ECB projections to show future growth barely above 1%

Galtero Lara
Setiembre 11, 2019

Germany's 30-year benchmark bond yield DE30YT=RR briefly broke into positive territory for the first time since August 5, while U.S. Treasury yields US2YT=RR US10YT=RR US30YT=RR climbed to three-week highs.

The ECB is therefore anticipated to cut rates and possibly introduce a new quantitative easing (QE) program.

It's a situation that has created deep internal divisions at the European Central Bank, the Bank of Japan and the US Federal Reserve as officials debate how to confront a global slowdown with limited room to cut interest rates, and with elected officials pursuing policies that may be doing harm, at least in the short run.

Trading was fairly muted as "ahead of the ECB meeting on Thursday, there wasn't a lot of economic news for financial markets to trade off", said ANZ Bank economist Michael Callaghan.

Europe's largest economy is teetering on the brink of recession, but strict national spending rules have tied policymakers hands on fiscal policy. Anything below that will add to the view there are more rate cuts on the immediate horizon.

The sell-off in fixed income markets failed to inspire global stocks, where the mood was subdued amid concerns over the health of the world economy.

Data showing China's mainland factory-gate prices shrank at their fastest pace in three years, as flagging demand at home and overseas forced some businesses to slash prices, saw Asian bourses slip lower.

While "market sentiment and trade developments" will be the key focus for markets in the short-term, Callaghan said attention will start to shift to next week's second-quarter gross domestic product data in New Zealand.

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"While the enormous slide in China factory gate prices reminded us of what we already know, United States tariffs are sinking the Chinese economy and at a much quicker pace than anyone could have imagined".

The export-heavy German index was also aided by a Reuters report that Bank of Japan policymakers are now more open to discussing the possibility of expanding stimulus at their September 18-19 board meeting due to the broadening fallout of the U.S.

And climbing bond yields helped lift European banking stocks 1.8%, making financials the best performing sector on the continent.

The euro, which has shed 3 per cent since June, was flat at US$1.1047.

United States stock futures pointed to a lower open on Wall Street after the S&P 500 ended flat in NY on Monday. The euro was broadly flat at $1.104 after reaching an overnight high of $1.1067.

The pound traded near a six-week high of $1.2385 after a law came into force demanding that Prime Minister Boris Johnson delay Britain's departure from the European Union unless he can strike a divorce deal with the bloc.

"Prices are up very marginally, gold is still under pressure; we are at a month low around the $1,490 level because of improvement in risk appetite", Capital Economics analyst Ross Strachan said.

United States crude traded at $58.43 a barrel after hitting the highest since July 31. Brent crude futures climbed to $62.67 a barrel. Saudi Arabia is OPEC's de facto leader.

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