Markets mixed ahead of eurozone health check as Draghi defends QE – live

French manufacturing for August beats expectations, German powers ahead and eurozone data due, as ECB president speaks in Germany

The dip in France’s service sector could be a cause for concern for jobs, said economist Julien Manceaux at ING Bank:

Preliminary PMI data for August sent mixed signals this morning. While in manufacturing the expansion seen in the second quarter of 2017 should continue, it seems that the expansion rhythm is slowing in the service sector, which could impact job creation. The labour market reform to be presented next week could shore up hiring intentions, but it is still far from a done deal.

Today’s [manufacturing] PMI is a sign that the stronger than expected recovery in industrial production in the second quarter of 2017 (+1.2% quarter on quarter after -0.2% quarter on quarter in the first quarter of 2017) should continue in the second half of the year, boosted in part by the recovering building sector.

Those German numbers show a positive performance this month for the country’s economy.

The manufacturing PMI came in at 59.4, up from 58.1 in July and better than the expected 57.7 as the country’s factories continued to turn in a strong performance.

#Germany Markit Manufacturing PMI Flash at 59.4

#Germany Markit Services PMI Flash at 53.4

#Germany Markit Composite PMI Flash at 55.7

The euro has moved off the day’s lows, up 0.1% on the day against the dollar with the pound down 0.17% to €1.0882.

But analysts believe this has less to do with Draghi and more to do with the German PMI figures which have been released at much the same time (more on that in a moment).

think that may have been German PMI’s Karen – unless I missed something

Here’s a live link to Draghi’s speech on Bloomberg:

Mario Draghi @ecb gives Lindau speech ahead of Jackson Hole event — live @BloombergTV

#ECB‘s #Draghi has nothing new to say to traders in the markets really … this is a speech written for academics possibly by academics

The ECB’s policy of economic stimulus has come under criticism, not least from Germany for its negative effect on savers.

Draghi defends the moves as based on solid research:

A policy response that has its foundation in rigorous research is less prone to being impaired by political compromise and easier to explain to the general public.

… Keynes is often quoted as saying, “When the facts change, I change my mind. What do you do, sir?” Well, for policymakers, it is not that simple, and research helps us to decide whether a change in the facts deserves a policy response or, as we say, we should look through it….

We must be aware of the gaps that still remain in our knowledge. Our mainstream macroeconomic models still have little to say, for instance, about the non-linear propagation of shocks, the distributional impacts of policies, or how endogenous firm entry and exit can affect economic performance. Policy actions undertaken in the last ten years in monetary policy and in regulation and supervision have made the world more resilient.

But we should continue preparing for new challenges.

ECB boss Mario Draghi’s speech has been released, and is a run through of the financial crisis and the authorities’ response to it.

Entitled The interdependence of research and policymaking there seem few hints as to the future plans for the bank’s QE programme.

Economic research has also evolved in its thinking of how central banks should respond to an emerging crisis, particularly when their standard monetary policy instrument, typically a short-term interest rate, reaches its effective lower bound. At the lower bound, monetary accommodation cannot be provided through further reductions in short-term interest rates and policy must become non-standard.

One option is to rely on forward guidance, i.e. to promise to keep interest rates low for longer in the future. Such commitments, if credible, lower longer-term interest rates and provide economic stimulus even if the current interest rate remains unchanged. While forward guidance is a useful instrument, recent research has highlighted that its effectiveness can be improved if combined with other non-standard monetary policies.

It is a downbeat opening for European markets, as investors remain cautious thanks to the continuing geopolitical concerns – North Korea, Trump – and ahead of the central bankers meeting at Jackson Hole.

The FTSE 100 has fallen 0.1%, not helped by the drop in advertising giant WPP. Germany’s Dax has opened down 0.1%, France’s Cac is 0.2% lower, Spain’s Ibex is flat and Italy’s FTSE MIB has edged up 0.05%.

Advertising giant WPP has seen its shares slide in early trading after the group cut its full year net sales target. It dropped as low as £13.93, down 12%, before recovering a little to its current £14.70, down 8%. Mark Sweney reports:

Sir Martin Sorrell’s WPP is facing its worst year in a decade as the world’s largest advertising group was forced to slash growth forecasts for the second time after sales went into reverse in the first half.

The company cut its full-year growth forecast for revenues and net sales to between zero and 1% after reporting a marked deterioration in the second quarter that missed City expectations by some distance.

Related: WPP faces worst year in a decade as advertisers cut spending

France’s manufacturing sector has beaten forecasts although the services side came in slightly below expectations.

The flash manufacturing PMI for August rose from 54.9 to 55.8, better than the forecast of 54.5. This was the fastest pace for more than six years.

#France Markit Manufacturing PMI Flash at 55.8

#France Markit Services PMI Flash at 55.5

#France Markit Composite PMI Flash at 55.6


Don’t get too excited on Draghi appearance at #LiNoEcon. Those hoping for QE clue will be probably left empty handed as no questions allowed

More on Draghi, with Konstantinos Anthis at ADS Securities suggesting the ECB president may not be able to avoid giving some hints as to the bank’s thinking on the future of its economic stimulus package:

The stakes are high for Mario Draghi during the Jackson Hole Symposium as he is expected to avoid talking about tapering at this point in an attempt to soften the euro but it will be virtually impossible for him to successfully sidestep any questions regarding the matter. A good precursor of what the ECB President will talk about will be his speech in Lindau, Germany today and if he hints on a bearish bias ahead of the weekend meeting in Wyoming then the Euro will drive towards 1.1700.

The speech from ECB boss Mario Draghi may indeed be a damp squib, reckon analysts at RBC Capital Markets:

This morning, ECB Mario Draghi is scheduled to speak at an event in Lindau, Germany. The ECB’s website has the Draghi address beginning at 8:25 BST with the text of the address published on the ECB website. As we have argued before when it comes to his Jackson Hole appearance later this week (Friday), we doubt that the ECB president will have anything substantially new to say ahead of the crucial ECB meeting on 7 September. He is more likely to repeat the mantra of patience, persistence and prudence rolled out at the ECB’s equivalent of Jackson Hole in Sintra, Portugal, earlier this summer.

Here are the opening calls for Europe from IG:

Our European opening calls:$FTSE 7370 down 12
$DAX 12234 up 5
$CAC 5130 down 2$IBEX 10417 up 8$MIB 21711 down 19

Good morning, and welcome to our rolling coverage of the latest news from the world economy, the financial markets, the eurozone and business.

We get the latest healthcheck of the eurozone economy today, with provisional August manufacturing and services numbers for France and Germany, as well as the bloc as a whole.

After a strong few months [Germany does] appear to be starting to show signs of plateauing. Expectations are for a modest decline from 58.1 to 57.7 in manufacturing, while services, which have been underperforming expected to pick up from 53.1 to 53.4.

The numbers from France are also expected to decline modestly with manufacturing slipping back to 54.5 from 54.9 and services to come in at 55.9, down from 56.0.

It was only a month ago that the head of the German IFO reported that business confidence had hit record highs in Europe’s largest economy with sentiment amongst German businesses at euphoric levels. This in itself should have acted as a warning sign given that euphoria as an emotion tends to dissipate quite quickly and subsequently be followed by either melancholy or depression.

This appears to be what German investors are experiencing if yesterday’s ZEW economic expectations is any guide, after it hit its lowest level this year, and a 10 month low.

Continue reading…