Week in review: The ECB left rates unchanged at record lows today as anticipated by the markets, but was more dovish than expected, hinting more decidedly at further action on the quantitative front. In the press conference following the Council meeting, President Draghi reported in the initial statement that the current purchasing programmes (Asset-Backed Securties and Covered Bonds) will be in place for two years, that the ECB plans to expand its balance sheet up the the level of early 2012 (i.e. by EUR 1tn) and that the ECB staff have been tasked to prepare further measures which can be implemented if needed.
Markets have reacted by pushing the euro lower, as they anticipte that the ECB may start buying sovereign debt as son as in December, when the ECB staff update their forecasts and if the outlook for growth and inflation remains very weak. Data on GDP in the coming week should confirm that the Euro area has stagnated, adding further pressure to the ECB.
Meanwhile, German industrial production was up 1.4%mom in September after -3.1% in August, relieving fears that the growth engine of Europe could be heading towards recession. In any case, data is still consistent with a significant slowdown if not stagnation in Q3.
- Wednesday 12 November: September Industrial production in Portugal and in Europe
- Friday 14 November: Q3 GDP in the EU and several member states. Markets expect the Euro area to stagnate, as well as Germany and France.