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Daily Briefing: Back to normality - ECB in no rush
September 1, 2017 / 7:52 AM / 3 months ago

Daily Briefing: Back to normality - ECB in no rush

LONDON (Reuters) - Nearly three-quarter of economists polled by Reuters now expect the European Central Bank to wait until October to announce a long-awaited reduction in its stimulus programme, according to a survey out this morning.

European Central Bank (ECB) President Mario Draghi gives a speech during Lindau Nobel Laureate Meetings in Lindau, Germany August 23, 2017. REUTERS/Arnd Wiegmann

What is striking about that - and shows just how bumpy the ride could get on the road back to normal monetary policy - is that barely three weeks ago, slightly over half of them predicted it would come in September.

The main culprit is the strong euro, which with all the uncertainty being generated by everything from Brexit to Trump to North Korea, is emerging as a safe-haven currency. That, as sources revealed yesterday, is now very much part of the internal debate within the ECB as it recognises that this makes its inflation target yet more elusive.

Manufacturing PMI data for euro zone economies due out this morning is very unlikely to change that picture before the ECB's policy-setting meeting next week. German PMI, for example, is seen unchanged in August, while in Britain a slight weakening is predicted.

This week's round of Brexit talks was never expected to produce much progress, but it certainly generated a lot of bad blood, with mutual accusations of stubbornness and exasperated jibes and one-liners dominating a testy joint news conference with the EU's Michel Barnier and Britain's David Davis.

Not to be outdone, British trade minister Liam Fox has hardened the tone this morning by insisting that Britain would not be "blackmailed" into agreeing on the cost of leaving the European Union, and urged Brussels to move negotiations on to discuss Britain's future relationship with the bloc. Another couple of negotiating rounds are scheduled before an October summit due to take stock of progress so far.

MARKETS

The dollar is slightly higher against a basket of other major currencies before the monthly U.S. jobs report but still close to the 2-1/2-year low hit earlier this week, having fallen in August for the fifth month on the trot.

A dip in U.S. inflation in August weighed on the dollar on Thursday, and prompted some analysts to push back expectations for a third Federal Reserve rate hike this year, but the index is up 0.1 percent on Friday morning. Economists polled by Reuters expect 180,000 jobs were added last month, compared with 209,000 in July.

The euro is down 0.2 percent at $1.1889, having fallen against the dollar on Thursday after sources told Reuters recent rapid rises in the single currency were worrying European Central Bank policymakers and could mean its asset purchases would be phased out only slowly.

European shares are expected to start the new month on a positive note after three months of losses with European stocks futures trading broadly higher, except for FTSE futures which are flat. A slide in crude prices on the back of storm Harvey’s disruption in the U.S. could weigh on the commodity-heavy UK blue chips.

Whilst corporate news may be on the thin side, French firms Iliad and Vivendi have reported results, and an improvement at the latter's Canal Plus unit could help sentiment among Europe’s battered media sector following ProSieben’s slump earlier in the week.

Stocks movers/company news: France's Vivendi confirms outlook as Q2 shows Canal Plus improving; Insurer Lancashire expects limited claims payout from Harvey; Truck maker Volvo targets operating margin above 10 pc; Iliad profit rises on subscriber gains; Rathbone Brothers terminates merger talks with Smith & Williamson.

MSCI’s main index of Asia-Pacific shares, excluding Japan, rose 0.2 percent and Tokyo stocks closed up 0.2 percent. Chinese shares are marginally higher after a private survey of factory activity hit a six-month high. That also lifted the price of copper.

Oil prices are down, with flooding taking out nearly a quarter of U.S. refining capacity. Brent crude is down 22 cents at $52.64.

German government bond yields dipped half a basis point to 0.36 percent.

Emerging market shares bolstered their roaring year so far on Friday, climbing toward their seventh week of unbroken gains as China’s yuan hit its latest 14-month high too. Russian stocks performed strongly after a bank sector relief rally that Otkritie was getting bailed out rather than bailed in.

Polish stocks made solid 1.7 pct gains this week and Hungary stocks are still at record highs.

In Kenya, the Supreme court is to rule on opposition leader Odinga’s petition challenging the re-election of President Kenyatta. This could move the shilling and bond prices.

Outwatching fresh moves in Otkritie shares after they fell 5 percent on Thursday. The shares slumped to their lowest since early 2016 and the April 2019 bond fell to a record low.

editing by John Stonestreet

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