Lagarde to become new ECB president


  • Christine Lagarde, chief of the IMF, has been formally nominated to become a new ECB president; what does it mean for the euro?
  • Slight risk-off across markets: JPY higher, US bond yields lower, gold on the rise
  • Chinese services PMI for June deteriorates, Australia posts a substantial trade surplus

Another lawyer to become central banker

Investors’ attention this week has been paid to Brussels where EU leaders are debating over who will preside over major European institutions. On Tuesday we were offered two crucial nominations. The first one was Ursula von der Leyen, German defense minister, who is to become a new president of the European Commission. The second one was Christine Lagarde, chief of the IMF, who was formally nominated to become a new president of the Europen Central Bank. Let us recall that Lagarde is a lawyer with no hands-on experience in central banking, if she replaces Mario Draghi she would become the first woman taking charge of the ECB. On top of that, if such a scenario materializes it would mean that two major central banks - the US Federal Reserve and the European Central Bank - will be led by lawyers. What does Lagarde at the helm of the ECB mean for markets? As we already noted she has not been a member of any central bank so far, hence one may suppose that she could rely heavily on others’ experience (we mean other economists including the ECB’s chief economist Philip Lane). It would mean that a further direction in monetary policy will depend on what her major advisers think about the latest economic developments. Anyway, it does not mean that Lagarde has nothing to do with macroeconomics and finance in general - she had been a French finance minister before she became the IMF’s chief, the institution that prepares comprehensive economic forecasts for many economies around the globe.

The EURUSD dropped to some extent on the report that Lagarde could be a new ECB’s president. The currency pair is little changed this morning though. Source: xStation5

Mixed data from Australia, weaker from China

Focusing on what we were offered overnight one needs to begin with Chinese services PMI for June which fell to 52 from 52.7, falling short of the median estimate of 52.6. However, the details do not look so gloomy as firms reported a slight increase in new work while employment remained steady. As a result, the composite gauge declined to 50.6 from 51.5. In addition to this release, we got a lot of numbers from Australia where the AIG services index ticked down to 52.2 from 52.5 and the CBA/Markit index for services slipped to 52.6 from 53.3. On the other hand, building permits for May increased 0.7% MoM while the economy posted a 5.75 billion AUD trade surplus in May, above the consensus of a 5.25 billion AUD. These mixed releases do not seem to be reassuring as risk-off is still present across markets - gold prices gain 0.6%, the yen leads the gains within the G10 basket while the US 10Y bond yield trades at 1.95% after making a notable decline yesterday.

The Australian economy saw a higher than expected trade surplus in May. Source: Macrobond, XTB Research

In the other news:

  • US crude inventories shrank 5 million barrels last week, according to API

  • Donald Trump plans to nominate economists - Christopher Waller and Judy Shelton - to be members of the Federal Reserve

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