Daily Commentary BY THE CURVE TEAM –

Calming Comments From ECB Whilst Irma Comes In Softer Than Expected

12th of September, 2017

Markets look to have bounced back on the news that the impact of Hurricane Irma is going to be more subdued than previously expected. Overnight we heard some calming comments out the the ECB as they look to prep the market for the normalisation of the balance sheet.

News out of Florida is that the damage bill caused by Hurricane Irma will not be as large as previously expected. Markets are taking the news well, particularly following the cautious comments we heard over the weekend by NY Fed President Dudley around the timing of the next rate hike. Fed Fund Futures are now pricing a December hike at 46%.

Moving to Europe and following the news last week about the timing of the tapering of the ECB balance sheet, markets have been urged not to worry about the move towards normalisation. Estonian ECB Member Ardo Hansson was out last night voicing these concerns saying that “One must understand that the process of normalization of policy stance is very gradual, and in fact it has been already started.

Whilst these comments are looking to soothe concerns about drastic policy adjustment, the big issue that still remains is the ongoing strength of the Euro. This will be front of mind for the ECB going forward, as further appreciation combined could dampen consumer price pressure.

The release of business conditions and consumer confidence over the next two days will have the RBA watching carefully. The divergence between the two has been a focal point of late particularly following the Q2 GDP figures released last week.

Oliver Parsons

Client Relationship Officer