ECB to Continue Buying Assets Despite Disappointing Figures

Alan Penny

26 November 2019

2 min read

waving European flags

  • European economic figures were below the market’s expectations
  • ECB President Christine Lagarde said that the Eurozone needs more policy support
  • Better than expected US data and new hopes of a US-China trade deal boosted the US dollar

European economic figures that were published last week came in below the market’s expectations. The preliminary November estimates of Market PMI showed that manufacturing output advanced modestly for the EU.  The index is up to 46.6 from 45.9 previously. Services activity weakened to 51.5 from 52.2

More policy support needed

The European Central Bank is expected to continue buying assets because several officials said recently that monetary policy has yet to reach its limits

ECB President Christine Lagarde said that that the region as a whole grew at a slower pace due to a continued contraction in manufacturing and slower expansion in services. She also added that the EU should introduce a new policy mix that includes fiscal stimulus. The European Central Bank is expected to continue buying assets, with several officials recently stating that monetary policy has yet to reach its limits. European Central Bank’s Chief Economist Philip Lane also said that further rate cuts can’t be ruled out.

On the other hand, published US economic figures exceeded the market’s expectations. The Manufacturing PMI advanced at 52.2. The Services PMI came in at 51.6, surpassing both the October final readings and the market’s expectations. The US November Michigan Consumer Sentiment index advanced at 95.6, which is slightly better than the preliminary estimate of 95.7.

According to the latest news, a trade deal with China is “very close” and this helped to bolster market sentiment. The baseline outlook for the US economy remains very good and that the monetary policy is likely to remain appropriate. The Fed is very close to achieving the 2% inflation goal on a sustained basis but the Fed will probably keep interest rates at their present levels for the foreseeable future.

Background noise and conclusion

The beginning of the week has been quite busy, Germany will release the November IFO, while the US will publish the October Chicago Fed National Activity Index and the Dallas Fed Manufacturing Business Index. Germany has performed very poorly in recent quarters. This is partly because of concerns over global demand. Germany is the Eurozone’s largest economy and with Germany struggling, the Eurozone will have big problems.


Written By
Alan Penny

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