European markets fall and euro is near a two-year high after Mario Draghi says that tapering will be discussed in the autumn.
Many analysts foresee a tightening in policy next year. ECB policymakers believe that the October meeting will be suitable for a decision on the QE program.
"If the outlook becomes less favorable, 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 program in terms of size and/or duration," the ECB said in its policy announcement alongside its rate decision.
The pan-European Stoxx 600 was down 0.7 percent with most sectors moving south.Auto stocks led the falls in early-afternoon trade, down by more than 3 percent. Valeo dragged down the sector, down by 6 percent, after its first half year result came in short of analysts' expectations. ACS was down 6 percent after reports that it is considering a bid for the Italian family's Atlantia.
Materials stocks, among the worst performers
Telecoms were the only sector moving slightly higher on 0.09 percent, also on earnings news.Meanwhile, Vodafone reported better-than-expected revenue growth for its first quarter, mainly thanks to the Italian and Spanish markets. Its shares were up by 1.3 percent. Materials stocks and construction were also among the worst performers, down by 1.5 percent.
Metso, the worst-performing stock
Paysafe rose to the top of the European benchmark, up by nearly 7 percent, after Blackstone and CVC Capital made a $3.71 billion bid for the company. Metso (down by 7 percent) was the worst-performing stock, after reporting second quarter results below expectations.
The greenback tumbled recently, but analysts weren't pointing to weaker-than-expected U.S. inflation data. Flat consumer inflation and a surprise drop in June retail sales triggered new doubts that the Federal Reserve will be able to raise interest rates again this year.
The consumer price index was up 1.6 percent on-year in June, the fourth month of surprising weakness.Retail sales fell 0.2 percent in June, down for a second month, raising concerns in markets about the strength of the economy.
The euro jumped 0.9 percent to $1.1580 amid the greenback weakness and speculation that the European Central Bank could signal its intent to scale back monetary stimulus. The Republican leadership delayed Senate consideration on the health-care legislation as U.S. Sen. John McCain was suggesting even the procedural vote count may come down to the wire. House Republicans in marginal districts who voted for the Obamacare are waking up . Of the 238 House Republicans, just 20 bucked their party leadership Thursday to vote against the American Health Care Act.
The Canadian central bank’s benchmark rate was raised to 0.75 percent, from 0.5 percent. The Bank of Canada (BOC) said the acceleration in growth, and its broadening to more sectors and regions, has increased its “confidence” the economy will continue to grow above potential, meaning excess capacity is being absorbed.
“Governing Council judges that the current outlook warrants today’s withdrawal of some of the monetary policy stimulus in the economy. Future adjustments to the target for the overnight rate will be guided by incoming data as they inform the Bank’s inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities,” it said in the statement.
No forecasts for a future interest rate increase
Governor Stephen Poloz said that “what the recovery suggests to us is that the interest rate cuts that we put in place in 2015 have largely done their work.” Asked if rates could be raised again later this year, Stephen Poloz says will not make forecasts. The forecasts for exports and investment are very, very prudent. “Were very disappointed in Q1 export data, but recent data more encouraging. We think there's still some room to grow once output gap closes.”, said Poloz.
Oil prices fell more than 3 percent today, ending their longest bull-run in more than five years. According to Thomson Reuters Oil Research, Oil exports by the OPEC climbed for a second month in June.
OPEC exported 25.92 million barrels per day (bpd) in June, up 450,000 bpd from May and 1.9 million bpd more than a year earlier. "Oil bulls have numerous obstacles to overcome," said Stephen Schork of the Schork Report, pointing to rising OPEC output and high production in the United States.
The rise in exports comes despite OPEC's vow to rein in production until March 2018.
Another reason of the depreciation of oil prices was that the car group Volvo said also today that from 2019 all of its new models would be fully electric or hybrid vehicles.
Mark Carney said the Bank of England’s Monetary Policy Committee (MPC) may need to begin raising interest rates. He will debate a move in the next few months. Lifting rates hinges on whether spare capacity in the economy erodes and the balance between supporting growth and tolerating faster inflation becomes less stark, he said.
“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional,” the governor Carney said at the European Central Bank Forum on Wednesday in Sintra, Portugal. The pound rose after his remarks. According to Mark Carney, he will look at three factors to inform his decision about raising rates: the extent to which weaker consumption growth is offset by other areas of demand such as business investment, wages and labor unit costs, and how the economy reacts to Brexit.
The European Central Bank (ECB) will have to be prudent to gradually adjust its monetary stimulus to the economic recovery, said Mario Draghi, the president of the ECB, at the ECB Forum in Sintra, Portugal.
Draghi made it clear however that the current stimulus needs to remain in place as inflation dynamics remain "more muted than one would expect."
"We can be confident that our policy is working and its full effects on inflation will gradually materialize. But for that, our policy needs to be persistent, and we need to be prudent in how we adjust its parameters to improving economic conditions," Draghi said.
He added: "The current context where global uncertainties remain elevated, there are strong grounds for prudence in the adjustment of monetary policy parameters, even when accompanying the recovery. Any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them appear sufficiently secure."
"All the signs now point to a strengthening and broadening recovery in the euro area," Draghi, said recognizing the improvements. He also argued that the inflation dynamics aren't solid enough to exit the stimulus program.
According to him, "we are still in a situation of continuing slack, and where a long period of subpar inflation translates into a slower return of inflation to our objective. Inflation dynamics are not yet durable and self-sustaining. So our monetary policy needs to be persistent”.
Oil drops below $45 on unexpected rise in US gasoline stockpiles. Gasoline inventories increased by 2.1 million barrels during the week ended June 9, while crude inventories decreased by 1.7 million barrels.That compares with analysts estimates in a Reuters poll for a 0.5 million barrel draw in gasoline stocks and a 2.7 million barrel draw in crude inventories.
Oil futures had already come under pressure following reports that showed global supply was rising. The International Energy Agency (IEA) said it expected growth in non - OPEC supply to be higher next year than growth in overall global demand. According to its monthly oil market report, for total non-OPEC production, IEA expects production to grow by 700,000 bpd this year, but the first outlook for 2018 makes sobering reading for those producers looking to restrain supply. Shale supply has pushed U.S. crude production up by about 10 percent over the last year to 9.3 million bpd.
The British pound has fallen sharply following results of the U.K. election which show the ruling Conservative party has failed to reach of a majority in the British Parliament.
PM May's ruling Conservative party won 318 seats and lost its parliamentary majority. The opposition Labour Party led by Jeremy Corbyn had 261 seats. The Scottish National Party had won 35 seats, the Liberal Democrats were at 12 and the Democratic Unionist Party had 10. According to the BBC, voter turnout was at 68.7 percent.
Cable (GBP/USD) fell from levels as high as $1.2977 on Thursday to a multi-month low of $1.2632 on Friday morning London time.
Despite the election result, U.K. leader Theresa May said she would form a new government in order to "provide certainty" and make sure the country is "safe and secure".
Speaking outside Downing Street, the prime minister confirms Brexit talks will stick to the existing timetable.
West Texas Intermediate futures dropped more than 4 percent as stockpiles of Oil in the United States rose by 3.3 million barrels last week, versus expectations for a 3.5 million-barrel drop.Gasoline stockpiles also surged and demand for the fuel fell.
U.S. crude prices plunged toward $46 a barrel today. The next potential level to watch is the March low just below $44 a barrel. This price level was struck after oil prices fell through a number of key technical levels.
The U.S. dollar fell 1.02 percent to 109.32 yen its lowest since April 21, as more economic data drove U.S. government bond yields towards critical lows. The euro lost 0.9 percent 123.25 yen.
With the Bank of Japan keeping 10-year Japanese bond yields pinned to zero, the dollar-yen exchange rate has been closely correlated for the past year with any shifts in U.S. 10-year Treasuries.
According to the Rabobank analysts, "it is worth pointing out that the US 10-year is hovering above the key technical level at 2.13 percent".