Overview: The major currencies are mixed in quiet turnover. Most of the European currencies are firmer, while the dollar-bloc currencies, yen and Swiss franc are softer. Emerging market currencies are steady to higher, though there are a few exceptions in Asia, where the Indonesian rupiah and the Chinese yuan are off about 0.3%, while the Indian rupee and Malaysian ringgit are around 0.2% lower. Asian equities were heavy, though the Nikkei rallied to its best level since February. European shares are mostly higher. Reports of a compromise that will produce a 1.9% deficit (of GDP) in Italy is helping its stocks and bonds outperform today. The US 10-year Treasury yield is consolidating around 3.10%. Oil prices are extending yesterday’s gain.  

ECB: The euro had fallen after the each of the ECB meetings between last October through the July 2018 meeting. The pattern broke at the September 13 meeting when the euro appreciated. Draghi spoke yesterday and two words got market participants excited. He said that the staff forecast (1.7% CPI this year and the next two) concealed what he described as “relatively vigorous” improvement in underlying inflation. ECB’s Praet played down the significance of Draghi’s comments, suggesting that no new ground was broke and that policy would remain accommodative.  

Ahead of the weekend, the preliminary EMU September CPI will be reported. The headline is expected to rise from 2.0% to 2.1%, while the core is forecast to increase to 1.1% from 1.0%. The former will match the five-year high seen earlier this year, while the core rate would match this year’s high, last year’s high was a touch higher (1.25). Underlying inflation does refer to the impact of higher oil prices (Brent recorded a new multi-year high near $81.80). Labor market dynamics are behind Draghi’s optimism, where he is putting faith in the return of the Phillip’s Curve. He noted in yesterday’s speech to the European Parliament that negotiated wages rose 1.5% in 2017 and 1.7% in Q1 17 and 2.2% in Q2 17. The implied December 2019 Euribor futures contract is minus 8.5 bp compared with minus 12.5 bp at the end of August.