Mario Draghi prepares for swansong as ECB President

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24 October 2019


News out of the Brexit process has dominated the headlines in the financial markets in the past few weeks, but for today at least attention will be squarely on Mario Draghi’s last press conference as President of the European Central Bank.

t its last meeting in September, the ECB announced a scope of easing measures intended to support the ailing Eurozone economy, namely another 10 basis point cut to the bank’s deposit rate and the restarting of its quantitative easing programme (to commence in November). Given that these significant announcements came as recently as last month, we do not expect any new stimulus measures to be introduced, particularly given the QE programme has not even started yet.

Draghi’s farewell speech is likely to remain on the dovish side. Macroeconomic data out of the Euro Area since the last meeting has remained soft, with tepid inflation and another downturn in PMI data likely to ensure that he reiterates the bank’s stance that rates will stay ‘at their present or lower levels’ until inflation returns to target.

The meeting accounts from the September meeting stated that policymakers were divided regarding whether the QE programme should be reintroduced. Draghi may therefore comment on whether this division remains or if some of the less dovish members of the committee are coming round to the need for more aggressive easing measures. Overall, however, we expect the presser to be largely a ceremonial one that actually leaves the euro little changed.

Brexit in limbo, US PMIs to be released

After a quiet session yesterday void of any significant macroeconomic announcements, Thursday should be a much busier day on that front. This afternoon will see the release of US durable goods orders and the US services and manufacturing PMIs from Markit. Further signs that the US economy likely slowed in the third quarter of the year would heap additional pressure on the Federal Reserve to cut interest rates again at the end of the month. In line with our forecasts, EUR/USD has rallied by over 2% so far this month, with heightened bets for Federal Reserve easing and optimism surrounding Brexit largely at the heart of the move.

As far as Brexit is concerned, Wednesday provided a good opportunity for investors to pause for breath following a frantic few days in the House of Commons. After Boris Johnson’s pledge to pull the Withdrawal Agreement Bill, the process is effectively in a limbo period at the moment as MPs wait for a response from the EU regarding the length of the extension they’re willing to grant. The pound still, however, remains bid just above the 1.29 mark. The chances that the EU does indeed grant an extension are very high, while the possibility of the UK crashing out without a deal are as good as zero at this point.