FX News Today
The fact that a recent ECB survey indicates rising demand for company loans and mortgages, it is a net positive development that the ECB measures are starting to take root. The central bank said in the release of its latest bank lending survey that banks are using the liquidity created by the quantitative easing measures to grant more loans. Meanwhile banks are reporting rising demand for company loans as well as lending for house purchases. A large part of the trouble within the Eurozone has been the lack of confidence from borrowers to borrow funds from banks. The whole point of the ECB QE program is to stimulate the Eurozone’s economy through making borrowing attractive enough for business to borrow and invest those borrowed funds back into their business. The hope of the ECB is that those businesses will create jobs and get the economy moving.
Fed’s Williams repeated his preference for an early move to raise interest rates. The Fed board member was speaking on Bloomberg and he said that he sees good arguments on both sides of the timing of a FED rate hike. But a 0% interest rate stance will not likely be needed in the future. He said the economy is strengthening, but noted that there are some concerns to the future economic outlook.
ECB’s Linde: Inflation trend is somewhat worrying. The Spanish central bank head stressed that the ECB has manifested that it can extend the QE program if needed, although he also said that the third Greek bailout deal has mitigated risks in Europe and that Spain is well positioned to deal with external challenges. No clear call for further easing, although so short ahead of the meeting, this would be unusual. Still, as Nowotny before him, Linde also voiced concerns about the inflation numbers, instead of highlighting that the weak headline rates are driven by the drop in oil prices, as Draghi has done so far.
Main Macro Events Today
• EUR German producer price inflation: dropped to 2.1% y/y in September, from -1.7% y/y in the previous month. Expectations had been for an unchanged headline rate and the drop further into negative territory was to a large extent due to lower energy prices, which fell 1.1% m/m and were down 6.1% y/y. Basic goods prices were also lower over the month.
• GBP BOE’s Governor Carney Speech: Sterling has been shining since data last week showed a drop in UK unemployment below 5.4%, which is for the first time in the cycle below the point at which the BoE expects labor market constraints to push price pressures upward. Traders will seek clues in Mr. Carny’s speech about when a rate hike could be expected.
• USD Housing Starts: Housing starts are expected to edge up to a 1,130k unit pace in September following the 3.0% drop to 1,126k in August. July set a high back to Oct ’07 and compares to a low of 521k in April ’09. Forecast risk: upward, as the NAHB remained firm. Market risk: downward, as a run of weaker data could impact rate hike time-lines. Permits are expected at 1,150k in September from 1,161k in August.
Janne Muta
Chief Market Analyst
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About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
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