LONDON (Reuters) - A slight easing of trade tensions between the United States and Europe together with less confrontational language out of Rome on budget deficits provide a more comfortable backdrop for Mario Draghi at his press conference following today's meeting of ECB policy-makers.
He is expected to offer only slight tweaks of the Bank’s guidance to stay on course to end bond purchases this year and raise interest rates next autumn. One change will be a small downgrading of some of its growth forecasts after a string of weak figures over the summer, yet for now not enough to raise serious questions about the end date of stimulus.
In Mark Carney's case, the salient context is that the continued uncertainty over Brexit - notwithstanding growing optimism that there will be a deal with the EU - practically rules out any further tightening for now.
Britain will later today publish the latest batch of contingency plans for dealing with disruption in case the country leaves the European Union next year with no deal on future relations with the bloc.
Mobile phone roaming charges, environmental and vehicle standards will be among the topics covered, according to the Brexit ministry. The government line remains that securing a deal with the EU is still the most likely outcome. The biggest question now is whether that deal will ultimately be rejected by its own parliament.
MARKETS AT 0655 GMT
World markets were calmer on Thursday amid signs of some movement in the U.S.-China trade standoff and ahead major central bank meetings later in the day.
Asia’s stock markets rallied after a torrid couple of weeks on news that U.S. Treasury Secretary Mnuchin had invited Chinese officials to restart trade talks. This follows threats from President Trump to impose tariffs on practically all imports from China in the absence of key concessions from Beijing.
MSCI’s Asia ex-Japan index rose 0.6 percent on Thursday after its longest losing streak since 2000. Shanghai stocks gained almost 1 percent and HK’s Hang Seng was up 1.8 percent, with China’s offshore yuan edging back from highs set overnight on the trade news.
Japan’s Nikkei rose almost 1 percent too, as did Indonesia’s main equity benchmark. Seoul’s Kospi underperformed but was also up on the day.
The dollar fell broadly on Wednesday after an unexpected drop in August U.S. producer prices and as some heat came out of the trade dispute, even though it has clawed back some of those gains first thing today and U.S. consumer price readings later in the day will be equally important.
Emerging market currencies remain on edge despite this week’s dollar-related relief, with Turkey’s central bank decision the main focus on Thursday.
The lira edged lower again ahead of the critical decision, with markets expecting an interest rate rise of at least 200-300 basis points after the bank indicated last week it was ready to act to stem lira losses of more than 40 percent this year.
With inflation running at close to 18 percent, a rise in the main one-week repo rate to more than 20 percent from 17.75 percent now is seen by markets as the minimum necessary to shore up the currency, which has been damaged largely by a perception that the central bank has been pressured into keeping rates low by President Erdogan.
The European Central Bank and the Bank of England also both deliver their latest policy decisions. While no major changes are expected from either of those banks, markets will be watching closely for how the institutions will be reading the economic fallout from the trade rows, Brexit and Italy’s fraught budget process.
European and U.S. stock futures edged lower first thing. Wall St indices ended little changed overnight despite the trade development, with Apple slipping more than 1 percent after it released its latest product range with only minor changes to existing offerings.
Crude oil prices topped $80 per barrel on Wednesday for the first time in almost 4 months amid temporary supply concerns due to potentially damaging storms in the United States. Some sign of a weakening of those overnight helped dragged Brent back lower first thing Thursday.
— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —