European Open – Focus on ECB as China Falls Short

European indices are seen opening slightly in the green on Wednesday, ahead of the latest monetary policy decision and press conference from the European Central Bank.

The ECB is extremely unlikely to announce a change to the €60 billion per month quantitative easing (QE) program that began last month as it’s still far too early to determine how much of a success or failure it has been. Any benefit that we’ve seen so far has predominantly been in confidence surveys, which is of course an encouraging sign but this could quickly fizzle out as we’ve seen repeatedly in recent years.

Exporters also appear to be benefiting from the weaker currency, which began its rapid decline long before last month on the expectation that it was coming. This is likely to continue going forward, while the tourism industry could be in for a bumper summer as foreigners look to take advantage of the cheaper holidays that the eurozone now has to offer.


I think what we’ll see in the press conference today is a more upbeat Mario Draghi (ECB President) based on what we’ve seen so far but he’ll be keen to highlight the many headwinds that still exist making an recovery far from certain. He may also respond to recent speculation that the ECB could end QE before September 2016 which could weigh on the euro during the press conference.

While I would never suggest that an ECB press conference will be uneventful, I do think today is likely to be one of the less exciting affairs simply because its QE program has only just got under-way. That said, never underestimate Draghi or the markets because both have the potential to create mayhem from nothing.

Chinese data released overnight was pretty grim as many people would have expected. Growth in the world’s second largest economy was at its lowest in six years in the first quarter, falling to 7% compared to the same quarter a year earlier. A deteriorating housing market, weak external demand, lower commodity prices and weak domestic spending all weighed on growth in the quarter despite efforts from the People’s Bank of China to support the economy.

Released at the same time was industrial production, retail sales and fixed asset investment data for March and even these disappointed across the board. With these only being the latest in a long line of disappointing economic figures for China, it seems the PBOC really needs to step up its stimulus efforts if the country is going to achieve its 7% growth target this year.

Further cuts to interest rates and the reserve requirement ratio are expected in the coming months, which would often have lifted equity markets following the release as it makes these cuts more probable and potentially more aggressive, but it appears investors were unwilling to take the positives from the data on this occasion.

The FTSE is expected to open 1 point lower, the CAC 18 points higher and the DAX 27 points higher.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.