· The euro skidded below $1.10 on Thursday after the European Central Bank cut interest rates and unexpectedly relaunched a quantitative easing programme as well to boost the region’s economy.
Investors had expected a rate cut at Thursday’s meeting but there was some uncertainty as to whether policymakers would restart a QE programme after some ECB members expressed doubt in recent weeks about the need to relaunch asset purchases.
The euro, after initially rising, dropped sharply to as low as $1.0955, the day’s low and down 0.5% on the session, as investors digested news of the rate cut and relaunch of QE. The euro hit a 28-month low earlier this month of $1.0926.
The single currency also weakened against the Swiss franc and Japanese yen.
ECB President Mario Draghi gives his press conference at 1230 GMT, where investors will be looking for signals of further rate cuts and whether policymakers plan to tweak their inflation targeting framework.
Thursday’s meeting was the first in a series of major central bank events, with Federal Reserve and Bank of Japan meetings next week.
Euro/dollar overnight implied volatility had soared to its highest since mid-2018 in the run-up to Thursday’s policy statement.
The dollar rose against a basket of currencies and was last up 0.2% at 98.568.
· The European Central Bank (ECB) announced a massive new bond-buying program Thursday in a bid to stimulate the ailing euro zone economy.
The central bank’s quantitative easing (QE) program will entail 20 billion euros ($21.9 billion) per month of net asset purchases for as long as it deems necessary.
The ECB also cut its main deposit rate by 10 basis points to -0.5%, a record low but in line with market expectations.
In a press conference following the decision, ECB President Mario Draghi urged governments to take fiscal measures to supplement the central bank’s monetary stimulus and reinvigorate the euro zone economy.
“In view of the weakening economic outlook and the continued prominence of downside risk, governments with fiscal space should act in an effective and timely manner,” Draghi said.
“In countries where public debt is high, governments need to pursue prudent policies that will create the conditions for automatic stabilizers to operate freely. All countries should reinforce their efforts to achieve a more growth-friendly composition of public finances,” he added.
Additionally, the ECB changed its TLTRO (targeted long-term refinancing operations) rate to provide more favorable bank lending conditions and match that of its refinancing rate, erasing a previous 10 basis point spread.
· President Donald Trump signaled Thursday that he would consider an interim trade deal with China, even though he would not prefer it.
The president told reporters he would like to ink a full agreement with the world’s second largest economy. However, he left the door open to striking a limited deal with Beijing.
Trump’s statements add to confusion sparked earlier in the day about what the White House would accept in its ongoing negotiations with China. U.S. stock indexes initially climbed on a report that the Trump administration talked about crafting an interim agreement. A White House official then said the U.S. is “absolutely not” considering such a deal, causing markets to give up some of those gains.
Asked to clarify if Trump’s position had changed from earlier in the day, White House spokesman Judd Deere emphasized the president’s comment that he would prefer a complete agreement.
· U.S. President Donald Trump said on Thursday his administration would unveil a tax overhaul plan aimed at middle-income households next year, amid the 2020 presidential election.
“We’ll be announcing it sometime in the next year. But it’ll be very, very substantial tax cut for middle-income folks who work so hard. And we’ll look forward to that. We’re going to work on it altogether,” Trump told Republican lawmakers, without providing any additional details.
Trump has said his administration was considering potential tax cuts, seeking to play down market anxieties over a possible recession. At the end of 2017, Trump passed a tax overhaul passed by the Republican-led Congress.
· China and the United States are disrupting trade in much of the world with their trade war — but Mexico may be a winner.
Despite fresh hopes among investors for a peaceful conclusion, the trade conflict that began between the world’s two biggest economies more than a year ago shows no substantive signs of ending.
But amid all the chaos, Mexico is coming out on top, said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce. Mexico, he said, has been able to build on its emergence as a manufacturing hub “with free-trade agreements that offer guaranteed access to more than 50 foreign countries.”
“Mexico has a number of key advantages in comparison to other cheaper labor options, predominantly in the Southeast Asian region, as a manufacturing and export platform,” Murphy outlined via email for CNBC.
1. Mexico’s close proximity to the U.S. market and tariff-free access it enjoys with the United States
2. A relatively minor cultural gap between the U.S. and Mexico that has improved drastically over the years
3. Substantial degree of integration between the two countries:
- 36 million Americans of Mexican descent
- hundreds of billions in annual bilateral trade
- more than $100 billion in U.S. direct investment in Mexico
4. Infrastructure connections domestically and cross-border that continue to improve
· Half of Japanese companies have seen their profits hurt by the U.S.-China trade war, although few firms are planning to shift operations or supply chains out of China yet, a Reuters poll found.
The Reuters survey showed 45% of Japanese firms have had their profits affected to some extent by the U.S.-China tariffs, while 6% have been greatly affected. Some 42% of firms said they have hardly been hit, and 7% see no impact at all.
· The leader of the Democratic Unionist Party (DUP), the Northern Irish party which backs British Prime Minister Boris Johnson’s government, said the party will not support a Brexit deal that “divides the internal market of the UK”.
Arlene Foster’s response came as the Times newspaper reported the DUP has agreed to accept Northern Ireland abiding by some European Union rules after Brexit as part of a deal to replace the Irish backstop, potentially opening the door to a withdrawal agreement.
· The European Union has pressed Britain to give Northern Ireland special status within the bloc’s trading orbit to unlock a Brexit deal, with Dublin promising a positive response should London shift its position.
· Oil prices fell about 1.5% on Thursday after a media report cast doubt on the possibility of an interim U.S.-China trade deal and as a meeting of the OPEC+ alliance yielded no decision on deepening crude supply cuts.
Oil was pressured further after the European Central Bank cut its deposit rate to a record low -0.5% from -0.4% and said it will restart bond purchases of 20 billion euros a month from November to prop up euro zone growth.
Brent crude futures were down 74 cents, or 1.2%, at $60.07 a barrel by 1:54 p.m. EDT (1754 GMT). U.S. West Texas Intermediate crude futures fell 92 cents, or 1.7%, to $54.83 a barrel. Both were heading for a third session of losses.
Both Brent and WTI fell below the $60 and $55 a barrel marks during the session, triggering auto-selling.
Reference: CNBC, Reuters
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