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Trending Economic: Morning Brief (23 October 2015)

As we mentioned yesterday the main focus was of course the ECB press conference in Malta as usual this followed the minimum bid rate which came out in line at 0.05%. The comments made by Mr Draghi caused the Euro to slip down to two month lows as further monetary easing seems very much likely now. Specifically according to the Interest rate markets, the probability of a 10 bps cut in early 2016 is now fully priced in and there is a 50% chance of further stimulus being announced towards the end of 2015.  In terms of what measures the ECB will use, cutting deposit rates into deeper negative territory is a real possibility although Mr Draghi did note that the ECB is prepared to use all available policy measures and it has not yet decided which policy measures will be most effective. Mr Draghi asserted a number of times that it is no longer a case of “wait and see” but rather a case of “work and assess”. However many are now concerned that with respect to how much can the ECB continue buying in their current asset purchase program, especially as it was stated that the lower bound have already been tested.  Going into today the main focus for the Euro will be a raft Flash Manufacturing and services PMI data. Specifically French data will be released at 0700GMT, German at 0730GMT and the European composite will be released at 0800GMT. The market is currently expecting weaker readings than previously across the board.

The market is now in risk on mode following the ECB’s signal of further easing, this is evidenced by the sharp rally in global stock indices as well as other risk assets. Market expectations are that further expansion of the ECB’s already huge balance sheet will increase liquidity and therefore increase inflows into lagging markets such as China and other Asian markets. Certainly we have seen some strength overnight in emerging Asian currencies following the dovish statements by Mr Draghi and his colleagues. However in terms of traditional safe haven assets like gold there was a relatively muted reaction to the press conference.

Elsewhere in the U.S session we will await the release of Canadian Core CPI m/m and CPI m/m with expectations of a release around 0.3% and -0.1% respectively. Oil Prices continue to remain weak in the medium term; again referring back to Mr Draghi yesterday he noted that the demand side issues of the current bear market were potentially bigger than first anticipated. The market rallied during Asian trading with WTI (December delivery) rallying 13 cents. Support is currently seen around $44.95.