Pound falls against euro after ECB meeting; Fathom warns of UK recession - as it happened
All the day's economic and financial news, including rolling coverage of the European Central Bank's monetary policy meeting
- Latest: Fathom sees rising risk of UK recession
- Pound hits eight-month low vs euro
- Summary: What Draghi did, and didn't, say
- Draghi says QE discussions due in the autumn
Earlier:
7.13pm BST
That's all for today. Thanks for reading and commenting, GW
7.08pm BST
This is also interesting. ECB insiders have told Bloomberg that the much-anticipated decision on the future of its bond-purchase programme might not come until October.
A cynic might suggest the ECB didn't enjoy seeing the euro rally against the pound and the US dollar (as that weakens inflation), and wanted to recalibrate the markets' views.....
#Exclusive @ECB could well be waiting until October before QE decision https://t.co/oMDqazPLCX via @jrandow @aspeciale pic.twitter.com/MGBA4veF7J
6.54pm BST
Now this is interesting..... the ECB have just tweeted a video clip from today's press conference.
And it's the section where Mario Draghi spells out that the ECB needs to be "persistent and patient, as we're not there yet".
Watch again: Draghi on what the Governing Council discussed pic.twitter.com/0sut1bWU6F
6.27pm BST
Over in Athens, government officials have welcomed Mario Draghi's proclamation that Greece has made "serious [fiscal] progress".
It comes as speculation grows that Greece is close to testing its fortunes in the bond markets.
IMF:ultimate goal,to get Greece into normal situation where it can return to markets & function in less stressed ec environment @lenaargiri pic.twitter.com/HiTxVKVkZc
6.00pm BST
City research group Fathom has some late gloomy news; they reckon the chances of a UK recession over the next year is greater than 50%.
They cite the slowdown in consumer spending in recent months, as inflation erodes wages.
Defying widespread expectation of a recession, the UK economy weathered the Brexit storm better than the majority of forecasters, ourselves included, anticipated.
That was thanks, in large part, to the strength of consumer spending. But that tide has since turned: the brief period of real wage growth is over; household finances are stretched; and June's inconclusive general election has reignited concerns about the nation's economic prospects.
Odds of a UK recession are now greater than even https://t.co/xS7pu8w77X pic.twitter.com/dyqdA56l06
4.43pm BST
The pound has hit an eight month low against the euro.
That's bad news for British holidaymakers planning a trip to Europe this summer.
Sterling slipped close to a1.11 as the euro strengthened in reaction to remarks by European Central Bank (ECB) president Mario Draghi while the UK currency was again buffeted by fears over Brexit.
The pound's dip - of as much as two cents - took it to its lowest level since November 2016.
It will weaken the spending power of British families preparing to flock to Spanish beaches and French campsites when school holidays begin later this week.
Pound tumbles to eight-month low against the euro https://t.co/1rF8i2mfsY
3.08pm BST
Ouch! Consumer confidence in the eurozone has fallen unexpectedly.
The European Commissions gauge of consumer morale has dropped to minus 1.7, from minus 1.3 in June. Economists had expected it to rise to minus 1.1.
Eurozone Consumer Confidence. pic.twitter.com/chrTXbzhCo
3.05pm BST
I suspect Mario Draghi arrived at today's press conference determined to say as little as possible.
Euro seeing a pretty big jump following #ECB presser.. appears to be taking #Draghi's dovish tone with a dash of salt. #EURUSD pic.twitter.com/rSD91Ox9lx
The key takeaway from today's meeting is that a September taper announcement looks increasingly unlikely as the ECB said that a "very substantial degree of accommodation is needed" to boost inflation, and that the ECB's QE programme will run until the inflation rate picks up.
Since core inflation remains at 1.1%, well below the ECB's 2% target rate, this suggests that QE has further to go. Indeed, the ECB stressed that it would increase its asset purchase scheme, which currently stands at a60bn a month, if the inflation picture deteriorated further.
In reality, there are no big changes from the June press conference or the keynote speech from a few weeks ago. And the overall message is that while the economy is recovering, inflation will only return to target as long as the ECB maintains its accommodative policy stance.
But Draghi is also making sure that the markets don't get ahead of themselves and start pricing in QE adjustment before the ECB settles on the right policy path. In fact, Draghi seems to allow for the possibility that the decision on how to extend QE will not be announced in September, and the exact details may follow later - 26 October, or even 14 December.
Draghi bought himself tons of wiggle room in both directions (dovish and hawkish). Like a good central banker.
Draghi did his best this afternoon to cap the euro, failing quite spectacularly! During his press conference, the ECB President noted that officials were unanimous in not outlining a timeframe on tapering, stating the Central Bank 'was not there yet'.
Many would have seen this in a dovish light and possibly bearish for the single currency, but much the opposite appears to be taking place.
2.25pm BST
And finally....
Q: are you worried that areas of the eurozone economy which have benefitted from your stimulus programme will struggle when it is taken away?
2.23pm BST
Q: Does September 7th count as the autumn? [ie, could a decision on tapering QE come at the ECB's next meeting?]
Haha, says Draghi.
Key question for the #ECB presser: technically September 7 is still summer. Or is already autumn for #Draghi?
2.20pm BST
Q: Does the ECB's inflation target need to be rethought, given the failure to hit it?
Draghi points out that most top central banks aim for an inflation rate of around 2%.
2.17pm BST
Q: Might the ECB change its 'capital key' rules (which dictate how many bonds it can buy from each eurozone country)?
We haven't discussed that, says Draghi (this is his theme for the day)
Shorter Draghi -'We haven't discussed that'
2.15pm BST
Q: Will you have concrete options on the table for a possible QE exit in time for your next meeting, in September? Or would you only take the decision to task staff to do that work at September's meeting?
And.... secondly, what are the chances that you have to change your QE programme again, to ensure there are enough bonds to buy?
2.12pm BST
Draghi is as dovish as I have heard in a long time but all markets are hearing is autumn, autumn, autumn #economics #ecb #draghi
2.11pm BST
The euro has jumped while Draghi is speaking. It's now up 0.5% today at $1.155, having been a cent lower earlier.
This may be triggered by Draghi's comment that the ECB will discuss how to proceed with its QE programme in the autumn.....
EUR vs 5D intraday High: pic.twitter.com/OjnhJ6obkI
Euro jumps to $1.1567 on Draghi comments. Says ECB is "finally" experiencing a robust recovery. Has to wait for wages & inflation to follow.
2.08pm BST
Q: Have you asked staff to look at the technical details of QE after December (when the current programme expires)?
No, says Draghi. It's not been discussed, and they've not been tasked.
Draghi says press constantly banging on about hiring and personnel issues at the ECB is SAD. Umm...
2.03pm BST
Q: Greece wants to return to the financial markets, so how confident are you that the ECB will include Greece in your QE programme, and buy its government bonds?
It's up to the Greek government to decide whether to tap the markets, says Draghi.
2.00pm BST
The governing council trusts the strength and the power of its monetary package in all its elements, says Draghi firmly. We still stay in the market for a long time, he adds.
Is he channelling Darth Vader?!
*DRAGHI SAYS ECB TRUSTS STRENGTH, POWER OF POLICY PACKAGE pic.twitter.com/7cAoIzGGh8
1.57pm BST
Q: You sound more dovish on inflation than in your speech in Sintra last month, so how do you see inflation rising to the ECB's target?
Draghi insists that there's little difference between today's statement, and the Sintra speech (when he said that inflationary pressures had replaced deflationary ones).
1.55pm BST
Q: Is the ECB worried about triggering a taper tantrum, like the US Federal Reserve experienced, when it slows its bond-buying programme?
Inflation is not where we want it to be, nor where it should be, Mario Draghi replies firmly.
We only have to wait for wages and prices to follow course.
The last thing the Governing Council wants is an untimely tightening that slows down this process, or even jeopardises it.
1.50pm BST
Onto questions.
Q) Did the ECB discuss what changes it would make to its asset purchase scheme after December?
In other words, our discussions should take place in the fall, or in the autumn as we are in Europe.
1.44pm BST
As usual, Draghi ends his statement by urging eurozone politicians to implement structural reforms.
*DRAGHI SAYS STRUCTURAL REFORMS MUST BE STEPPED UP SUBSTANTIALLY
1.43pm BST
Draghi: recovery in growth of loans to private sector proceeding, annual growth non-financial rate stable at 2.7%; household 2.6% from 2.4%
1.42pm BST
The risks to the growth outlook in the eurozone are broadly balanced, Draghi continues.
But this growth has not yet translated into 'stronger inflation dynamics', he says -- pointing out that headline inflation is dampened by weak energy prices.
1.38pm BST
Mario Draghi has arrived in the ECB's press room, accompanied by vice-president Vitor Constincio.
He begins by confirming that the governing council decided to keep the key interest rates unchanged, and expects them to remain at their present levels for an extended period of time - and and well past the horizon of the net asset purchases.
1.34pm BST
A quick newsflash from America - the number of people signing on for jobless benefits has fallen to a nine-week low of 233,000.
That's down from 247,000 last week, and shows the US labor market is still robust.
U.S. jobless claims drop to a 9-week low amid a worker shortage https://t.co/gaS40RePFT pic.twitter.com/8y2Rn44NL5
1.27pm BST
The euro has also dropped 0.3% against the pound, to a1.127, meaning one euro is worth 88.7p.
Alexandra Russell-Oliver of currency trading firm Caxton says the euro could fall further once Mario Draghi speaks. But in the longer term, it is likely to gain value.
The press conference will be key as traders seek clues as to the timing of the winding down of stimulus. ECB President could strike a more cautious tone to avoid adding further fuel to the speculative fire, which may weaken the euro.
Ultimately, the expected winding down of stimulus will likely continue to be supportive of the euro."
1.19pm BST
Mario Draghi will explain today's decisions to the press pack in Frankfurt shortly.
You can watch the press conference live, here: (I've also embedded this at the top of the blog)
The key takeaway from the press conference for us will be how Draghi justifies his "hawkish" talk in Sintra late last month when he mentioned the word "reflation" and euro bulls ran with it.
Considering there are still no signs of reflation and the ECB's statement is still as dovish and QE-supporting as ever, will Draghi backtrack?
1.15pm BST
Kerim Derhalli, CEO and founder of investment game app invstr, says Mario Draghi is keen not to roil the markets today:
"While the possibility of an unlikely interest rate hike is slowly growing, it's no surprise that Mario Draghi has opted to keep European Central Bank rates unchanged for now.
"Despite some evidence that monetary stimulus has been working, the fact that inflation in the eurozone slipped back to 1.3% in June suggests that a change now would be unwise.
1.02pm BST
Fred Ducrozet of Swiss bank Pictet says today's statement is dovish, simply because the ECB hasn't changed its position on QE.
Unchanged = dovish statement: ECB stands ready to increase QE "in terms of size and/or duration".
No change in #ECB language in decion statement. Best option to show ECB's dovishness.
ECB statement today almost word-for-word the same as last month's. pic.twitter.com/cvUlo94Zsq
For all the "reflation"/hawkish Draghi talk #ECB hasn't dropped reference to possible QE extension in July statement https://t.co/KjZzttR8Ns
Suggests markets overreacted to Sintra speech. Although still think Draghi was testing the water - formal shift in tone likely in September.
12.59pm BST
The euro has dipped following the ECB announcement, down 0.3% at $1.148.
That's because the governing council didn't drop its pledge to boost its stimulus programme in the future, if needed.
#ECB keeps rates unchanged as expetected. #Euro dips below $1.15 on statement as ECB didn't drop QE easing bias. pic.twitter.com/QXzdGozimZ
12.52pm BST
Importantly, the European Central Bank has not decided to 'taper' its stimulus scheme today.
Instead, the central bank has repeated its pledge to keep buying a60bn of new bonds each month until the end of this year.
Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of a60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.
The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.
12.50pm BST
The ECB has repeated its pledge to keep borrowing costs at their record low "for an extended period of time", and well past the horizon when it stops buying new assets through its QE programme.
12.47pm BST
Newsflash: The European Central Bank has left interest rates unchanged, at today's meeting.
That means that:
#ECB holds. As expected.
12.45pm BST
We may have a winner...
#DraghiTieGuesses pic.twitter.com/sn0nGdRGIL
12.15pm BST
There are just 30 minutes to go until the European Central Bank announces this month's monetary policy decision (followed by Mario Draghi's press conference 45 minutes later)
Naeem Aslam of Think Markets predicts a cautious performance from the ECB president:
The panic could only be if the ECB drops some unexpected surprise in the market and the chances of that are very low.
We expect the ECB to be very subtle in their approach and the main agenda for them would be to reinforce their forward guidance. What we do want to hear from the ECB is that the policy members have discussed the topic of tapering.
Purple#draghitieguesses pic.twitter.com/x4HALwcrmu
hmmmm. I'm going for the bright blue tie of action. The Whatever It Takes tie. https://t.co/I1aj0fd38g
11.46am BST
More alarming figures from Greece have been released this morning, showing that the net worth of Greek households fell by a staggering 40% between 2009, when the country's debt drama erupted, and 2014.
11.43am BST
With the Brexit clock ticking, Deutsche Bank has told its staff that it is preparing for a 'hard' exit from the EU.
That will means that some operations are shifted out of London and transferred to Frankfurt.
Deutsche Bank is preparing for a hard Brexit and will probably book the "vast majority" of its assets in Frankfurt, Chief Executive Officer John Cryan tells employees in a videotaped message.
"There's an awful lot of detail to be ironed out and agreed; depending on what the rules and regulations turn out to be, we will try to minimize disruption for our clients and for our own people," Cryan says in the video.
Deutsche Bank Preparing for Hard Brexit, CEO Cryan Tells Employees https://t.co/QYlNXb7UWA via @business
11.27am BST
The pound jumped back over $1.30 when the retail sales figures hit the wires, but the rally didn't have legs.
Sterling is now back at $1.2960, down over half a cent today.
Although the bounce in sales last month was a welcome development, it still means that for the first half of the year retail sales will be relatively flat, and may only contribute 0.1% to Q2 GDP.
This does not bode well for the UK growth outlook, which is one reason why the pound's reaction has been muted.
10.59am BST
It's also worth remembering that Britain's retail sales figures are partly based on credit.
The latest figures from the Bank of England showed that unsecured consumer credit , such as credit cards, jumped by 10.3% in the year to May, five times as fast as the growth rate of earnings.
Don't forget, credit card borrowing data in May suggested highest growth rates in 11 years #retailsales #BOE
Real challenge while real wage growth stays sluggish is understanding what is real growth & what is fuelled by credit IMHO
10.22am BST
Andrew Sentance, senior economic adviser at PwC, fears that UK consumer spending will remain subdued for many months:
"The volume of retail sales has been quite volatile from month to month over the first half of this year. There was a recovery in June from a disappointing May, perhaps supported by warmer weather. But, over the past three months, the level of retail spending adjusted for inflation is no higher than it was in the final quarter of last year.
"Consumer spending has stalled, after a period of strong growth - with retail sales volumes increasing by 4.4% a year in the three years 2014-16. Rising inflation, driven by a weak pound, has squeezed the purchasing power of consumers.
9.53am BST
Despite June's revival, UK retail sales have actually been flattish since the start of 2017.
Kate Davies, Office for National Statistics Senior Statistician, explains:
"Today's retail sales figures show overall growth. A particularly warm June seems to have prompted strong sales in clothing, which has compensated for a decline in food and fuel sales for the month.
"Looking at the quarterly data, the underlying trend as suggested by the three-month on three-month movement is one of growth, following a fall in quarter 1, suggesting a relatively flat first half of 2017."
0.6% increase in retail sales in June 2017 compared with May 2017 https://t.co/WntNsFnIO9
UK shoppers bounce back. Retail sales volumes up 1.5%q/q in Q2. pic.twitter.com/YkMdRg1FZG
Two things to note about underlying trend retail sales growth: 1) price inflation easing 2) sales value growth fairly screaming along. pic.twitter.com/YjM9UiTXkx
"High levels of competition, increasing market share moving to discounters and an online shopping frequency more than twice the European average have already made the UK retail one of the most challenging in the world. This is before the loss in households' purchasing power and the rise in import costs are added to the mix.
"Net gearing ratios in the sector increased by more than 10pp to 66 per cent last year, while average profits (EBIT) slipped by 1.4pp to 5.6 per cent. In addition, the rise in import costs adds pressures on the already deteriorating profitability. Such signals of deterioration in financial health suggest greater pressure on cash flow and payment terms throughout the retail supply chain.
9.36am BST
Breaking! UK retail sales grew faster than expected in June, as warmer weather sent Brits racing to the shops.
That's according to the Office for National Statistics, which has just reported that the amount of stuff bought in the shops last month rose by 0.6%. The City had expected a 0.4% gain, following a 1.2% decline in May.
9.22am BST
The pound has lost ground in early trading, dropping 0.3% against the US dollar to $1.2985.
That's helping to push shares higher in London, where the FTSE 100 is up 31 points.
9.15am BST
Here's a handy chart showing the Bank of Japan's struggle to get inflation up to its 2% targetL
BOJ pushes back inflation target date. Again.
Barring brief spikes in 2008 and 2014, Japanese inflation has been nowhere near 2% in years. pic.twitter.com/WwFR2GrX17
9.12am BST
In the City, shares in Sports Direct have jumped by 7% this morning, despite reporting a 60% slump in profits in the last year.
Sports Direct suffered after failing to hedge itself sufficiently against the slump in the pound.
"Sports Direct is on course to become the "Selfridges" of sport by migrating to a new generation of stores to showcase the very best products from our third party brand partners.
We have invested over 300m in property over the last year, and I am pleased to report that early indications show that trading in our new flagship stores is exceeding expectations."
Related: Sports Direct blames weak pound as profits dive by nearly 60%
9.01am BST
Kit Juckes of Socii(C)ti(C) Gi(C)ni(C)rale predicts that today's European Central Bank press conference will be dominated by questions about how, and when, it will exit its stimulus programme.
While acknowledging the strength of the economy, Draghi is likely to counter any ideas of an imminent and rapid path towards ending QE, instead urging patience with the still-subdued inflation outlook.
We maintain our call for an announcement in September of a six-month extension of the APP into 2018 at a40bn/month, followed by data-dependent quarterly reductions.
The last thing the ECB wants is a strong Euro and tightened financial conditions for now.
It is a complicated process to start normalizing policy without disrupting markets, so while Draghi wants to prepare investors for a gradual wind-down of asset purchases, he is likely to hint that the pace will be gradual and easing options will remain open. The trickiest part is how to deliver a confident message without leading to further selloffs in bonds and stocks and additional appreciation in the Euro.
What may be announced at the meeting is that various ECB departments and committees will be given the task of exploring the best methodology, with a decision deferred until September, when it will also have an updated set of staff forecasts.
Given the market furore around Draghi's comments about "reflationary forces displacing deflationary forces", he will surely want to clarify precisely what he meant, and most likely qualify those comments by suggesting that core CPI is far from displaying a sustainable uptrend that would see headline CPI heading towards the ECB target of close to 2.0%, even if the disinflationary threat has passed.
Poured my first coffee of the day all over myself in my mad excitement for the ECB
8.41am BST
Haruhiko Kuroda has just denied that the Bank of Japan's has lost credibility by pushing its inflation target back again today.
The BoJ governor is giving a press conference now, and pointed out that other central banks have also pushed back their own inflation targets.
Mmmkayy...
Kuroda: Don't Think BoJ Loses Credibility By Pushing Back CPI Forecast
BOJ's Kuroda: Tried for accurate price forecasts but was wrong. People won't lose trust in the BOJ because forecasts were missed.
BOJ's Kuroda: Policy unchanged this time as price momentum is maintained. Won't rule out considering further easing.
8.14am BST
Overnight, the Bank of Japan has decided to maintain its huge stimulus programme - and admitted that it is struggling to get inflation up.
"Recent price developments have been relatively weak, as companies remained cautious in raising wages and prices.
"Risks to the economy and price outlook are skewed to the downside."
BOJ delays inflation target for sixth time https://t.co/aYdqGhXag8
7.53am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Euro currency traders are keen to hear Mario Draghi's words on Thursday https://t.co/YyVwHUXs3K pic.twitter.com/UIfWWjrHGG
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