The Week Ahead: Draghi Time


After a wild few days of Brexit politics, the markets get a hugely symbolic and important ECB meeting this week with expectations for a significant easing package. The key question is to what degree? Data from across the pond will inform on how the US consumer is faring whilst that unending drama here at home will no doubt uncover more political shenanigans, on the way to a general election.

The main focus for markets will be Thursday’s ECB meeting, which will potentially set guidance for the months to come. Both the market and many forecasters have cowered to the recent string of ECB hawks and the consensus now seems to have slowed from what Draghi contemplated back in July.

We think that entails a deposit rate cut of 10 basis points, a commitment to restart asset purchases and a strengthening of forward guidance. Does Draghi have one last stimulus surprise? Ten-year inflation expectations recently printed below 1% which tells us they are screaming for a bigger than expected QE programme.

Last week in Brexit-land, Prime Minister Johnson lost his majority, his control over Brexit and even the trust of his brother. The no-deal blocking bill is set to become law on Monday and markets have chosen to salute the opposition by buying sterling. However, the thick fog of uncertainty is not a good scenario for the UK economy and we might see this manifest itself in a 'technical recession' this week with the release of the GDP figures (ie. two quarters of growth contraction).

Finally, the US has a quieter week ahead in terms of data with the focus on inflation and retail sales. Employment growth remains healthy after Friday's solid non-farm report and with wages rising, consumers are still buoyant. Meanwhile, core inflation is set to continue ticking up even as the headline is depressed by energy costs.

Here are the key events on the calendar across global markets this week:

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