Euro hits two-year low after ECB signals future stimulus – as it happened
Rolling coverage of the latest economic and financial news as Mario Draghi prepares central bank for interest rate cuts
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3.07pm BST
Mario Draghi has played today's ECB announcement pretty much exactly in line with the consensus: signal stimulative rate cuts for the future, while holding back for now.
The ECB president worked hard to sound a bit more hawkish in today's press conference. You can see how that played out in the reaction of stock markets, which initially rose before falling back. The FTSE 100 has now lost 0.4% today.
We are very confident that today's message from the central bank is that they'll do more [to stimulate the economy]. In effect, Mr. Draghi's comments today can be summed up in the shift from the idea that the ECB is "committed to act" to the position that it is now "determined to act," not to mention the repeated reference to the fact that ECB governors "do not like what they're seeing in the inflation data."
The ECB left policy unchanged at today's meeting and all but committed itself to easing at its meeting in September. Draghi emphasised that the risks to growth remain on the downside, inflation remains muted and the 2% inflation target is symmetric - implying that an overshoot would be tolerated to compensate for past undershooting.
Ongoing emphasis by central banks around the world that monetary policy cannot be the only game in town in the face of a global slowdown.
In this case #ECB forgot to addGermany https://t.co/pJRKVGvgsb
On the #ECB decision:
The German government needs to reverse course on fiscal policy to counteract high global risks and uncertainty. Germany's position has been for too long to rely on ECB support while complaining about low interest rates at the same time. #in
Related: Low-carbon energy makes majority of UK electricity for first time
2.32pm BST
As Draghi finished speaking US stock markets moved lower at the open.
The Nasdaq composite fell by 0.36%, the S&P 500 lost 0.14% and the Dow Jones industrial average lost 0.04%.
2.28pm BST
"I am not available" to swap roles with Christine Lagarde to become the head of the International Monetary Fund, Draghi says. It's not an issue.
And in response to US President Donald Trump's complaints about "currency manipulation", Draghi says he does not target the exchange rate as part of his mandate.
2.26pm BST
A question on Libra, Facebook's planned digital currency. Draghi was clearly prepared for it, as he read a long list of concerns from his notes.
Libra was not an issue for the governing council but was discussed quite extensively in the G7, Draghi says. There was a pretty unanimous view that there were concerns as well as interest.
2.17pm BST
A year ago many economists thought Draghi would leave Frankfurt with his first rate hike. That has been proven almost certainly wrong, but there might still be some action before he leaves.
Wolfgang Bauer, fixed income manager at M&G Investment, said:
Mario Draghi's ECB presidency is likely to end not with a whimper but a bang. After revising forward guidance today, an interest rate cut at the ECB's upcoming monetary policy meeting in September seems highly likely. In addition, the odds of a revival of net asset purchases have increased significantly.
Market reactions once again proved that central banks currently trump any economic woes. And these have been mounting in Europe: Not long before the ECB's announcement today, and hardly registered by market participants, the Ifo Pan Germany Business Climate Index had dropped to its lowest reading since April 2013. The danger is that investors become too complacent, relying fully on accommodative monetary policy, and ignore the late-cycle risks that are lingering in the background.
2.14pm BST
What will Mario Draghi do after his term ends on 31 October?
I haven't come to a determination, he says, rather boringly.
2.09pm BST
The euro is back at about $1.117 against the US dollar, as Draghi sounds less dovish than the statement suggested.
#EUR is taking back gains as Draghi continues to sound less dovish than expected today. No discussion at all on rate cuts can be treated as a lack of urgency on the #ECB side. https://t.co/7BE5xb7IGj
2.06pm BST
The recession risk is still pretty low, Draghi says, pointing to high employment and other factors which boost spending.
However, manufacturing is struggling, he acknowledges, with spillovers to other sectors of the economy.
2.02pm BST
Looks as no unanimity achieved on the next big monetary stimulus package. #ECB's Draghi: Convergence of views, rather than unanimity among ECB policy makers. Says different nuances of views on parts of package, but committees received broad mandate. pic.twitter.com/n1Wv4nvBo9
Strong language. Above market expectation. #ECB #qe #stimulus https://t.co/okzf5N00xb
2.01pm BST
We want to see the next projections before taking action, Draghi says. That sets September as a clear date for any move.
Such complex action (interest rate cuts, quantitative easing, and a possible "tiering" system, which excludes some banks from certain rate cuts to protect them from costly negative rates) need a lot of preparation, he said.
1.58pm BST
"We don't like what we see on the inflation front," Draghi says, talking about the new "symmetry" commitment which would allow them to look past a temporary bump in headline inflation.
There is no cap at 2% inflation, he says.
1.52pm BST
Some of the governing council had different answers on different parts of the package, Draghi says (but they eventually converged).
First question finally done.
This has to be Draghi's longest answer ever... and it's only the 1st question. #ECB
1.51pm BST
The lingering uncertainty on various geopolitical questions is itself a realisation of one of the risks to growth, Draghi says.
He goes through the statement in some more detail, emphasising the easing bias in the notes. There is "a consistent degree of optionality" in the statement, he says.
1.47pm BST
Was the decision unanimous to pre-announce an interest rate cut in September?
There was "broad agreement" on the assessment of the current economic outlook, Draghi says.
1.45pm BST
Summing up his opening statement, Draghi makes it clear that loose policy is here to stay, and follows with his standard call for some help from governments on the fiscal side.
"An ample degree of monetary accommodation is still necessary" to support the European economy Draghi says.
1.41pm BST
The euro hit that two-year low mark before Draghi started speaking. It traded as low as $1.1100 against the US dollar.
The risks remain tilted to the downside because of geopolitical uncertainties, Draghi says.
1.38pm BST
Inflation expectations have fallen, so there is more need for support from monetary policy, Draghi says.
Somewhat lower growth is coming in the second and third quarters of the year, he adds.
1.37pm BST
Draghi (who is in Frankfurt at the ECB's headquarters) reads out the governing council's monetary policy statement.
And now for his more specific comments.
1.33pm BST
Mario Draghi is about to answer questions. Expect a lot of trying to catch him out on the timing and mix of stimulus measures.
Hetal Mehta, senior European Economist at Legal & General Investment Management, said:
The European Central Bank (ECB) might have disappointed those looking for an immediate rate cut after the spate of weak sentiment data, but their statement of intent is clear: easing is coming, and soon. A tiered deposit rate, more QE and rate cuts are all options on the menu; Draghi and the rest of the Governing Council are trying to show that they have not run out of tools. Shoring up their credibility is clearly a key priority and they cannot deny any longer that inflation expectations are de-anchored*.
1.20pm BST
The euro is just a whisker shy of two-year lows against the US dollar.
It traded as low as $1.1107 in the aftermath of the announcement. If it breaks below $1.1106 it will be the lowest level since May 2017 by my reckoning - tantalisingly close (if almost entirely of symbolic value).
1.10pm BST
An important update:
'ZERO' reaction in #bitcoin on the #ECB statement. #notgold pic.twitter.com/COy1UwCBbQ
1.08pm BST
Thoughts at the press conference (due in about 20 minutes) will turn to what mix of stimulus measures Draghi et al. will consider necessary at the September meeting.
"The ECB is loading its bazooka, but with what?" asks Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.
As we have persistently noted, the ECB never pre-commits. But this is as close at it gets.
Further easing is on the way. But what kind? We are fairly certain that deposit rate cuts are coming, but today's initial statement points towards a combination of rate cuts and QE. We are sure that Mr. Draghi will be quizzed intensely about this balance, and options, in the press conference.
1.05pm BST
Demand for UK government debt has increased, with the yield on the 10-year gilt falling to its lowest level since September 2016.
The yield on the benchmark bond fell to a low of 0.65%. Yields move inversely to prices.
1.02pm BST
Some reaction from economists is now coming through.
Ana Andrade, analyst at the Economist intelligence Unit, said it has "laid the ground for a cut, but will wait for September to implement further stimulus - which will then be backed by hard data and fresh macroeconomic projections."
Weak economic momentum and rising deflation risk, as measured by the substantial de-anchoring of inflation expectations over the past few months, call for further action.
The press release reveals a much more dovish stance than expected. Up until now the re-start of QE remained a vague possibility. But the ECB's decision to task the relevant Eurosystem Committees with examining options for further stimulus, and the formal reinforcement of the ECB's commitment to the symmetry in its inflation aim leave no room for doubt about the ECB's willingness to act. Whether by re-starting QE or by substantially cutting the deposit rate.
1.00pm BST
There could be more quantitative easing on the way, with ECB economists in Frankfurt tasked with looking at options to "reinforce" its interest rates actions.
The ECB's statement said:
The Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.
12.51pm BST
The euro briefly bounced higher, but has now hit another two-month low of $1.1118 against the US dollar.
Read the ECB's full statement here.
12.49pm BST
There is some strong guidance on the future path of interest rates, however.
Policy will remain "highly accommodative" for "a prolonged period of time".
The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation outlook continues to fall short of its aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.
12.46pm BST
The ECB's governing council has voted to leave interest rates unchanged.
From its statement:
At today's meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term.
12.43pm BST
A reminder: the 12:45pm BST announcement will be followed by the press conference led by ECB president Mario Draghi at 1:30pm BST.
You will be able to watch the ECB's webcast of the press conference at this link.
12.41pm BST
So a quick round-up as we prepare for the announcement: the euro is now flat for the day against the US dollar.
Sterling is up by about 0.14% against the euro and the dollar.
12.34pm BST
With barely 10 minutes left until the ECB's announcement, perhaps they will take a leaf from Turkey's book?
Its central bank has slashed the key interest deeply, by 4.25 percentage points, in a first monetary policy meeting under its new governor. The interest rate was cut on Thursday to 19.75% from 24%, the Associated Press reports.
12.30pm BST
The largest carmaker in Britain, Jaguar Land Rover, lost 395m in the second quarter of the year after a sales slump.
Jaguar Land Rover is in a period of major transformation. We are simplifying our business, delivering on our product strategy and adapting to the tough market environment. We will build on our strong foundations and increased operating efficiency to return to profit this fiscal year.
12.05pm BST
Jacob Rees-Mogg, newly appointed leader of the house of commons, has resigned from his role at a London-headquartered hedge fund, according to the London Evening Standard.
BREAKING: Jacob Rees-Mogg steps down from his role at Somerset Capital Management
11.51am BST
Boris Johnson has promised to make the UK the "greatest place on earth" in his first statement to the house of commons. Quite the echo of another blond world leader (and no mention of extraterrestrial ambitions from earlier in the week).
Michael Gove is in charge of no-deal planning - what the Brexit department will be doing is unclear.
11.37am BST
With the ECB and the US Federal Reserve both looking to cut interest rates, what is the Bank of England up to? Not much, for the moment, appears to be the answer.
The Bank's rate-setting monetary policy committee meets next week (ahead of Thursday's announcement) but will stick to its "solitary policy path", according to Martin Beck at Oxford Economics, a consultancy.
A new PM, a likely shift in fiscal policy and continued Brexit uncertainty give the MPC good cause to continue a wait-and-see approach and leave the possibility of tighter policy until well into 2020.
Amid further signs of dovishness from the US Fed and the European Central Bank, the monetary policy committee is likely to leave the BoE the odd one out among major central banks
11.22am BST
And here are the CBI retail figures in chart form.
This is a percentage balance, so 42% of the surveyed retailers report a fall in sales compared to 26% who say sales have risen -giving a balance of -16%.
11.12am BST
Retail sales fell for the third consecutive month in the year to July, marking the longest period of decline since 2011, according to the latest distributive trades survey by the Confederation of British Industry (CBI).
Weakness in sales from the department stores, clothing and other normal goods (e.g., jewellery, flowers) were the main driver of the weakness, although grocery sales improved.
Whilst last year's summer strength in retail sales is driving some of the comparative weakness this year, it is still hugely concerning that sales have fallen for the longest period in almost eight years. Despite the recent pick-up we've seen in households' real earnings, the sun is clearly not shining on the British High Street.
The UK economy has reached a fork in the road. The new Prime Minister must now do everything in his power to achieve a good Brexit deal, thus protecting jobs and our economy.
11.05am BST
A quick currencies update: there's not much happening.
The pound is basically flat against the euro (at about a1.12) and the US dollar (still below $1.25).
10.59am BST
Another interesting intervention from Gerard Lyons, tipped by some to be a contender to be the next governor of the Bank of England.
Lyons - a former chief economist at Standard Chartered bank, and a rare Brexit-backing economist - has downplayed his chances of getting the nod for the job from the Treasury, but he has advised Boris Johnson on economics in the past, meaning his views could be a useful bellwether for the approach of the new administration.
As we have seen in recent years, the fiscal numbers have improved. And even though in the near term there will be some uncertainty associated with leaving the EU, I think there is more room for manoeuvre.
10.42am BST
Here's one of the consequences of Draghi's "whatever it takes" monetary policy support: Germany's Dax benchmark equity index has almost doubled during his time in office.
(It's the ninth anniversary of the "whatever it takes" speech tomorrow - which took place in London's Lancaster House. Look at the run of green in the second half of 2012.)
#FUN FACT:$DAX Performance since #Draghi took over #ECB pic.twitter.com/BeFh84KslF
10.06am BST
Could the Ifo survey have influenced the ECB's monetary policy decision?
Jack Allen-Reynolds, senior Europe economist at Capital Economics, a consultancy, said:
We still suspect that the ECB will wait until September before cutting interest rates, but the chance of a cut today has increased.
The case for it to wait until September to cut interest rates remains fairly strong. By then, it will have Q2 GDP data and a new set of economic forecasts. But an interest rate cut this afternoon would not be a huge surprise.
10.00am BST
The European economic "omens aren't great", says Kit Juckes, chief global FX strategist at French investment bank Socii(C)ti(C) Gi(C)ni(C)rale, and the ECB may struggle to come up with the power to stimulate ailing European industry.
In 2012 Mario Draghi famously promised to do "whatever it takes" to help the eurozone economy and preserve the euro, but the days of a policy "bazooka" in the form of quanititative easing bond buying are over, Juckes says:
In truth, the ECB is down to a couple of pea-shooters. The days of "whatever it takes" are long gone. Fiscal policy needs to engage. We'll take our cue from the bond market, but I doubt that anything the ECB does/says provides much comfort.
9.43am BST
A helpful chart here from Nadia Gharbi, an economist at Pictet Wealth Management:
IFO survey confirms PMI message. German manufacturing sector remains the key source of concern. IFO manufacturing index is down to -4.3 in July, its lowest level since February 2010 pic.twitter.com/cP1MghAuho
9.42am BST
Germany is looking at a structural decline in the performance of its powerhouse manufacturing industry, some economists are saying.
"Still no silver linings for the German economy," says Carsten Brzeski, chief economist at ING Germany, the investment bank.
All in all, the German economy is currently at a dangerous crossroads. The powerful recession insurance, domestic demand, is crumbling. Against the background of constantly weakening sentiment, it is doubtful whether domestic demand could rebound without external support, i.e. fiscal stimulus or trade relief.
9.34am BST
There are some punchy statements on a possible German recession coming through after the Ifo survey.
VP Bank analyst Thomas Gitzel, via Reuters, said:
The most important German economic indicator suggests that the German economy is heading towards a recession.
9.28am BST
The euro just hit its lowest level since the end of May, with all the signs pointing towards monetary easing to come from the European Central Bank.
9.17am BST
It will be too late for the ECB's interest rates decision, but the latest measure of German business confidence from the influential Ifo Institute shows that morale has sagged more than expected in July.
The closely followed measure fell to a reading of 95.7 - well below the consensus expectations of 97.1.
9.05am BST
Boris Johnson is planning to set out his "priorities for government" in his first appearance as prime minister in the house of commons - at about 10:30am BST.
Perhaps he can shed some more light on what will be happening by 31 October, the Brexit deadline.
Following Business Qs, there will be one government oral statement in the @HouseofCommons today:
The Prime Minister - Priorities for Government
8.56am BST
People in the UK are braced for the continued heatwave, but predicted temperatures of 39 degrees Celsius will be good news for one company: Unilever.
Market growth in Europe and North America was held back by the impact of weather on ice cream sales.
8.49am BST
At the other end of the scale to Nissan, Volkswagen has bucked the recent trend of struggling carmakers with a 30% jump in operating profits in the second quarter.
In the first half of the year, the Volkswagen Group performed very well in a generally weaker overall market. The development of sales revenue and profit in the first six months is gratifying. We also confirm our outlook for the Volkswagen Group for the year as a whole.
8.29am BST
Meanwhile, Metro Bank's shares are down by 16% after hitting a record low this morning following the resignation of founder Vernon Hill as chairman last night.
Related: Metro Bank to replace founder Vernon Hill as chairman
8.22am BST
Cobham shares have surged by 35% after the bid from private equity firm Advent.
8.15am BST
Japanese carmaker Nissan has announced 12,500 job cuts worldwide - more than the 10,000 previously reported - as profits plunged by 98.5% in the first quarter of its 2019 financial year.
In line with production optimizations, the company will reduce headcount by roughly 12,500. Furthermore, the company will reduce the size of its product lineup by at least 10% by the end of fiscal year 2022 in order to improve product competitiveness by focusing investment on global core models and strategic regional models.
8.03am BST
The FTSE 100 has risen by 0.2% at the opening bell. Top risers include ITV for a second day and miner Anglo American - although neither has gained more than 2% in early trading.
Across Europe, the Euro Stoxx 600 is up by 0.6%, led by France's Cac 40, up 0.7%, and Italy's FTSE MIB, up by 0.35%. Germany's Dax gained 0.4%.
7.59am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Boris Johnson has started his reign as prime minister with a brutal cabinet cull. He promised on Tuesday to steal leadership rival Jeremy Hunt's ideas, but he did not want him in his cabinet. In the top jobs are chancellor Sajid Javid, home secretary Priti Patel and foreign secretary Dominic Raab. Keen Brexiteer Andrea Leadsom is head of the business department, and will likely strike a somewhat different tone to predecessor Greg Clark.
It is another disappointing signal for the ECB whohad previously hoped that growth would begin to pick up in the second half of this year. They are now becoming increasingly resigned to a more protracted economic slowdown.
Chances of a rate cut today have risen substantially after this week's PMIs and BLS. But the bigger question is about QE - watch out for Draghi's comments about (SPF) inflation expectations. https://t.co/Rna7GM07Qf
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