Market News & Insights
3 October 2014

Draghi disappoints, US job figures look for a rebound

EUR/USD 1.2642
GBP/USD 1.6100
GBP/EUR 1.2733 (0.7852)
EUR/CHF 1.2088
GBP/CHF 1.5391
GBP/AUD 1.8328

Yesterday’s ECB press conference left investors slightly disappointed as they looked for firm stimulus targets on how far how far Draghi’s willing to go to revive the euro-area’s faltering economy. He shied away from a definitive goal for how much the central bank might buy, saying total stimulus may fall short of 1 trillion euros. Fleshing out new plans to boost credit and stave off deflation, the European Central Bank president said officials will start sucking up covered bonds this month and asset-based securities this quarter and continue for at least two years. This was potentially a missed opportunity to offer certainty in a market badly needing any sort of stimulus to stave off a free fall of the euro. Draghi reiterated that he wants to “steer” the ECB’s assets toward early-2012 levels, when they were at more than 3 trillion euros compared with 2 trillion euros currently. Even so, he said investors shouldn’t place too much emphasis on the precise size of the balance sheet. The refusal to lock in a number may reflect division among policy makers or a suspicion that a lack of available assets limits any ballooning of stimulus. Investors had hoped that the ECB would step-up stimulus plans after the recent weakness in both growth and inflation data, either by announcing a very large amount of purchases, or the addition of sovereign-debt purchases.

We had a slight bounce back on EUR/GBP to .7854 (1.2732) as the market digested the press conference but the view is still for a move lower as the eurozone needs to do a lot more to convince markets that its turned a corner. After testing 1.26 a few times this week EUR/USD failed to find support and also had a slight retraction to 1.2679 but again the view is for the cross to push lower.

In the UK we saw the sharpest expansion of UK construction output for eight months with Septembers reading of 64.2 from a forecasted 63.7, with sharp rises in housing, commercial and civil engineering activity. However, while the overall performance of the construction sector was close to its strongest since the summer of 2007, latest data indicated that new order growth and job creation both eased to their lowest for four months.

Stateside the main focus of the day is the non-farm employment figures where we expect the US to bounce back in September with a 200+ net gain jobs after a very disappointing “blip” in August (142k) as all signs point to much stronger job growth. One subpar jobs report is cause for pause. But two in a row is reason to worry so we can expect some USD negativity if we see a figure below 200k.