Archive - Dec 3, 2015 - Story

A sudden miraculous bid for USDs over JPY has managed to rescue stocks from the precipice of year-to-date redness for now... but bonds (dragged by Bund's collapse) ain't buying the bounce...

Update: PSPP extended to March 2017 "or beyond", regional debt added to QE-eligible asset pool

Having just let everyone down with a less-than-spectacular 10 bps depo rate cut, Mario Draghi will now try to appease a spoiled market by announcing an expansion and/or an extension of PSPP. 

Back in March 2014, the ECB predicted that inflation at the end of 2015 would be 1.3%. Moments ago, with less than a month left in the year, the ECB has trimmed its forecast to just 0.1%. Oops.  But what about next year? Well, see for yourselves...

Un-"Liquidity"...

And there goes hopes for a bigger bazooka...

Following the surprise plunge in job layoffs (to 14-month lows) according to Challenger, Grey, and a day after exuberant ADP jobs data, initial jobless claims spoiled the party a little and rose 9k to 269k (in line with expectations). However, for The Fed, this is awesome, as the trend remains near 42 year lows. The question is - as the chart below shows - what happens next?

Over-promise and under-deliver appeears to have been the Draghi meme as the ECB chief's loss of control of market front-running  has left traders rapidly reversing their buy-the-rumor positions. EURUSD is spiking higher, Bund yields - most focused at the short-end - are surging, DAX is dumping, and US equity and bond markets are being sold. USD weakness has sparked gold and crude strength. We are gonna need a lot more jawboning in the press conference to save this...

If you just lost a ton of money, here's why.

• Mario Draghi Is About to Become the World's Market Risk Manager (BBG)
• Five Things to Ask Mario Draghi From Negative Rates to QE (BBG)
• Leaving behind baby and bombs, couple sows panic in California (Reuters)
• Couple's motive in California rampage a mystery for police, family (Reuters)
• In Grim Ritual, Barack Obama Again Calls for Stricter Gun Control After Mass Shooting (WSJ)
• Islamic State Defeat Impossible Without Ground Force, Kerry Says (BBG)
• OPEC States Push for Output Cuts in Face of Saudi Opposition (BBG)

Mario Draghi is on deck Thursday morning and market expectations could scarcely be higher. In fact, Draghi is widely expected to execute the Keynesian trifecta, i) a rate cut, ii) expansion of QE, and iii) extension of QE duration. The ECB has indeed gained a reputation for over-delivering, but as SocGen puts it, "with high expectations comes a high risk of disappointment." 

Yesterday's market swoon which unwound all of Tuesday's gains on concerns about a hawkish Fed and fears about terrorism in the US, are now completely forgotten, and have been replaced with the latest daily round of pre-ECB euphoria, driven by hopes that Mario Draghi will announce even more dovish details to Europe's Q€ 2 than just a 10 bps rate cut and a boost to QE more than €10 billion, both of which have been already priced in.