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President Draghi highlights downside risks in final meeting
- As widely expected, the European Central Bank kept monetary policy unchanged at its October meeting and re-affirmed its latest decisions.
- Representing his last meeting as the President of the European Central Bank after an eventful 8 years at the helm, Mario Draghi highlighted the downside risks to eurozone economic outlook and the need for supportive monetary and fiscal policy.
- The president stressed there was full support from the Council as signs of disagreement emerged among member states over the policy measures announced at the September meeting (re-launch of QE and a further 10bp cut in the deposit rate to -0.5%).
- Christine Lagarde, the former head of the International Monetary Fund, takes up the ECB presidency on 1 November.
- Data on eurozone PMIs reinforced the downside risks to the outlook, with the Composite index only rising marginally to 50.2 and remaining around 6-year lows.
Turkey makes third consecutive rate cut
- The Turkish Central delivered a much sharp cut in policy rates than expected, citing a less inflationary outlook. The policy rate was cut by 250bp, taking the rate down to 14% from 16.5%.
- This marks the third consecutive rate cut since July and President Erdogan’s removal of the previous central bank governor which refused to deliver lower interest rates.
Brexit bill advances past second reading
- In the UK, the British Parliament voted in favour, in principle, of Prime Minister Johnson’s latest Brexit deal, but refused to rush through legislation in order to leave by the revised 31 October deadline.
- Conceding defeat to deliver Brexit by 31 October as promised, Prime Minister Johnson blamed parliament and said he will hold a Commons vote for a 12 December election.
- Meanwhile, the EU struggled to come to an agreement over the length of the extension that should be granted to the UK – with France arguing for a shorter extension than the requested 3 months.
US manufacturing data continues to weaken
- In the US, data on durable goods indicated further weakness in the manufacturing sector.
- New orders for non-defence capital goods, excluding aircraft, (considered a proxy for business investment) decreased by 0.5% in September from the previous month.
- Separately, the University of Michigan consumer sentiment indicator also disappointed against expectations, showing a slight dip in October.
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