A strong case can be made for additional monetary policy easing in the Eurozone, either via an extension and/or expansion of the current Quantitative Easing programme, currently in the form of €60bn worth of monthly asset purchase. With data both in the Eurozone and the US falling short of market expectations of late, coupled with the dovish minutes from the September ECB Monetary Policy Committee meeting, markets seem geared for a fresh wave of stimulus in Europe.

MPC members have been wary about the implications of downside risks to growth from lower external demand most notably from weakness in emerging markets. Eurozone activity data has been relatively robust but indicators have been somewhat more mixed, with the frail September composite PMI last week testament to this. It appears that external weakness is beginning to pinch Eurozone investors and Q4 could very well result in a downturn in economic activity in the region. The recent emissions scandal to rock the automotive industry will do little to aid the cause. It is hard to quantify the extent to which this could impact GDP numbers in the Eurozone but it could negatively affect confidence, investor demand as well as investment demand.

Price inflation has also been subdued, despite efforts by the ECB to propel price inflation, with no indications so far for any imminent recovery, headline HICP inflation fell back into negative territory in September, to -0.1% y-o-y. Clearly, this had been dragged lower on the back of a sharp drop in energy prices, but core price inflation also indicated that underlying price pressures remain subdued.

Across the Atlantic, the disappointing labour-market report 9 days ago caught the market unaware, as not only did September’s numbers disappoint but, even more surprisingly, August’s numbers were revised markedly lower. What is more noteworthy is that the decline did not pertain solely to the manufacturing sector, which sector had already been impacted by a decline in global growth, but also the services sector began to bear the brunt of weaker global demand.

Analysts seem to be pin pointing the disappointing employment data in the US to the reaction of companies to expected/projected weaker earnings, which, in my opinion, could have a protracting effect on future growth rate. If the Fed sticks to its guns and reiterates its stance to be data dependent, we would exclude any December rate hike at this stage.

With the further prolongation of a rate hike in the US, we would not exclude additional monetary policy stimulus in other economies at this stage; the US not hiking rates (keeping rates at 0% for longer) is in itself an accommodative stance. The Eurozone as well as large countries, such as Japan, China and even possibly Canada could come forward with additional monetary stimulus in the weeks/months ahead.