ECB and German manufacturing IP in focus today – TDS

Analysts at TDS expect German manufacturing IP to decline 0.5% in July, below consensus of a 0.5% gain.

Key Quotes

“Early summer shutdowns in the auto industry are likely to have temporarily weighed on German manufacturing growth, but this should rebound in August as production rebounded.”

“The focus today though will be on the ECB’s midday decision, where markets will be looking for any information on how the discussions on the future of QE have gone, and what the ECB might be thinking on how quickly it could wind down asset purchases. Under our base case, we see the market mildly selling the EUR on the policy decision as the hawkish tail risk fails to materialise, with this pushing further into the prepared remarks, when Draghi downgrades inflation forecasts and cites EUR strength as the main reason. But in that case, we would expect Draghi to be more balanced in the Q&A, which would likely set up for a squeeze higher from the lows in EURUSD. The EUR’s recent rise has seen European equities underperform and real rates decline significantly; we would expect a somewhat perverse market reaction where a dovish Draghi causes EUR to fall, which drives rates higher.”