EU is different from US, US economy can hold up even after the impact of Brexit while the European Commission cut its Eurozone growth forecast to between 1.5% and 1.6% this year from 1.7% previously, and to between 1.3% and 1.5% in 2017. This financial event transitioned EU’s economy into an even worse condition. After many years of QE, the economy is not coming back with a clear comparison of a steady US economy.
European Central Bank President Mario Draghi on Thursday signaled that policy makers are open, but not committed, to providing additional stimulus when they next meet in September, having by then had more time to assess the impact on growth prospects of the U.K.’s vote to leave the European Union.
Draghi said nothing that surprised the market. He acknowledged the resilience of the markets in the aftermath of the UK referendum. He also noted that with new staff forecasts, next September, and the upcoming data, the ECB would be in a better position to assess the macroeconomic situation. The risks to growth remain tilted to the downside.
For the bond buyback program, Mr. Draghi said that issue hadn’t been discussed by policy makers at their meeting. But noted that the program was flexible and changes had already been made to extend its duration and increase its size. The initial estimate for the ECB is continuously buy €80 billion ($88 billion) of bonds a month until March 2017, or beyond if needed. Investors are becoming increasingly worried that it may soon come up against a scarcity of bonds to buy, given that many government issues have yields below the minimum, which is set at minus 0.4%.
ECB is waiting for more economic data and the FOMC meeting result this time. Eventhough an interest hike decision is almost impossible for Fed this time, the translation of economic data will the key factor to drive the market. We all saw a strong labor market reports from past several weeks but market is still surrounded by concerns. In order to achieve the 2% inflation rate, Fed this time has to declare more information and outlook for economy based on the economic data.