ECB Drops Tightening Bias, Japanese GDP -2.1% Annualized

Overall it’s been a mixed session in Asia, with major stock indices slightly lower (Nikkei -0.6%, Hang Seng -0.3%), but economic data managing to avoid any downside shocks. In Japan, Q2 GDP came out at -2.1% annualized (-0.5% QoQ); although these absolute figures are incredibly unhealthy, they are at least identical to what the market was expecting and so no further drop in risk appetite was apparent. Meanwhile, China CPI hit 6.2% YoY – again this was smack on median analyst forecasts even if it is down from July’s 6.5% level.

Yesterday’s ECB meeting yielded very few genuine surprises; as expected rates were kept on hold at 1.50%, and Trichet refused to be drawn on any in depth discussion of the Greek crisis or secondary bond purchases beyond what has been officially disclosed. The take home message from the ensuing press conference is that the ECB’s tightening bias is now well and truly negated, as growth forecasts were revised down significantly and inflation forecasts were downgraded as well. The BoE also announced their latest monetary policy decisions yesterday, but in line with expectations, rates were left at 0.50% and the asset purchase target remains for now at GBP200bn. The lack of any increase in asset purchases allowed the GBP to rally shortly after the announcement, with the pair able to hit a high of 1.6083.

During the US session, Obama unveiled his ambitious $447bn plan to revive the flagging US labour market, but it is clear that a long period of negotiation stands in the way of him being able to push through the programme.

Looking ahead to today’s session, we are expecting Norway’s latest CPI figures and UK PPI readings to dominate the morning schedule, with the afternoon bringing Canada’s August employment data, and US wholesale inventories.