Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s a tricky time to be a central banker, particularly in the eurozone where Covid-19 has driven the economy into recession and inflation into negative territory.
So all eyes are on the European Central Bank as it meets to set monetary policy, releases its new economic forecasts, and faces the press.
The ECB may not take fresh action today. But it can expect questioning on the euro’s recent rally (it hit its highest level since April 2018 last week), and inflation’s decline to -0.2% last month for the first time since 2016.
The FT’s Martin Arnold reckons president Christine Lagarde may flag up the strength of the euro — which could be an attempt to ‘jawbone’ the currency down to get inflation moving.
For the first time in more than two years, the ECB is expected to include a reference to the exchange rate in the “introductory statement” it publishes to present the results of its monetary policy meetings.
While its comment on the euro is likely to be bland, the wording will be closely scrutinised — especially as this week’s meeting is unlikely to produce big policy changes.
The ECB will also be quizzed about the US Federal Reserve’s new strategy of using an average inflation target (AIT) — effectively giving itself wriggle-room to keep pumping stimulus into the economy for longer. Will Europe follow? (although at -0.2%, eurozone inflation is miles from the near-2% target).
Jim Reid of Deutsche Bank predicts that Christine Lagarde will set the stage for further stimulus measures by the end of the year:
In terms of what we’re expecting today, our European economists think that the policy stance will be left unchanged, but that the ECB will reinforce their communications with a resolutely dovish message, before easing further in December with an expansion of their asset purchase programme.
That December easing would coincide with the release of the ECB’s staff 2023 inflation forecasts, which could form the basis for a policy shift.
European markets look subdued ahead of the ECB meeting, following a strong recovery on Wall Street last night:
The pound is creeping higher this morning, up a third of a cent at $1.303. But it could be volatile through the day, as the UK and EU hold emergency talks today over Prime Minister Boris Johnson’s plan to undercut parts of the Brexit divorce treaty.
We also find out how many Americans claimed jobless support last week, a key statistic as the US presidential election draws closer. Economists expect there were 846,000 new claims, down from 881,000 a week earlier.
- 12.45pm BST: ECB interest rate decision
- 1.30pm BST: ECB president Christine Lagarde’s press conference
- 1.30pm BST: US weekly jobless figures
- 4pm BST: US weekly oil inventories