ECB Monetary Policy in Focus

Daily Analysis - 03/09/2015

European Central Bank to Convene on Monetary Policy

With the purchasing of bonds underway by the ECB, the economic growth in the Eurozone has been largely subdued. Meanwhile the Euro has managed to recover most of its losses since early this year, with prices briefly seeing highs of 1.1712 few weeks ago. In this context, today’s ECB press conference may prove important for the markets. Whether we will see a subtle talk down of the Euro or Draghi maintaining a neutral tone in lieu of Federal Reserve action is yet to be known.

Dow Jones Recovers as China on a Long Holiday

Equities managed to get a breather as Chinese markets were closed until Monday for a near week-long holiday. The Dow Jones Index recovered 294 points from the open to close the day with moderate gains of near 1.83%. However, the main question is whether the US equity markets will be able to sustain this bullish momentum. Tomorrow's NFP data is likely to keep the equity markets pressured with or without China. It was the same story with the German DAX, which gained close to 2.00% for the day.

ADP Payrolls Expectations Adjusted Lower

The monthly private payrolls released by ADP yesterday showed a slower pace of hiring in the month of August. The ADP private payrolls increased 190k last month, below the median estimates of 201k. However, the pace of the number of new jobs was up from the previous month's downward revised 177k from the previous estimates of 185k. The US Dollar was muted to the ADP report as the markets expect to see a robust jobs report this Friday. The optimism comes from an overall increased activity across all the sectors, excluding energy. USDJPY continued its gains yesterday after two consecutive days of posting losses. The dollar closed Wednesday’s session at 120.3 Yen, with the current price action hovering close to the key resistance level at 120.77.

ECB Monetary Policy Press Conference Today

The Eurozone quarterly GDP has been largely unchanging, staying between 0.40% and 0.30% this year. Inflation has also barely made any headway, floating at 0.20% for the most of this year. With the ECB's sovereign bond purchases underways and no major improvements seen in the economy, today's press conference is likely to see Draghi focus address these points. While it would be hard to speculate if the ECB will talk down the Euro, focus is likely to be on the sovereign purchases for the moment. The Euro has stabilized for the most part, after hitting lows near 1.04. With the Fed's major FOMC meeting due in a few weeks time, it is likely that today's ECB meeting will be fairly neutral.

Crude Oil Gains Despite Stockpile Increases

The weekly EIA report showed an increase in commercial crude oil stockpiles. The oversupply in the oil market continues to keep crude oil pressured alongside the slowdown in economic activity from China. However, the report saw WTI crude turn bullish, with prices gaining over 3.00% for the day by Wednesday's close. Crude oil October futures opened the day at $44.26 to close near $46.04. The bullish price action for the past two days anticipates WTI Crude Oil recovering near 38.20% of the previous bearish declines off the highs at 61.85 on June 24^th and $37.76 lows on August 24^th.