30 May 2017
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Mario Draghi comments Eurozone still needs "very accommodative" financing conditions.

Mario Draghi, the ECB president, claims that weak inflation figures mean that the Eurozone still needs "very accommodative" financing conditions.

By Edward Bell


With most major markets closed for a public holiday it was a data deprived start to the week. The only significant catalyst for markets overnight was a town hall-type event in the UK where the leaders of the main political parties set out their views ahead of the upcoming June election. Prime Minister Theresa May indicated she would 'walk away' from negotiations with the European Union over Brexit if she was unable to make a deal. This uncertainty over the UK's position in dealing with the EU and a narrowing of the Conservatives lead in latest polls put downward pressure on sterling which tumbled to 1.28.

While data was in short supply, commentary out of the Eurozone raised concerns about both Italy and Greece. Matteo Renzi, the former prime minister of Italy supported holding new elections at the same time as Germany's in September while there is some growing concern that Greece may not pay back a bailout payment due in July. The news did help bring the Euro lower but we caution that this may be more of the market reaching for developments rather than anything more substantial. More significant though were comments out from Mario Draghi, the ECB president, saying that weak inflation figures mean that the Eurozone still needs "very accommodative" financing conditions. Eurozone inflation will be out later in the week and if it indeed underperforms, Draghi's commentary could set the stage for some form of enhanced monetary stimulus in the Eurozone.


Sterling acting as a release valve for UK's political uncertainty

Source: EIKON, Emirates NBD Research


Day’s Economic Data and Events







EC Economic Confidence



GE CPI y/y



US Personal Spending



PCE Core y/y



US Consumer Confidence






Source: Bloomberg.


Fixed Income

Rates market was subdued and credit spreads moved sideways with most of the developed world being on holiday yesterday. Despite fed officials reiterating appropriateness of two more rate hikes this year, UST curve shifted marginally downwards in early morning trades today. Yields on 2yr and 10yr treasuries are at 1.29% (unchanged) and 2.24% (-1bp) respectively. 10yr Bund yields closed 3bps lower at 0.29%, mostly in response to Mario Draghi’s comment about the economy needing the central bank’s support for some more time.

CDS levels on US IG and Euro Main were unchanged at 62bps each. Locally CDS levels on GCC sovereigns were also range bound along with the credit spreads on cash bonds. Credit spreads and yield on BUAEUL index were little altered by yesterday’s thin trading and closed the day unchanged at 131bps and 3.03% respectively.

In the corporate world the only notable news was the possibility of  Kuwait Finance House (rated A1/Neg, A-/Neg, A+/stable) planning to buy Bahrain’s Ahli United Bank (BBB/stable, BBB+/Stable). Given KFH’s higher rating the positive benefit that may accrue to AUB’s credit profile already seem to have boosted the price on AUBBI 6.875% perp with yield narrowing from 5.51% last week to around 5.00% now.



EUR underperforms against the other major currencies following comments by ECB President Mario Draghi (see above), EURUSD is currently trading 0.33% lower at 1.1127. While the daily candle chart remains in an uptrend, the hourly candle chart shows a reversal of the previous uptrend that had been in effect since May 12th. A break below the 1.1080 level would catalyse further losses in the short term.

This morning’s strongest performing currency is JPY, which has gained on the other majors due to safe haven bids. Of particular note is the EURJPY cross which has thus far fallen 0.67% to 123.39, its lowest level in 10 days. A daily close below the 123 level is expected to be followed by a retest of 122 in quick succession.



It was a day of subdued trading for developed market equities as markets in the UK and the US were closed for holidays.

Regional equities rebounded from the lows of Sunday with the Tadawul adding +0.6% and the DFM index rallying +0.7%.

REITs listed on the Tadawul received a boost from high investor interest in the Taleem REIT IPO. The issue was over-subscribed 890%. Elsewhere, Drake & Scull rallied +1.5% following speculation about the company’s recovery plan.



With most major markets out to start the week crude prices saw little movement. Brent futures are presently holding just above USD 52/b while WTI is dancing either side of USD 50/b. December spreads have continued to narrow following on from Thursday's OPEC meeting with Brent 17-18 spreads now in a backwardation of less than USD 0.50/b.

Written By

Edward Bell Head of Market Economics


Emirates NBD Research Research Analyst

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