ECB and Draghi deliver no fireworks; UK100 jumps to 3-week high

Summary:

• ECB maintains interest rates

• Final press conference from Draghi

• Eurozone data remains weak

• UK100 jumps to 3-week high

• EU to grant Brexit extension; What next?

The ECB has today maintained interest rates with the key depo rate staying at the record low of -0.5%. This was in line with the market consensus. 

The final press conference from ECB president Mario Draghi delivered little in terms of surprises and has been pretty much a non-event as far as the markets are concerned. The most standout comments were as follows:

• Risks to the economic outlook remain on the downside

• Headline inflation likely to decline further

• Ample degree of monetary policy is still necessary  

• Lower likelihood of a hard Brexit has improved the situation

• Quite a bit of time till QE limits are a problem

Earlier, the Eurozone wide manufacturing PMI came in at 45.7 for the current month, inline with the upwardly revised September reading which together are the joint lowest prints for this metric in 7 years - since the height of the debt crisis. Slowing activity in the manufacturing sector has been a theme for much of the year and is something of a global phenomenon, so this should come as little surprise but the main fear is that this slowdown begins to spread to the service sector. In this regard the Eurozone wide measure is still just about holding up ok but there are signs of softening in the bloc’s largest economy with the German services PMI falling to a 3-year low and the prior reading also seeing a sizable decline.     

The EURUSD has fallen back below the $1.11 handle this afternoon after once more coming up short at the 200 day SMA overhead.   

It’s been a broadly positive session for indices on the whole with the UK 100 the standout performer and adding over 1%.  While the pound has garnered the lion’s share of attention in recent weeks, one by product of its strong surge higher has been an underperformance in the FTSE 100 (UK100 on xStation). Due to around 75% of FTSE100 revenues being generated in non-GBP terms an appreciation of the pound serves to act as a dampener on the broader index. In recent trade the GBPUSD rate has fallen back near its lowest level of the week around 1.2840 and this has provided a boost to the leading UK stock benchmark with the FTSE 100 looking to play catch-up with its European and US peers after lagging behind in recent weeks.

While the current week has once more been dominated by Brexit headlines, markets on the whole appear to be consolidating after the wild swings seen in previous weeks. In this analysis we will look at the current state of play and focus on what to look out for going forward that could drive GBP pairs.