RAM Euro Weekly

This week will see the ECB policymakers holding their key rate decision for November, with expectations for an unchanged decision most likely with the Central Bank maintaining its upside inflation bias. The ECB press conference following the rate decision will as usual be dissected word by word as the market looks for President Jean Claude Trichet to guide the market in the central banks thinking. Many market players will be paying close attention to the ECB’s stance on inflation with October’s reading unexpectedly rising to 2.6% it highest in two years and well above the central bank’s target of 2%.

Taking a look at recent ECB commentary:

Weber

• Will do what is necessary to preserve price stability.
• Risks to German growth have increased, but pessimism is unjustified.

Wellink

• Still worried about inflation prospects.
• No reason to expect EMU inflation expectations will change.

Quaden

• Market turmoil has clouded Euro-Zone future.
• ECB policy ready to counter inflation risks.

Ordonez

• Still uncertain how long turbulence will last and its impact on growth.
• Does not see 2007 Euro-Zone economic growth above 2.5%.

The recent ECB tone maintains the usual hawkish tone with the majority of members still concerned about the risk of inflation. It would seen that if it was not for the credit crisis then the central bank would have been in no doubt to continue its hiking cycle. However, one must bear in mind that with the second consecutive Fed cut last week and European growth starting to ease there are some more down side indicators for the ECB to consider than there were in the summer. ECB sources seen last week may then sum up the situation most appropriately with “economic uncertainty and growth risks will keep the ECB on hold” and “a rate hike possible, but more data needed”.

Important economic releases this week will start on Tuesday with EU PPI, EU retail sales and services PMIs. PPI is forecast to rise from the previous month and retail sales expected to have increased, driven by Germany. The advance estimate of services PMI are already released but more attention will be paid to the specific country breakdowns. Other notable releases this week are from Germany where we will see Factory Orders on Tuesday and Industrial Production on Wednesday.