Draghi Says Inflation is Not There Yet

European stocks are higher on Friday after a mixed session in Asia. The EUR/USD continued to rebound and is now up for the week. European yields are slightly higher, with Bund yield quickly moving up from opening lows, after a round of much stronger than expected preliminary PMI readings, which confirmed that the Eurozone recovery continues to broaden and strengthen. European stock markets were mostly higher despite reports that North Korea is threatening and Hydrogen-bomb test in the Pacific Ocean. Draghi repeated again that inflation isn’t where the ECB wants it to be yet while in the U.K. at least markets are waiting for yet another keynote speech from PM May on Brexit in a bid to end the deadlock in official talks and hoped to bring confirmation that the U.K. is seeking a transition period.

ECB Draghi says “not there” yet on inflation.

Draghi stressed once again that the central bank’s goal is to “ensure price stability and price stability is defined as an inflation rate which is close to 2%”, adding that “today that means we are not there yet” and that “that is why monetary policy remains extraordinarily accommodative”. He admitted that a prolonged period of “variable or negative interest rates is a fertile ground for the materialization of financial stability risk”, but added that “we hadn’t seen much of this”, although, there may be “local situation of valuations of assets that are overstretched”, stressing that “we have to keep an eye that these are not systemic”. No sign there that Draghi is turning overly hawkish, with the reference to still low inflation backing expectations for yet another QE extension, albeit with lower monthly purchase volumes.

EMU September PMIs surge higher for strong Q3 GDP number.

Eurozone PMI readings for September came in much stronger than anticipated. The manufacturing reading jumped to 58.2 from 57.4, the services PMI came in at 55.6 and the composite jumped to 56.7 from 55.7 in the previous month. Markit said the economy showed a “burst of activity” in the last month of the quarter and data would be consistent with a quarterly growth rate of 0.7% quarter over quarter in Q3 according to Markit, the fastest growth rate since early 2015. At the same time strong orders growth, which showed the largest monthly increase since April 2011, is a good sign for growth in the last quarter of the year. The survey showed that some companies reported concerns about the strength of the EUR, but according to Markit the strong currency has so far only had a modest impact on exports.

Pyongyang has threated to detonate an Hydrogen-bomb in the Pacific. North Korea’s foreign minister, Ri Yong-ho, speaking from New York where he is due to address the UN assembly at the weekend, said that “it could be the most powerful detonation of an H-bomb in the Pacific,” adding that “we have no idea about what actions could be taken as it will be ordered by leader Kim Jong-un.”