MNI ECB UPDATE: Euro Area Data Does Little To Shift ECB Debate

By Luke Heighton

     LONDON (MNI) - The latest Euro Area economic data has done little to shift

the policy debate in the wake of the European Central Bank's July Governing

Council meeting, with a mixed bag seen in the past week or so.

     Inflation in July was up 2.1% on the year, with both German and French

numbers coming in just above expectations. However, the central bank still

expects base effects to kick in over coming months, helping push headline rates

lower. Retails sales in June were up just 0.3% on May's figure across the E19,

compared alongside an increase of 1.2% for the year, with sales of food, drinks

and tobacco driving the change.

     June's euro area industrial producer prices (IPP) index for rose just 0.4%

month-on-month, but was up by 3.6% on the same time last year.

     German factory orders fell 4.4% in June on the previous month -- attributed

to a decline in demand from non-eurozone countries -- while capital and consumer

goods orders slumped by 4.7% and 4.5% respectively -- underlining comments from

the Ifo Institute that companies in Germany, Italy and the Netherlands have

scaled back their growth expectations "significantly".

     Seasonally adjusted GDP is expected to be up by 0.3% in the euro area for

July and by 0.4% in the EU28, a gain of +2.1% and +2.2 on Q2 2017, with Q1 per

capita real household income and consumption nearly stable in both areas.

     --COUNCIL UNMOVED

     With data before (and after) the ECB's meeting largely in line with

expectations, the Governing Council stayed true its word ahead of the summer

break: key interest rates went unchanged, and the aim to taper off, then end,

the bank's monthly asset purchasing program by the end of the year was

reaffirmed.

     There is broad consensus that pace and scale of Europe's economic expansion

is slowing, that confidence has fallen over the last 12 months, and

destabilizing political threats -- from both within and without -- persist.

     President Mario Draghi said little to suggest an imminent divergence from

his previous announcement that rates will remain at their current level until at

least until/during/after the summer of 2019 (depending on which translation of

June's decision you read), .

     The ECB president said that while nominal inflation rates were edging

higher), core levels remained "muted" making it still "very early to call

victory". But with Bank rates seemingly fixed for the foreseeable future, Press

attention in Frankfurt focused mainly on the issues of capital reinvestments,

protectionism, and life after Mario Draghi.

     On the first point, the message was clear. The capital key remains "our

anchor", Draghi said, but when it comes to reinvestments: "We haven't discussed

it. We haven't discussed even when to discuss it". The Governing Council also

"took note" of the agreement apparently reached between the EU and President

Donald Trump just days beforehand, but "it's too early to assess the actual

content".

     --PERVERSE THOUGHT

     Asked if Greece was any closer to full integration into the ECB's QE

programme, Draghi said he welcomed the "successful actions undertaken by the

Greek Government so far," and was "looking forward to a successful completion"

of the current program.

     Draghi was more expansive when asked if the debate around finding his

successor might be unduly influenced by expectations of a rate hike around the

time of his departure.

     The point, he replied, "is kind of strange; why should rate hikes be

influenced? Maybe in the perverse minds of some market players might - this may

be true, but certainly not in the Governing Council members' minds".

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

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