Markets on edge as ECB meeting looms

Financial markets are on edge ahead of Thursday’s anticipat­ed European Central Bank (ECB) meeting which in­vestors hope can provide clarity on how the central bank plans to revive eco­nomic growth in a period of political risk. The Euro­zone continues to be en­gaged in a losing battle with static growth while anae­mic inflation levels that are well below the 2% target have challenged the ECB’s credibility. With most cen­tral banks following a tra­dition of caution, it should be no surprise if the ECB adopts an inactive stance in Thursday’s policy meet­ing. Although it is widely expected that rates remain unchanged, there are spec­ulations over if the bank will announce an exten­sion of its 80 billion month­ly purchases.

What will be interesting will be how Mario Draghi discusses how the Eurozone plans to weather the linger­ing impacts of Brexit while attempting to convince par­ticipants that the ECB still has some ammunition to revive growth. It seems like­ly that today’s policy meet­ing follows a dovish path consequently leaving doors open for further easing in the future. Although key policy settings may remain unchanged today, Draghi may repeat his dovish man­tra which could entice sell­ers to send the Euro lower.

Sterling searches for di­rection

Sterling was open to sharp losses on Wednesday after Bank of England Gov­ernor Mark Carney said he was “comfortable” that the Bank of England acted cor­rectly in cutting UK inter­est rates after Brexit. Car­ney was “absolutely serene” about how he warned of the implications of Brexit to the UK economy before the referendum vote and even stated that the BoE decision to act quelled the impacts of Brexit. Although recent domestic data has suggested that the UK economy dis­played resilience post-Brex­it, it still remains too early to gauge the ramifications of Brexit with concerns still elevated over the UK’s fu­ture relationships with its biggest trading partner.

With the BoE Inflation report hearing ending on neutral footing investors may turn back to UK data to determine if the Bank of England unleashes further stimulus measure in the fu­ture. With recent domes­tic data mixed, some Brex­it concerns were rekindled consequently leaving Ster­ling open to losses. If UK data continues to disap­point, then speculations of the BoE unleashing further stimulus measures could mount which may entice Sterling bears to attack.

Commodity spotlight – Gold

Gold displayed an in­credible rebound this week with prices charging to­wards fresh three-week highs at $1352.46 following the string of soft US eco­nomic data which dented expectations over the Fed­eral Reserve raising US in­terest rates in September. This yellow metal remains extremely sensitive to US rate hike speculations and may be poised for further gains as optimism wanes over the Fed taking action anytime soon. With Dollar weakness potentially be­coming a key theme, Gold bulls may have been pro­vided a solid foundation to install repeated rounds of buying. If US domes­tic data continues to disap­point, then the yellow metal could be gifted an oppor­tunity to venture towards $1375.

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