president Mario Draghi to use his press conference to further clarify the details of the targeted LTROs with an outside chance of comments regarding the ABS market as well. In particular, clarification of the net lending criterion of the targeted LTROs could – and should – be elaborated further upon by Draghi at the press conference. I do not expect new policy measures to be announced.