Draghi signals a tax hike
- The dread word "vigilant" was uttered by ECB president Draghi. We all know what "vigilant" means. "Vigilant" means "I am going to change policy, and I want markets to price in that change to policy to help force the hand of the ECB".
- We think quantitative policy will be extended beyond September 2016 (not increased as to monthly size) at the December ECB meeting. We think the discount rate will be cut again – effectively a tax on saving that benefits Euro area governments.
- It is business sentiment data day – the PMI indicators are due in the Euro area, and are expected to show resilience in the face of emerging market risks (mainly because the economic contagion from emerging market risks does not seem to be that significant).
- The lesser watched US manufacturing PMI is also due (not the ISM, the other sentiment survey). US manufacturing sentiment has been impacted by the dollar – not because the dollar's strength has hurt the real economy, but because it has damaged the value of exports.