Draghi unleashed a string of firm-sound rhetoric to open the ECB press conference, touching on a number of key areas, but the lack of “real action right now” has the market in a big knee-jerk disappointment.
Draghi’s press conference has finally seen the light of day, and the tremendous expectations leading into today were sorely disappointed as, despite Draghi’s firm assurance that the “Euro is irreversible” and that higher sovereign rates at the periphery are unacceptable, there were no real specifics to go on once again – the very same pattern EU politicians have shown time and again as well. Rather than coming out with the plan, we once again have a plan to have a plan (The ECB “may undertake outright open market operations, concerns on seniority will be addressed”, etc…).
In general as well, Draghi was often reminding the journalists in the press conference that the onus lies on the EU politicians and he nearly whined about the market’s excessive anticipation coming into today after his words of the previous week that got the market so whipped into a frenzy of expectation surrounding this meeting in the first place. Whoops, Mr. Draghi.
As Steen commented earlier, Mr. Draghi was basically trying to buy time until as we wait for the impossibly slow EU politicians as the ugly process of the ESM ratification – or not – approaches in September. And as we can see from the market reaction, “time” has become very expensive, indeed.
Chart: EUR/USD
The EUR/USD chart says it all – expectations built through the first few phrases of Draghi’s statement today, and then when he made the switch to the usual discussion of inflation expectations without having announced any concrete new easing in the pipeline, the market collapsed. Today’s performance puts a firm overhead resistance in place at 1.2400 for now.
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BOE
The BoE came and went as if it was never there, no surprise at all given the move at the previous meeting and as the focus shifts to the “lending scheme” and what it might do for the UK. Is anyone asking why a country that is endlessly bloated with private and public debt, still massive budget shortfalls needs a lending scheme for, precisely? The country needs to destroy debt and encourage private sector jobs more than anything else – that would be change we can believe in.
Looking ahead
For the QE hopefuls looking for the ECB to come up with something more concrete, today’s ECB was a tremendous disappointment and sets the tone for the next week at minimum – i.e., risk off, for those who haven’t noticed the 200-pip volatility in the 30 minutes after the ECB press conference go under way. Combined with a relatively non-committal (vs. expectations) FOMC, the QE hopefuls have really had the rug torn out from under them this week and the summer waiting game could get very uncomfortable.
The latest FOMC statement made it clear that the path forward will be highly data dependent. We all know that something is coming and the next string of economic data releases will be all about gauging when and how much. So we kick things off already tomorrow with the US ISM non-manufacturing survey and the Jul employment report. After the second strong ADP reading in two months and a couple of stronger than expected weekly claims data points in the mix over the last month, the expectations have perhaps shifted a bit higher for the Nonfarm payrolls data point. I am expecting a report that is not particularly out of line with the modest expectations. The interesting scenario is a relatively strong employment report and resilient ISM non-manufacturing, as this will play on the market’s frustration over the lack of QE and once again show the endless irony of resilient data being met with selling pressure in risk.
I have a hard time seeing how the market will get back into a bullish mode in the coming few days on any data scenario out of the US, even if it is poor data. But let’s keep it cool until we see the weekly close and see where we stand. An interesting test of the JPY crosses, today, as I pointed to as well in my FX chart of the day from earlier today, suggesting that the JPY faced a key test vis-à-vis the bond market after yesterday’s attempt to post a bullish reversal in USDJPY. With the massive comeback in bonds today, the upside scenario for USDJPY has become far more difficult and the bearish reversal for non-USDJPY yen crosses on the day is already impressive, especially if it holds into the close of today and for the week.
Economic Data Highlights
- Australia Jun. Trade Balance out at +9M vs. -375M expected and -313M in May
- Australia Jun. Retail Sales out at +1.0% MoM vs. +0.7% expected
- Switzerland Jun. Retail Sales out at +3.7% YoY vs. +6.4% in May
- Switzerland Jul. Manufacturing PMI out at 48.6 vs. 47.0 expected and 48.1 in Jun.
- UK Jul. Construction PMI out at 50.9 vs. 48.7 expected and 48.2 in Jun.
- Euro Zone Jun. PPI out at -0.5% MoM and +1.8% YoY vs. -0.4%/+1.9% expected, respectively and vs. +2.3% YoY in May
- UK BoE left interest rate unchanged at 0.50% and Asset Purchase Target unchanged at 375B as expected
- US Jul. Challenger Job Cuts out at -44.5% YoY vs. -9.4% expected
- Euro Zone ECB left interest rate unchanged at 0.75% as expected
- US Weekly Initial Jobless Claims out at 365k vs. 370k expected and 357k last week
- US Weekly Continuing Claims out at 3272k vs. 3288k expected and 3291k last week
- US Weekly Bloomberg Consumer Comfort Index (1345)
- US Jun. Factory Orders (1400)
- Australia Jul. AiG Performance of Services Index (2330)
- China Jul. Non-manufacturing PMI (0100)
- China Jul. HSBC Services PMI (0230)