Friday September 1, 2017 - 14:59:19 GMT
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European Central Bank Meeting Major Focus. U.S. Jobs Data Disappoint
John M. Bland, MBA
Key ECB Meeting On Thursday There was chatter near the end of the week just ending that ECB officials feel the euro is too strong and that its strength is putting the Eurozone fragile economic recovery at risk. This week the EURUSD surged to a two-and-a-half year high and that has put pressure on Germany exports Furthermore, the stronger euro threatens to lower inflation, which is already well below target. On Thursday it was announced that flash Eurozone HICP had increased only 1.20% y/y vs. 1.20% for the same number in July. Core HICP gained 1.50% y/y vs. 1.30%. The ECB targets headline HICP at “just below” 2.00%. That target is symmetrical, meaning they don’t want inflation to fall below or rise above that level, so the ECB still has work to do to bring inflation up to an acceptable level.
Some noted that markets were surprised by the ECB warning about the “risk of the euro overshooting” in the minutes of the bank's most recent meeting. Officials reportedly are worried that ECB efforts to stimulate economic growth could be derailed by the rising currency, which is tantamount to a monetary policy tightening. The ECB has been adding EUR 60bln per month into the Eurozone in hopes of raising inflation (HICP). The ECB has made it clear that it will not start to normalize interest rates until it has been able to end its monthly asset purchase program. The rising EURUSD exchange rate could postpone the policy normalization because a tightening of monetary policy (higher bund yields) would tend to generate even more EUR demand.
There was an unsourced report Friday that the ECB is saying there is a chance the new ECB Quantitative Easing (QE) plan might not be “fully ready” until December. I do not trust unsourced reports, but wonder if the central bank is worried about the recent strength of the EURUSD. Otherwise there is no good reason to delay.
In press comments on Thursday, U.S. Treasury Secretary Mnuchin expressed no concerns about the recent weakness of the USD vs. the EUR, so I don’t suspect he is ready to rush in to help the ECB with its exchange rate dilemma. This Thursday, September 7, sees the next ECB conference. I do not expect any policy changes at this meeting, given the exchange rate issue. Markets will be awaiting any word about a future tapering of asset purchases, and/or, whether President Draghi will jawbone the forex markets on the forex value of the EUR.
August U.S. Employment Data Weak August 2017 U.S. employment data were exceptionally weak. Non-Farm Payroll data fell short of estimates with a gain of +156K vs. +180K expected. The prior month’s gain was also revised lower. The unemployment rate increased, plus Average Hourly Earnings (AHE) missed estimates with the prior data revised lower. AHE has been the focus of the markets recently as it is used as an inflation indicator for the Fed. Some feel the Fed will be careful about tightening as long as they remain weak.
Amazing Trader EVENT RISK Calendar:
Mon 4 Sep
Tue 5 Sep
All Day Service PMIs
Wed 6 Sep
All Day Service PMIs
12:30 US/CA- Trade
14:00 CA- BOC Decision
Thu 7 Sep
All Day Service PMIs
11:45 EZ- ECB Decision
12:30 US- Weekly Jobless
12:30 US- Productivity
15:00 US- EIA Crude
Fri 8 Sep
08:30 GB- Industrial & Manufacturing Output
12:30 CA- Employment
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
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