ECB: Dovish tapering coming next week? - BBH

There is more talk that the strength of the euro could prompt a dovish tapering from the ECB next week, according to analysts at BBH.  

Key Quotes

“Tomorrow the EMU's preliminary August CPI will be reported.  Today the Spanish and German reports warn of upside risks.  Spain's CPI rose 0.2% in August for a 2.0% year-over-year pace.  It was 1.7% in July, after peaking at 3.0% in February.  The German states have reported firmer inflation figures, and the risk is on the upside for the national report due shortly, where the year-over-year rate is likely to rise from July's 1.5%.  It peaked at 2.2% in February.”  

“The euro closed last week at $1.1924, according to Bloomberg.  It has dipped briefly below $1.1940 today after reaching $1.2070 yesterday.  The 50% retracement of its decline since 2014 is found just below $1.2170.  The consensus narrative of the euro's rally this year emphasizes the disappointment with progress on Trump's legislative agenda and the softer US inflation data.  However, the one factor that does not get its fair due, in our view, is the changed the political climate in Europe.  Specifically, what signaled the euro's move higher was the gap opening on April 24 when it became clear that the populist-nationalist wave was going to be turned back in France.”  

“Last year, foreign investors sold roughly $100 bln of European equities.  This year, European equities have been a market favorite, and roughly $30 bln has returned.  Yet the equity performance has been disappointing.  The Dow Jones Stoxx 600 is up about 2.4% year-to-date.  The real return for foreign investors comes from the dollar's slide.  For dollar-based investors, the Dow Jones Stoxx 600 has returned 16.3% this year, compared with a 9.3% return for the S&P 500.”  

“The Dow Jones Stoxx 600 is up about 0.4% in late morning turnover in Europe.  It has recovered about half of what it lost yesterday.  Real estate and industrials are leading the market higher.  The utility sector is the only one lower on the day.  Asian markets mostly moved higher.  The regional leader was Hong Kong's Hang Seng.  It was already up 26.5% for the year before today, where it tacked on another 1.2%.  Korea's Kospi, which recovered smartly yesterday and closed near its highs, recovered another 0.3% today, though foreign investors were small net sellers.”