ECB kept rates steady and its quantitative easing policy in place

• The ECB kept rates steady and its quantitative easing policy in place at the end of last and ECB president, Mario Draghi, tried to avoid rattling markets in his commentary to the press afterward. Mr Draghi did not outline any specific timing for when the ECB would begin to draw down on its stimulus measures, saying instead that the bank would begin discussing tapering its purchases of government and corporate debt in the autumn. Mr Draghi also declined to express any concern about the level of the Euro, which is now trading near two-year highs. The market took his lack of commentary as a hawkish signal and pushed the single currency up to nearly 1.17 against the USD.
• The market will get more clues about the pace of policy normalization from the ECB this week as manufacturing and services PMI data for the Eurozone will be released at the start of the week. Expectations are for more decent data from the PMI figures, holding comfortably in expansionary territory. PMI data for the US will also come out at the start of the week, with broadly stable conditions expected month on month but the market's fixation will likely be on the Fed meeting in the middle of the week where no change is expected in rates. There is no press conference at the upcoming meeting and the market is pricing in virtually no chance of a hike this week. Manufacturing PMI data for Japan was out early this morning which showed a slight moderation in July but at 52 still remains in growth territory.
• The IMF downgraded its forecast for Saudi Arabia's GDP growth this year, expecting growth will be essentially zero. The fund does expect the budget gap to narrow in 2017 to just over 9% of GDP from 17% last year as non-oil revenues expand, however, growth in the non-oil sector was also cut to just 1.7%. The fund's forecasts are largely in line with our own, where we forecast growth of just 0.5% this year before a moderate recovery in 2018.
• OPEC will hold a meeting with its production cut partners in St Petersburg at the start of the week in an effort to assess compliance with the existing production cut deal. The meeting may release recommendations on how to abet the market rebalancing, such as drawing in Nigeria or Libya into the deal, but we do not expect any significant outcome as a result. The UAE's energy minister, Suhail al Mazrouei, said he expects to see an acceleration of the rebalancing in the second half of the year while Kuwait's oil minister said that further cuts would be possible.

Click here to Download Full article