ECB in spotlight over rate cut as it meets Thursday after dire factory European output survey

ECB in spotlight over rate cut as it meets Thursday after dire factory European output survey

The ECB is in the spotlight ahead of a meeting today as it ponders making significant moves, including a rate cut that would be earlier than expected, following a survey on the dire health of manufacturing across the eurozone.

At a minimum, the central bank — as its head Mario Draghi prepares to step down in the coming months to be succeeded by Christine Lagarde from the IMF — is expected to sanction a new round of stimulus at today’s meeting and then cut its deposit rate at its September meeting.

But the latest manufacturing purchasing managers’ index that showed eurozone manufacturing barely expanding this month and German factories badly hit by the global trade wars could persuade the central bank to make more decisive action at a sooner stage.

Nonetheless, European shares were mixed — with Frankfurt’s Dax gaining slightly and the euro little changed on the day at $1.114 and at 89.19 pence against sterling.

“It is more and more obvious that European stocks are in need of some kind of divine intervention, or failing that some ECB easing, if they are to maintain their strength over the summer,” said online broker IG.

Capital Market in London said that the eurozone manufacturing survey strengthens the case for ECB action.

Christine Lagarde
Christine Lagarde

“In fact, we expect the European Central Bank to strengthen its forward guidance on interest rates and QE (quantitative easing) at its meeting on Thursday.”

In France, a major IMF report said that the economic growth will remain “moderate”, expanding 1.3% this year and by 1.4% in 2020.

The IMF said it “noted that France’s growth slowed last year but remained relatively resilient compared to peers, while labour market conditions continued to improve.

"The growth outlook remains solid, but downside risks have risen, related to global trade tensions, an uncertain Brexit outcome, and weaker than expected growth in Europe.”

Meanwhile, top US and Chinese negotiators will meet face-to-face next week for the first time since the countries’ leaders agreed in June to revive talks aimed at ending a yearlong trade war.

The US and China have been in a tariff battle, roiling global supply chains and upending financial markets, as Washington presses Beijing to address what it sees as decades of unfair and illegal trading practices.

US treasury secretary Steven Mnuchin and trade representative Robert Lighthizer will lead a team of officials in discussions in Shanghai, “aimed at improving the trade relationship between the United States and China”.

Additional reporting Reuters

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