Previewing Today's ECB's Decision

Tyler Durden's picture

With Europe once more unfixed, its economy mired deep in a double, and in some cases, triple-dip recession, Italian elections leading to many months of political uncertainty (and according to a new Corriere poll, Beppe Grillo now has 28.7% of the vote, his popularity soaring +3.1% since the election, ostensibly making him the biggest party in Italy), the French finmin saying the outlook for Euro area growth outlook is "very worrying" a few hours ago, and otherwise every indication that the European "fixing" has thoroughly failed once more, following the massive miss in German Factory Orders which printed at -1.9% on expectation of a +0.6% January number, many will be looking to today's ECB meeting to see if Draghi will cut European rates further. The EUR has tumbled 700 pips in a month (with Goldman having shorted it all the way on the way up) on fears the Italian may do just that, although the sell-side consensus is less confident. Of all the banks polled, only JPM and to a lesser extent Rabobank believe Draghi will announce another 25 bps cut today. What will Europe do today, and will it proceed to take some of its interest rates negative for the first time ever, proving once and for all its economy is the worst its ever been? Find out in just over an hour.

In the meantime here is what the "consensus" thinks courtesy of Bloomberg:


  • 25Bps ECB cut seen this week; stay long Eonia

Goldman Sachs

  • Expect no change to ECB policy, in line with consensus


  • Expect ECB to cut refinance rate by 25bps though it’s a close call; ECB’s revised macroeconomic projections will also be watched
  • ECB is expected to remain on hold this week though risks for dovish ECB is increasing; growth indicators will be important and suggest watching 4Q GDP this week, Hans Redeker, strategist at Morgan Stanley, writes in note
  • Maintain EUR/USD short; sustained move below 1.3000 opens way for 1.2660 target

Morgan Stanley:

  • Market will be looking for dovish guidance; EUR was introduced to statement last month though recent EUR decline suggests reference won’t be adjusted, Hans Redeker, strategist at Morgan Stanley, writes in note


  • ECB to keep rates unchanged; Draghi should maintain dovish tone and reiterate that highly accommodative monetary policy stance remains appropriate, Thomas Harjes, economist at Barclays, writes in note
  • Chance of 25bps cut in refinancing rate to 0.5% is higher than from a month ago especially if ECB lowers GDP/CPI outlook


  • Focus on Draghi’s wording; rate cut may be as soon as April if he signals medium-term downside risks; cut isn’t imminent if he describes it as balanced, Valentin Marinov, strategist at Citigroup, writes in note
  • EUR reaction depends on extent of dovish surprise; markets already priced for more dovishness and if there’s no cut, or Draghi fails to signal rate move soon, EUR could consolidate with potential upside vs GBP and JPY

Deutsche Bank:

  • Risk is tilted toward more easing though not in form of interest-rate policy; ’’credit-easing’’ liquidity policies are more likely in next few months
  • Expect Draghi to maintain cautious tone
  • Certain financial conditions have eased since last month such as EUR decline and lower than est. repayment of 2ndLTRO


  • Doubt ECB will cut rates today though a cut is likely by June/July; key today are the updated forecasts with risks of downward revision after weak start to 2013
  • Risks of downbeat press conference which could undermine EUR, but if there’s no rate cut, Draghi would use press conference to justify that


  • Market is looking for revisions to ECB forecasts; 2014 CPI forecast (currently 1.4%) is probably the most important forecast to watch
  • EUR/USD could get hit hard if ECB shifts inflation risk “to the downside” from ’’broadly balanced,’’ though such a move is likely too early for the ECB
  • EUR/USD is a sell at 1.3050/60, for a move to 1.2880

Credit Suisse:

  • ECB to hold though may prepare ground for rate cut with new growth and inflation forecasts; rates strategy team assigns 30% chance to refinance rate cut this week; 25bps cut is likelier in 2Q than in March
  • Further loosening of collateral framework to support credit to SMEs may also be in pipeline

BNP Paribas:

  • Markets aren’t priced for ECB move this week; focus will be on overall message especially on new forecasts and inflation risks
  • A refi rate cut isn’t EUR detrimental as Eonia is close to deposit-rate floor; overall EUR outlook is constructive as long a peripheral bond stress is contained


  • Rate cut may be likely if ECB revises down “already bleak” GDP growth projection given inflation outlook is below target
  • Commerzbank sees stronger case for upward revision of forecast; schatz yields may rise in this scenario


  • Assuming no rate change, expect neutral/dovish bias from Draghi; bearish EUR/USD


  • No change to ECB rates today; hard to justify a cut with EUR down 2% since last meeting and modest easing in short-term EUR rates
  • Scope for easing in ECB forecasts, though unlikely sufficient to trigger change in policy
  • Markets expecting dovish tone from Draghi, though risk is that he is more neutral, and EUR rallies in response


  • ECB to leave monetary stance unchanged; possible dovish revisions to macroeconomic forecasts unlikely to lead to material change in Draghi’s rhetoric, Luca Cazzulani, strategist at UniCredit, writes

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vmromk's picture

Hang the motherfucking "bankers".

Darth Vader's picture

Hanging's too good for them.  Put them in stock's in a public place like they did in the good ol days.

GetZeeGold's picture



This movie seems to be a rerun.

Yen Cross's picture

 Draghi is going to have to put on a good show, if he holds rates. That ECB statment last fall comes to mind, when the f/x market initially bought the clap trap, then proceded to do do a nasty selloff.

Anasteus's picture

The staff of almost all these banks should have already sit in jail and not be perpetually producing deceptive manipulative 'predictions'.

In every normal society the names of these banks would have long since been forgotten.

Sudden Debt's picture

Yesterday I was talking to my advisor for my pension fund. I just wanted some extra advice and his vuepoint on european economics.


He was proudly saying they are changing the private pension fund structures and everything would be solved and there was nothing to worry about.

Than I asked him how this could be with our local governments into tatters and the american economy also!!

His responce was priceless:

When the American economy inplodes, there will be other big economies who will take over their burden and everything will continue.

So I asked him: and what about the european economy?

He didn't answer that question.

And I asked "what other economies will take over the dollar?


Others like in multiple. But no details here also. And that was a quick answer.

 Than he asked me: WHY ARE YOU CONCERNED ABOUT ALL OF THIS?! I shouldn't be...

FUCK THAT!! I'm taking my own pension investments into my own hands now!


GetZeeGold's picture



Good idea.....I'd get on that.


Since your advisor will now have some free time on his hands....have him consider going on vacation here.

Edward Fiatski's picture

You should get out of the ponzi scheme, SD.

Yeah... "Others"... MARTIANS!! Even the fucking ECB knows about the UFO & Alien Arctic Polar Underground Stealth Base.

Pseudo Anonym's picture

sheesh, you havent done that already?

I'm taking my own pension investments into my own hands now!

what the hell were you waiting for during the last 2 yrs and 50 wks?

Downtoolong's picture

Goldman having shorted it all the way on the way up on fears the Italian may do just that

Fears; don't you mean orders?

Orly's picture

If memory serves, Thomas Stolper of Goldman was long Euros to ~1.37, then sold at the top.


mendigo's picture

Reality cloaking device operating at 105% of capacity - hope those batteries don't catch fire. (They are 1000% sure.)
Pay no attention to the man behind the curtain.

New idea for a weekly article: Dumbest thing said by a government bureaucrat this week.

Edward Fiatski's picture

Well, they didn't. 

Aaaand Yurope goes down the shitter: Germans can't afford their own Mercedes! German factory orders -2.5%.