European Futures Lower | Draghi Drags Euro Lower

European Futures Lower | Draghi Drags Euro Lower | Ryanair Smashes Forecast

The European futures are trading lower today as investors mainly remain in risk-off mode and they are unsure about the direction of the trade. Mario Draghi, the president of the European Central Bank, has taken some wind of the euro-dollar rally by saying that the Eurozone still needs quantitative easing. Investors are largely expecting that the bank will soon start the process of unwinding their quantitative easing program and this has helped the euro-dollar pair to move higher. But the fact remains that we are getting much closer to a stage when the ECB would start its tapering process because of the improvement in the economic health of the Eurozone. The patient is no longer in the emergency ward therefore, we do not need this much dosage of steroids.

The evidence of the improvement in the Eurozone's economy will also become more prominent when the economic confidence data will be released later today. A strong number will provide more tailwinds for the euro-dollar pair. Moreover, we also have the German and Spanish inflation numbers due later today. The forecast is for a weak number and this could support Draghi's thesis that the inflation is still subdued in the Eurozone which requires the ECB support. However, an improvement in the inflation number would strengthen the argument that the ECB should start tightening their ultra-loose monetary policy.

On the macro front, the leader of the free world, Angela Merkel, would meet the leaders of India and China, both are supportive of free trade. Germany is surely playing a lead role when it comes to free trade and open borders. French president Emmanuel Macron has decided to normalise the relationship with Russia and called for improvement in the economic ties after his first meeting with Vladimir Putin. Having said that, France has made its position clear that the country would support for more sanctions if there is any escalation of conflicts in Eastern Ukraine.

Back in the US, investors will return from a long weekend and the focus will be on the key economic data ahead of the June rate hike meeting. The US NFP data is by far commands the most amount of attention and it will set the tone for the dollar. Traders will also be paying a close attention to core PCE deflator, a metric which the Fed always keep close to their heart. This data is due later today and an improvement in this number may provide some aid for the dollar.

Theresa May's gamble of calling the general election is under threat as the opposition party has closed the gap further as the latest data from polls show. The difference is only for 6 percentage points as her U-turn on the social care plans is making a negative impact on her position. It wasn't a long ago, when everyone was calling for a landslide victory for her which would have strengthened her hand in the parliament and enabled her to carry a strong mandate in Brexit talks. However, we maintain our call that Theresa May will remain the strong candidate to carry out the Brexit talks and on the June 8th, it is highly likely she would win the elections. The outcome of this would strengthen the pound and until then we do see the currency remain under pressure.

In company news, it is all about Ryanair which reported a 6 percent gain in annual earnings. The biggest discount airline in Europe reported net income of 1.32 billion euros, a number which was much higher in comparison to a previous number of 1.24 billion a year earlier. The airline is still in talks with Being Co to increase its fleet size even further and trying to add two or three more jets to its existing order and also extending 10 lease returns through 2019.

Cutting cost and slashing prices have paid a dividend by undercutting rivals and it helped the firm to maintain its market share given the glut of capacity we have on European routes. We do expect that demand will soon catch up with supply and that could inflate it’s earning in fiscal 2018. Ryanair needs to make sure that it takes full advantage of an opportunity which is due to the restructuring of Air Berlin Plz and Alitalia Spa. The airline should strengthen its position in Italy, Germany, Poland and Romania. The firm has also announced that it wants to buy back 600 million euros of outstanding shares which would improve its investor's positions further. The firm has performed relatively well despite the Brexit woes but it has warned about significant headwinds as the picture about Brexit remain very cloudy

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