Draghi goes no further ECB President Draghi said he would outline the details of the ECB’s asset-backed securities (ABS) buying program at yesterday’s meeting, and he did. He didn’t go any further, though. He didn’t specify how much he intended to buy, he didn’t say how he was going to get the Bank’s balance sheet back up to 2012 levels, and most important, he failed to repeat last week’s hint that he would be willing to countenance full-blown quantitative easing (QE) and buy sovereign bonds if necessary to achieve that. There were no more comments about the ECB being willing to “alter the size or composition of our unconventional interventions” if necessary. It could be that Draghi was unable to overcome German objections to the idea. Instead, the ECB will focus on the measures that they’ve announced already, such as yesterday’s ABS purchases or the previously announced targeted long-term refinancing operations. However it may be hard for them to achieve his goal of rebuilding the ECB’s balance sheet back to 2012 levels through such measures. Is that bullish or bearish for the euro? On the one hand, it’s bullish insofar as the ECB’s balance sheet might continue to lag other central banks. On the other hand, it’s bearish in that it also means the Eurozone economy is not likely to recover any time soon and rates will have to remain at current levels indefinitely – meaning EUR could turn into the funding currency of choice, along with JPY. I think the latter is more likely and continue to be bearish EUR.
US jobless claims fell unexpectedly yesterday to a level not seen since 2006, while the number of planned layoffs by US employers fell to a 14-year low in September, according to Challenger, Gray & Christmas. Meanwhile, Gallup’s job creation index hit a six-year high. These figures set the stage for a relatively robust US nonfarm payrolls figure for September later today. The market consensus is for a rise of 215k, up from the unexpectedly low 142k in August. The unemployment rate is forecast to remain unchanged at 6.1%, while average hourly earnings are expected to accelerate slightly on a yoy basis. Data along these lines could be expected to support the dollar as they would confirm the steady improvement in the labor market, one of the key worries for the Fed. This could be a surprise for the market as Fed funds rate expectations have actually fallen by nearly 20 bps over the last two weeks (although they are still a bit higher than they were at the time of the last payroll figure).
Separately, the country’s trade deficit for August is anticipated to widen a bit. The final Markit service sector PMI and the ISM non-manufacturing index both for September are also coming out.
Today’s indicators: Today we get the final service-sector PMIs for September from the countries we got the manufacturing data for on Wednesday. Given the recent disappointment from the final manufacturing PMIs, the possibility of lower figures (or a downward revision in the case of those countries that have announced their preliminary data) is high. China for example announced a lower index, adding to the data that suggests the economy there is slowing.
Eurozone’s retail sales for August are also coming out and the forecast is for the monthly figure to rebound somewhat.
In Norway, the official unemployment rate for September is expected to decline to 2.7% from 2.9%. On top of the Norges Bank’s announcement that it would begin buying the equivalent of NOK 250mn per day from this month, a strong employment figure could add to NOK strength. From Sweden, industrial production for August is anticipated to accelerate on a mom basis, a turnaround from the previous month. If the forecast is met, this will add to the improved manufacturing PMI released on Wednesday and should shed some light on Sweden’s recent economic activity.