Targeted LTRO Clarification But No More Action
Saxo Bank | Jul 02, 2014 08:19AM ET
• Euro area PMI composite fell to 52.8 in June
• Inflation and bank lending are main concerns
• New policy measures unlikely
The last couple of European Central Bank (ECB) meetings have been eventful, with the president Mario Draghi promising action in May and then delivering on that pledge at the meeting of the Governing Council in June. Both stocks and currencies responded with (relatively) heavy movement to both those events, with EURUSD moving 160 pips intraday on May 8 and 167 pips on June 5. In comparison, the average intraday range in May and June was 59 pips.
Held up against these two central bank announcements (and subsequent press conferences) this week's meeting of the Governing Council (GC) could be rather subdued. Economic data has not changed much over the past month. The euro area PMI composite fell to 52.8 in June from 53.5 in May, resulting in a quarterly average of 53.4 vs. 53.1 in Q1. Readings around the 53 level are consistent with quarterly GDP growth of 0.3 to 0.4 percent, with consensus currently predicting 0.3 percent. The broad eurocoin index, a euro area counterpart to the Chicago Fed national activity index, was unchanged at 0.31 in June for a quarterly average of 0.34, suggesting that growth in the euro area was actually a bit above trend growth in Q2. Put differently, the recovery remains on track but its speed is anything but impressive.
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