Friday’s calm after Thursday’s ECB Storm – 7th December 2015

Nobody was particularly surprised when Friday’s US employment report showed a further 35,000 jobs were created in November and non-farm payrolls increased by 211,000 (11,000 more than forecast). There was also an upward revision to previous months’ data, putting the total 46,000 above what investors had been expecting. US Dollar’s supporters, who have become accustomed to good employment figures, were pleased rather than overjoyed.

US Dollar reacted at the time of the announcement but only to cement daily gains of a quarter of a cent against Sterling and three quarters of a cent against the Euro. That was nowhere near enough to offset the losses it had suffered the previous day as a result of an uncharacteristically timid easing of monetary policy by the European Central Bank. It ended the week sitting on losses of two thirds of a cent to Sterling and two and three quarter cents to the Euro.

Investors were taken aback by Thursday’s announcement that the ECB would cut its deposit rate from -0.2% to -0.3% and extend the asset-purchase programme for a further six months. They had expected much more, not least because Mario Draghi, the bank’s president, had led them to do so. On Friday Sig. Draghi attempted to defend himself. He said in New York that the extra €360bn does not necessarily represent the ECB’s final shots in its quantitative easing programme. He said the ECB’s commitment to lifting inflation is “unlimited”. Nevertheless, the measures announced last week appeared to fall short of “whatever it takes”.

So although, on Friday, the Euro had to hand back some of Thursday’s extraordinary gains, it clung onto most of them because ECB monetary policy is on a tighter path than investors had thought it would be. In comparison with Thursday’s ECB bombshell and Friday’s US jobs data, the events on today’s schedule will be something of a damp squib. The most important data are for German industrial production, which is already out, and Japanese gross domestic product, which does not appear until tonight.

Bank of England governor Mark Carney will attend the ECON meeting in Brussels this afternoon only in his capacity as First Vice Chair of the European Systemic Risk Board. Don’t look for any steer on UK interest rates.