- James Athey, Aberdeen Asset Management Investment Manager
The ECB kept interest rates unchanged at record low in line with expectations. During his birthday conference, Mario Draghi, ECB President, said that renewed downside risks emerged to the growth and inflation outlook in recent weeks. Therefore, Draghi dropped a clear hint that the central bank could expand its QE programme, given the new downside risks, and pointing out that the asset-purchase programme is flexible, and the ECB could change the size, composition and duration of the programme. The central bank downgraded its growth outlook to 1.4% in 2015 from 1.5%, while inflation was expected to slide to negative territory in the months ahead, but due to lower oil and commodity prices rather than full-blown deflation.
The Euro zone retail sales returned to growth in July following a downwardly revised 0.2% decline in the preceding month. Retail turnover rose 0.4% on month in July, slightly missing economists' expectations for a 0.5% growth. Measured on an annual basis, retail sales surged 2.7% following the upwardly revised 1.7% growth in June. At the same time the bloc's services sector continued to expand last month, reinforcing the view economic recovery is taking hold. The final reading of the Euro zone's services PMI booked 54.4 points, compared with 54.0 in July. On top of that, Markit's composite PMI, which measures activity in the manufacturing and services sectors, climbed to 54.3 in August, up from 53.9 in the prior month.
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