All eyes will be on the president of the European Central Bank, Mario Draghi, who will deliver his verdict about the economic conditions in the eurozone during the press conference which will take place later in the day today. So what will he say and what has changed since their last press conference are just some of things which will be heavily under focus.
Given the recent turbulence in the financial markets, we do believe that the president will take this opportunity to assure the market participants that the central bank is standing pat to respond to any external shocks which its economy may be facing. The abate economic growth in China has sparked the recent turmoil in the market and this imposes the biggest threat to financial markets around the market. China is the second biggest economy of the world and many market players are finding it difficult to digest that how the two big economies in the world, the US and China can run completely two different policies- one is itching to make the monetary policy more accommodative and the other is looking to tighten the liquidity screw even further by raising the interest rate.
Since the last meeting of the ECB, there have been many changes in the economic conditions in the eurozone which matters for the ECB. Firstly, Greece is no longer the main agenda for the ECB- given that the country has not only avoided the Grexit (at least for not) but also have secured another trench of the bailout package. Secondly, the euro, which was in a free fall against the dollar is no longer the same and this is primarily due to the prospects of the US delaying the rate hike, recent market tornados triggering demand for the euro as a safe heaven and of course the risk of Grexit abating.
Another important element which has changed since their last press conference is in the arena of the energy market. Crude and Brent oil, both have made another five to six years low, but have recovered some of their grounds however, still much below from their level which was back in July. Falling lower prices sparks deflation and the ECB president may revise down their inflation forecast today in the light of this. Given the supply glut is still not getting addressed by its producers, the path of least resistance for oil remain anchored towards the downside which may take some more toll on the headline inflation number.
Nonetheless, the recovery remains on track in the eurozone and it is something which Mario Draghi can confidently say during his speech. The unemployment number in the eurozone has dropped further and recently printed the reading of 10.9%. The growth in the second quarter was 0.3% and in the first quarter was 0.4%. The economic data released so far predicts that the GDP growth in the third quarter could be equivalent to that second quarter. More importantly, the credit conditions and credit supply have also improved massively. These are direct results of the ECB’s quantitative easing program and the bank will assure today that it will do what ever necessary to stem the recovery even further to battle any external turmoils.