ECB minutes in search of strong signals regarding further stimulus

Amid a relatively light data calendar in Europe, the release of the ECB's September policy meeting minutes will attract market interest. The focus will be on potential options discussed by the GC to ease policy further. Although President Draghi said during his Q&A that a rate cut had not been discussed, the market will likely scrutinize any statement regarding the lower bound for interest rates, as it is believed that a cut in the rate of the deposit facility could be one powerful option to re-anchor inflation expectation through its impact on the front end of the yield curve and the subsequent weakening of the EUR. With soft inflationary pressures dragging inflation expectations lower and with soft US data likely pushing Fed rate hike expectations further out, further EUR strength and consequent tightening of euro area financial conditions, will unlikely be tolerated by the ECB. 

"We continue to expect further ECB easing to be announced as early as the October ECB meeting in the form of a time extension to the QE program and continue to forecast EUR depreciation in the coming quarters", notes Barclays.
 
On the data front, September PMI data (Monday) is expected to remain unchanged and look for German factory orders (Tuesday) to have rebounded in August after a sharp drop in July, although not fully catching up to the record high of June. Moreover, German IP (Wednesday) is expected to increase 0.6% m/m in August, in line with the increase in manufacturing PMI. Finally, French IP is likely to rise by 0.3% m/m in August but only partially offsetting the July 0.8% m/m drop. In turn, the carryover would only slight improve to -0.5% for Q3 (after -0.7% in Q2). In Italy, industrial production is expected to come off in August (-0.5% m/m), after increasing sharply in July (+1.1% m/m).