Let's start with the main one...

ECB Meeting

The European recovery is slowing.

Unemployment is rising and set to increase further if governments do not maintain/extend their employment support schemes.

Virus cases are increasing; this doesn't necessarily mean more lockdowns, but does weigh on overall economic confidence.  

Inflation is decelerating, as seen in the most recent figures.

Euro Area Inflation Rate


Euro Area Core Inflation Rate

(excludes volatile prices of energy, food, alcohol & tobacco)


From the minutes of the last ECB meeting;

Looking ahead, additional information, including more hard data releases, new staff projections and news on fiscal measures, would become available by September.

This would provide more clarity regarding the medium-term inflation outlook.

At the same time, it was cautioned that in terms of the flow of information over the summer, it would be unusually difficult to extract signals about the medium-term prospects for the economy and the inflation path, as the scale of the initial bounceback in activity was not necessarily a good guide to the speed and robustness of the recovery.

In any case, at its September meeting the Governing Council would be in a better position to reassess the monetary policy stance and its policy tools.

The data is in (and should not inspire confidence), but how much weight will the ECB allow at this early stage?

Inflation expectations are falling;

The updated projections will give us a good indication of their thoughts.

Danske's Take;

Any downgrade of projections would likely be accompanied by further stimulus before the end of the year, with an increase in PEPP the most obvious tool to use.

This is a great primer from Viraj Patel.


A variation of Scenario 2 appears the most likely.

Given the easing announced at the last meeting in June, and the uncertainty surrounding the "validity" of the early data (Late summer sales and Germany's VAT tax cut are partially to blame for the decreasing inflation), plus the upwardly revised GDP data, they may not see the need to act immediately.

Schnabel confirmed that there had been no discussions of any modification to the tiering rate so that should remain the same.  

Rate cuts well and truly off the table for now.

My ECB bingo card;

"We will continue to make use of the flexibility within PEPP (pace of purchases, capital key deviations, range of eligible assets)".

"Risks remain tilted to the downside and the ECB stands ready to deploy further envelopes and tools within our Narnia-esque toolbox to achieve our goals of..."

"Further (& ongoing) monetary stimulus will be necessary etc."

Therefore the press conference is likely to be the main event, with "The Owl" once again in the spotlight.  

The euro story goes beyond the ECB too.

As this Bloomberg article notes, Italy & Spain really have to get their acts together on the fiscal side, but their fractured governments are already struggling to agree on things.

The recovery fund still needs to be ratified too.    

Brexit Negotiations

Too early to expect major breakthroughs.

Lots of posturing and preening so everyone "at home" can see just how hard this negotiation has been, and be thankful when the whole affair is mercifully over.

Interesting that GBP is now responding to political risk again, having ignored it for months.    

Main Calendar Events

Tuesday - German Trade Data

Wednesday - Chinese inflation figures & PPI, Redbook, BOC interest rate decision.

Thursday - ECB, U.S. - PPI, IJC & CJC, Macklem & Lagarde speeches.

Friday - Final August inflation data for Germany & Spain, Schnabel, Weidmann & Lane all speak post-ECB & U.S. CPI data.

The differential between the EU & the U.S. is part of the EURUSD trade thesis.

If U.S. inflation surprises to the upside we may see the EU/U.S. spread widen.  

Then we have Eurogroup and EcoFin meetings over the weekend.