(27 JULY 2018)DAILY MARKET BRIEF 1:Draghi avoids the tough questions, US data in focus
As broadly expected, the European Central Bank held interest rates unchanged yesterday. The marginal lending facility and the deposit facility rates will remain at 0.25% and -0.40%, respectively. Despite the euro zone enjoying solid growth, Mario Draghi didn't change his tune as he declared that it still needs "significant monetary policy stimulus." The ECB is still expected to maintain its €2.4 trillion bond-buying program until the end of the year, while interest rates should remain on hold "through the summer" of 2019. During the question-and-answer session, journalists tried to get more clarity about the significance of "through the summer." Draghi didn't budge as he refused to provide a deadline. It shows that the ECB is eager to keep its leeway should things not turn out as expected. Finally, the central bank didn't provide further information regarding the reinvestment process of cash from its bond-buying program. Draghi said the matter was not discussed by the Governing Council.
However, the market knew very well that the ECB wouldn't provide further information about monetary policy tightening. The main topic of the day was trade relations between the US and the European Union. Indeed, higher tariffs by the US could dampen economic growth. Again, Draghi refused to comment – he just acknowledged it is "a good sign" – and said that the ECB "took note" and that it was "too early to assess the actual content."
Draghi's cautiousness triggered a broad-based dollar rally. During the press conference, EUR/USD fell more than 0.70% to 1.1640. Even the disappointing economic data from the US didn't prevent the dollar index from surging more than 0.60% to 94.76. June durable goods orders increased 1%m/m versus 3% expected. Excluding transportation, the gauge advanced 0.4%m/m versus 0.5% anticipated. Traders will be watching US second quarter GDP growth today (forecast 4.2% q/q annualized and 2% previous), Q2 core PCE (2.2% exp.) and personal consumption (3% exp. and 0.9% previous).
By Arnaud Masset
