Stocks Rebound Ahead of Draghi and Yellen

European stock markets are moving higher going into the Jackson Hole meeting and Draghi’s speech Friday. The DAX is up on the day and has once again cleared the 12200 mark. Eurozone peripherals are outperforming as the euro is back below 1.18 against the dollar. U.S. stock futures are also posting gains, after are a largely positive session in Asia, where earnings optimism battled with fresh concerns over Trump’s ability to pass his fiscal agenda. The Hang Seng outperformed amid strong volumes after the Typhoon related disruption Wednesday. The Nikkei meanwhile headed south in tandem with the CSI 300.

ECB’s Hansson hints at changes to QE composition

While markets are fretting about the future purchase volumes for asset purchases, it seems the ECB is thinking not so much about an extension of the current QE program, but a change to the composition of QE and a new focus in the forward guidance. The minutes to the last meeting already indicated that council members are looking for a way to increase flexibility to either side going forward and as the economy strengthens. Hansson in an interview yesterday suggested that officials continue to favor an easing bias, but suggested that this should not just be seen in terms of the APP, saying that the ECB is not going to tie itself “to a particular instrument, but leave more flexibility on how we technically deliver that degree of accommodation”. “At the end of the day we need to look at the effectiveness of different programs and maybe shift towards a slightly different mix”. Hansson said he doesn’t know yet how this will look like and repeated that the discussion on details was postponed until the autumn, but the comments suggest that there still is an event risk for Draghi’s speech Friday.

UK Q2 GDP was confirmed at 0.3% quarter over quarter growth in the second estimate, and at 1.7% in the year over year comparison. The headline growth figures matched both the preliminary estimates and median forecasts and follows 0.2% quarter over quarter and 2.0% year over year growth in Q1. Among the breakdowns were private consumption rising 0.1% quarter over quarter in Q2, down from 0.4% quarter over quarter in Q1, total business investment at 0.0% after 0.6% quarter over quarter growth in the prior quarter, and services inching up, to 0.4% quarter over quarter growth after 0.3% quarter over quarter in the previous quarter.

The weakness in household spending and business investment match the general view that eroding real wage levels, which have been a consequence of weak-currency induced inflation, are negatively affecting the consumer sector, and Brexit-related uncertainty and concern are negatively affecting business planning and decision making. At 0.3% quarter over quarter, the UK economy is growing at half the pace of the Eurozone.