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Market Recap – The aftermath of ECB

Friday, July 26, 2019 11:14 AM GMT

The take away from yesterday’s monetary meeting is that the ECB is ready to act, but has not acted yet.

The 1.6% inflation that is currently expected by the ECB for 2020, is a level that they do not like and actions will be made to push inflation higher. De-anchoring has not happened, but all measures of inflation expectations are pointing south. The response will be (a) even lower rates that will remain at least through 1H2020, possibly starting from the September’s meeting, (b) sticking to forward guidance, (c) a tier iii system for reserve remuneration (that would potentially help banks to avoid the negative consequences of falling rates)  and (d) an extra asset purchase program. Both the size and the composition of this program is being examined by the ECB’s committee and no details have been shared. Expansionary fiscal policy should address the idiosyncratic issues that are present at European economies that are depended on their shrinking manufacturing activity, like Germany and Italy. The rebound scenario for 2Q19 has not happened, and the rebound scenario for 3Q19 is weakening.

Delegates from the UK, France, Germany, Russia, China and Iran have scheduled to meet in Vienna, during the weekend, to discuss on the 2015 nuclear deal, that the USA has been dropped out from.

Japan is set to remove South Korea from the list of favored trading partners

Macro releases: The focus turns to the US GDP q/q release.

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