The euro stayed on its southbound route as Draghi confirmed that the central bank is in no rush to end QE or to hike interest rates. Meanwhile, the Greenback drew some support from news that the House passed a resolution that could make it smoother for tax reform to clear Congress.
- U.S. initial jobless claims at 233K vs. 235K forecast
- U.S. preliminary wholesale inventories at 0.3% vs. 0.4% forecast, 0.9% previous
- U.S. pending home sales flat in Sept vs. projected 0.2% uptick
- ECB head Draghi: Atmosphere was pretty positive, decision not unanimuous
- Draghi: Inflation not as encouraging, domestic price pressures muted
- Yellen out of the Fed Chair race, down to Powell and Taylor
- House passed budget resolution for tax bill to pass Senate without Democratic support
ECB statement presser
Euro bears were already painting the town red by the time the ECB monetary policy announcement was made, and the selloff continued even throughout Draghi’s press conference.
The head honcho admitted that the decision to continue the monthly pace of asset purchases at €60 billion until the end of the year then to trim it down to €30 billion until September 2018 or beyond was not unanimous.
Still, he said that the “atmosphere was pretty positive” and that policymakers acknowledged that growth is showing momentum, employment is improving, and investment is picking up.
When it came to inflation, however, Draghi cautioned that it is not as encouraging. He explained:
“Wage growth has increased somewhat, but domestic cost pressures still remain subdued overall. Underlying inflation in the euro area is expected to continue to rise gradually over the medium term.”
As for his economic outlook, Draghi was actually optimistic in noting that “The latest data and survey results point to unabated growth momentum in the second half of this year” and that “Risks surrounding the euro area growth outlook remain broadly balanced.”
One big step forward for tax reform
Score one for the Trump administration! The U.S. House of Representatives voted 216-212 to pass a budget resolution that would make it easier to pass the tax bill without Democratic approval.
In particular, this resolution ensures that the 100-seat Senate can still pass tax legislation with a simple majority instead of the 60-vote super majority. Keep in mind that Republicans have a few seats more than Democrats in Senate at 52-48.
Democrats have been strongly opposed to the tax reform plan, calling it a giveaway to the rich and corporations that would cause the government deficit to balloon. Several lawmakers are also unhappy about the proposal to scale back the tax-deferred U.S. retirement savings program to make up for revenue lost to tax cuts.
A couple of equity indices managed to close in the green for the day, but the Nasdaq lagged behind:
- Dow 30 index is up 71.40 points to 23,400.86 (+0.31%)
- S&P 500 index is up 3.25 points to 2,560.40 (+0.13%)
- Nasdaq is down 7.12 points to 6,556.77 (-0.11%)
U.S. bond yields are also in the red:
- U.S. 10-year yield is down 0.17% to 2.450%
- U.S. 30-year yield is down 0.03% to 2.960%
Fed Chairmanship race down to Powell and Taylor
Word on Wall Street is that Fed head honcho Yellen is unlikely to be asked to extend her stint in the central bank as Trump’s top contenders are down to Powell and Taylor.
According to a report on Politico, another candidate Kevin Warsh is also out of the running. Recall that Powell is seen to be the more dovish option compared to Taylor, but there’s also the possibility that Trump could pick one to serve as head honcho while the other will be second-in-command as Vice Chair.
White House officials continue to reiterate that no final decision has been made while a unanimous senior source also shared that Trump changes his mind every day. No kidding.
Major Market Mover(s):
The euro continued to tread on its southbound route for the most part of the U.S. session as bulls appeared unimpressed by the “dovish taper.” It didn’t help that Catalonia’s independence issues are back in the spotlight.
EUR/USD edged lower to 1.1640, EUR/JPY slid from 134.25 to 132.76, EUR/GBP is down to .8860, and EUR/AUD dipped to a low of 1.5184.
The scrilla was able to catch a break and profit from progress on tax reform, even as the uncertainty over the next Fed head still lingered.
USD/JPY bounced off 113.34 to 114.20, USD/CHF is up to .9986, AUD/USD fell from .7705 to .7644, and USD/CAD is up to 1.2859.
Watch Out For:
- 12:30 am GMT: Japanese national core CPI y/y (0.7% expected, 0.7% previous)
- 12:30 am GMT: Tokyo core CPI y/y (0.5% expected, 0.5% previous)
- 1:30 am GMT: Australia PPI q/q (0.4% expected, 0.5% previous)