Euro traders continued to express their disappointment over the ECB statement, and Draghi’s presser did little to turn those frowns upside down.
In contrast, dollar bulls came charging after the U.S. printed stronger than expected retail sales data, underscoring the upbeat FOMC announcement earlier this week.
- Draghi: Growth remains solid and broad-based, moderation due to temporary factors
- Draghi: Risks to outlook remain broadly balanced, uncertainties from trade
- ECB downgraded 2018 GDP forecast from 2.4% to 2.1%
- ECB upgraded 2018 inflation forecast from 1.4% to 1.7%
- ECB upgraded next year’s inflation forecast from 1.4% to 1.7% also
- U.S. headline May retail sales up by 0.8% vs. 0.4% forecast, 0.4% previous
- U.S. core May retail sales up by 0.9% vs. 0.5% forecast, 0.4% previous
- U.S. initial jobless claims down from 222K to 218K vs. 223K forecast
- U.S. import prices up by another 0.6% vs. 0.5% estimate
- New Zealand Business NZ manufacturing index down from 59.1 to 54.5
During the previous trading session, the ECB announced their decision to keep monetary policy unchanged as expected. However, euro bulls were disappointed to find out that the central bank has no plans to hike rates “through the summer of 2019,” which is a real bummer because the market has already priced in a June rate hike, market analysts say
In his prepared speech during the press conference, Draghi explained that the Governing Council didn’t want to underplay the remaining risks to their outlook, so they’re taking it slow when it comes to removing stimulus.
Draghi acknowledged that the euro zone economy has made substantial progress in inflation, adding that “long-term expectations remain well-anchored” and that the convergence to their target will continue.
As for growth, he admitted that the latest number are weaker due to temporary factors like external trade and uncertainty. Still, Draghi cited that consumption is supported by strong employment and increasing household wealth.
This outlook led policymakers to downgrade this year’s GDP forecast from 2.4% back in March to 2.1% and to upgrade the inflation estimate from 1.4% to 1.7%. The ECB also upgraded its inflation forecast for next year while maintaining that of 2019.
In response to questions on tapering, Draghi explained that reducing asset purchases doesn’t mean that it’s disappearing. Instead, it could remain their policy toolbox for use if needed again. He also reiterated that the council hadn’t discussed reinvestment policy yet.
When asked if he plans on hiking rates before his term ends in October next year, Draghi was a bit more vague in saying that he expects rates to remain unchanged until the summer of 2019. Summer in Australia maybe?
Strong U.S. retail sales
Not to be outdone by the Brits, the U.S. also printed impressive retail sales data for the month of May.
Headline consumer spending rose 0.8%, twice as much as the projected 0.4% increase, while core retail sales advanced 0.9% versus the 0.5% consensus. As it turned out, the May figures marked the biggest gains in six months as Americans are back to their spending sprees.
Components of the report revealed that auto and gasoline sales were mostly responsible for the gains. Clothing and building materials posted strong increases, along with spending at restaurants and bars.
Commodities up, stocks mixed
Headlines are suggesting that the Trump administration is set to impose tariffs on China today but to a smaller list of companies than originally planned. Stocks tossed and turned then ended mixed:
- Dow 30 index is down 25.89 points to 25,175.31 (-0.10%)
- S&P 500 index is up 6.86 points to 2,782.49 (+0.25%)
- Nasdaq is up 65.34 points to 7,761.04 (+0.85%)
Gold is higher on a bit of safe-haven demand while crude oil chalked up some gains on a potential bottleneck in Cushing. As it turns out, pipelines in the area are struggling to keep up with rising U.S. production.
- Gold is is up $3.14 to $1302.43 per troy ounce (+0.24%)
- WTI crude oil rose $0.35 to $67 per barrel (+0.35%)
Major Market Mover(s):
Euro bears stayed out to play for almost the entire session since the ECB is apparently not in a hurry to hike rates. The downgraded 2018 growth forecast also likely helped to kick the euro lower.
EUR/USD continued to sink from 1.1739 to a low of 1.1563, EUR/JPY tumbled from 129.26 to the 128.00 handle, EUR/GBP dropped like a rock to .8724, and EUR/NZD plummeted to a low of 1.6568.
The Greenback was able to hold on to its top spot, likely buoyed by euro weakness throughout the session and the jump in U.S. retail sales.
USD/JPY advanced from 110.12 to a high of 110.70, GBP/USD erased its gains as it fell to a low of 1.3269, USD/CHF rallied to a high of .9975, and USD/CAD is up to 1.3118.
Watch Out For:
- 3:30 am GMT: RBA Assistant Governor Ellis to testify
- Tentative: BOJ monetary policy statement
- Tentative: BOJ monetary policy press conference