EUROZONE: ECB's De Guindos On Consumer Conundrum [3/3]
Sep-19 13:13
- ECB Vice President De Guindos touched on this “conundrum” yesterday in the MNI Livestream.
- He considered two possible factors behind the “much more limited recovery of consumption” over time than the ECB has expected.
- The animal spirits that should have improved from inflation falling are being dampened by a broader lack of confidence. That could be stemming from European political risks and continued geopolitical risks, the latter including the ongoing war in Ukraine, which have built on the Covid experience.
- Another potential factor at play is some kind of Ricardian Equivalence, with consumers starting to notice that the fiscal situation is not sustainable, and that sooner or later governments will have to reduce some welfare-related spending or perhaps increase taxes.
- The latter would be coming even without Euro Area countries on aggregate planning future fiscal consolidation, at least on net with German stimulus offsetting potential tightening in Italy and Spain judging by IMF projections of cyclically adjusted primary balances (see chart below).
- We question the extent to which consumers will be factoring this in currently, and would view prospects for future consolidation as an additional downside risk to growth.
- That said, the ECB isn’t exactly optimistic with its real consumption growth projection, eyeing quarterly growth of just 0.3% Q/Q non-annualised over the forecast horizon for similar to if not weaker than latest trends.
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EUR: EUR/USD Boosted on Cook Headlines, EUR/GBP Strength
Aug-20 13:10
- EUR/USD holding the day's gains headed in to the Wall Street opening bell, buoyed by both the modestly softer USD on the call from Trump for Fed's Cook to resign, as well as firm EUR/GBP buying in recent trade, which tips the cross comfortably through 0.8648 highs to print the best levels of the week.
- EUR/GBP has shrugged off the higher-than-expected UK inflation print to rally near 50 pips off the post-data low to mirror the market view higher services CPI today may have only minimal feed-through to the BoE's decision-making process for the rest of this year.
- As a result, EUR/GBP is following the 50-dma higher, which should remain strong support at the close of 0.8626.
SOFR OPTIONS: Mixed Sep'25 SOFR Trade
Aug-20 13:08
- -20,000 SFRU5 95.81/SFRZ5 95.87 put spds, 0.75 net/Sep over
- +4,000 SFRU5 95.62/96.31 call over risk reversals, 0.25 ref 95.9025
CROSS ASSET: Lower Yields are helping some USD Downside
Aug-20 13:06
- A new session high for US Tnotes, now testing Yesterday's high of 111.27, just ahead of the small initial resistance at 111.30+.
- Outright Order flows are still fairly subdued, with all the volumes going through in Desks rolling their September Position into the December Expiry.
- Nonetheless and since Trump's post on Fed Cook, the USD is now on the backfoot, DXY tests session low, and EUR, CHF, and Gold are all testing their respective new intraday high.
