The Daily Update - ECB/IMF

With public holidays in China over the next couple of days, along with tomorrow's non-farm payroll data, and Labor Day on Monday in the States the markets are relatively muted today. The main focus was on the European Central Bank. Today the ECB cut its forecast for inflation and growth due to lower oil prices and weaker global economy. It also unveiled a revamp of its QE programme allowing the ECB to buy up to 33% of a country’s debt stock, up from 25% previously. Mario Draghi, the ECB president said “Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the September projections,” adding “A cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis indicates the need to firmly implement the Governing Council’s monetary policy decisions.”

Today's meeting also comes on the back of a warning from the International Monetary Fund that global growth remains moderate, with a weak recovery in advanced economies and emerging markets slowing. It said ECB asset purchases “should be extended if there is not sufficient improvement in inflation consistent with meeting medium-term price stability objectives” as recent risks also include “disruptive asset price shifts and financial turmoil,”

However the IMF report was not all doom and gloom as it praised the People's Bank of China for its recent change in the method for setting the yuan exchange rate saying it was a “welcome step” towards achieving “an effective floating exchange-rate system in the next couple of years”. It also said the Chinese government should also not be discouraged by volatility in local markets and should “continue with reforms to give market mechanisms a more decisive role in the economy, eliminate distortions, and strengthen institutions”

Also in the UK this morning the business sector recorded the slowest growth in over 2 years. The activity index dropped from 57.4 in July to 55.6, the consensus among market economists was for an acceleration in the sector. This will be food for thought for the Bank of England officials who meet next week to decide on interest rates, with inflation well below target, a slowing global economy, commodity prices again falling against a tightening labour market and rising salaries.