Euro May Rise Even if the ECB Extends and Expands QE Effort

2016-12-08 08:16:00

Talking Points:

ECB expected to extend QE program, broaden eligible assets
Euro may rise if ECB inflation outlook puts target within sight
NZ Dollar up as RBNZ’s Wheeler signals end of rate cut cycle

All eyes are on the ECB monetary policy announcement in European trading hours. Inflation has firmed since the central bank introduced its QE effort in early 2015 – hitting the highest level in nearly three years at 0.6 percent last month – but remains well below policymakers’ target of near 2 percent. That has stoked expectations that it will be extended beyond its expiry in March.

The ECB has soaked up so much paper already that extending the QE effort will probably mean broadening the scope of assets eligible for purchase. Policymakers may also scrap the restriction on buying bonds with yields below -0.4 percent or do away with the so-called “capital key” that guides the share of purchases allocated to a given Eurozone country’s debt (as argued in our weekly Euro forecast).

On balance, this much may already be priced in. Another key variable at play is the updated set of inflation forecasts. The ECB aims to keep QE until it is confident that price growth is heading in the right direction, meaning it could start unwinding it well before hitting its target. This means that the Euro may rise if officials fall short on any measures already expected or meaningfully upgrade their inflation outlook.

The New Zealand Dollar outperformed in overnight trade after RBNZ Governor Graeme Wheeler appeared to bury rate cut speculation, saying current policy should see inflation reach the 2 percent target. He added that the low point for inflation has probably passed and predicted strong growth prospects for the island nation’s economy over the next 18 months.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
23:50	JPY	BoP Current Account Balance (¥) (OCT)	1719.9b	1545.0b	1821.0b
23:50	JPY	BoP Current Account Adjusted (¥) (OCT)	1928.9b	1716.5b	1477.3b
23:50	JPY	Trade Balance BoP Basis (¥) (OCT)	587.6b	603.0b	642.4b
23:50	JPY	GDP SA (QoQ) (3Q F)	0.3%	0.5%	0.5%
23:50	JPY	GDP Annualized SA (QoQ) (3Q F)	1.3%	2.3%	2.2%
23:50	JPY	GDP Nominal SA (QoQ) (3Q F)	0.1%	0.2%	0.2%
23:50	JPY	GDP Deflator (YoY) (3Q F)	-0.2%	-0.1%	-0.1%
23:50	JPY	GDP Private Consumption (QoQ) (3Q F)	0.3%	0.1%	0.1%
23:50	JPY	GDP Business Spending (QoQ) (3Q F)	-0.4%	0.2%	0.0%
23:50	JPY	Bank Lending Incl Trusts (YoY) (NOV)	2.4%	-	2.4%
23:50	JPY	Bank Lending Ex-Trusts (YoY) (NOV)	2.4%	2.5%	2.4%
0:01	GBP	RICS House Price Balance (NOV)	30%	26%	23%
0:30	AUD	Trade Balance (A$) (OCT)	-1541m	-610m	-1272m
2:00	JPY	Tokyo Avg Office Vacancies (NOV)	3.75	-	3.64
3:41	CNY	Trade Balance (CNY) (NOV)	298.11b	320.00b	325.25b
3:41	CNY	Exports (CNY) (YoY) (NOV)	5.9%	-1.0%	-3.2%
3:41	CNY	Imports (CNY) (YoY) (NOV)	13.0%	3.6%	3.2%
3:55	CNY	Trade Balance ($) (NOV)	44.61b	46.90b	49.06b
3:55	CNY	Exports ($) (YoY) (NOV)	0.1%	-5.0%	-7.3%
3:55	CNY	Imports ($) (YoY) (NOV)	6.7%	-1.9%	-1.4%
4:30	JPY	Bankruptcies (YoY) (NOV)	-2.53%	-	-7.95%
5:00	JPY	Eco Watchers Survey: Current (NOV)	48.6	-	46.2
5:00	JPY	Eco Watchers Survey: Outlook (NOV)	49.1	-	49.0

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
6:30	EUR	France Non-Farm Payrolls QoQ (3Q F)	0.3%	0.3%	Low
7:30	EUR	Bank of France Bus. Sentiment (NOV)	100	99	Low
12:45	EUR	ECB Main Refinancing Rate	0.0%	0.0%	High
12:45	EUR	ECB Deposit Facility Rate	-0.4%	-0.4%	High
12:45	EUR	ECB Marginal Lending Facility	0.3%	0.3%	High
12:45	EUR	ECB Asset Purchase Target	€80b	€80b	High