Previewing The ECB's Decision

The Fed may or may not be able to afford schizophrenia regarding the future of its monetary decisions (for now), but the ECB, in charge of a continent mired deep in depression, does not have that luxury. While consensus overwhelmingly expects a 25 bps cut in the main refinancing rate, some have warned that should the ECB not engage in such a cut, the EUR will tumble as the short covering squeeze ends with a thud. What exactly are the individual banks expecting? The following bulletin from Bloomberg summarizes it all.

Deutsche Bank:

• Potential ECB refi rate cut today doesn’t matter much; currency market more sensitive to short-end money market rates and without a deposit-rate cut, today’s decision won’t have a big impact, George Saravelos, strategist at Deutsche Bank, writes in note
• Refi rate cut is relevant for European long-end as it encourages carry trades, discourages LTRO pre-payments, caps potential Eonia rise

Morgan Stanley:

• If ECB only delivers the expected 25bps cut with no further non-standard measures, it will leave EUR vulnerable, Hans Redeker, strategist at Morgan Stanley, writes in note

  Yday’s reaction to Fed statement suggests that delivering within expectations is insufficient to keep asset markets supported

• Move below 1.3090 will signal renewed negative trend, suggesting that recent EUR/USD rebound is complete and broader downtrend is resuming

Citigroup:

• EUR’s response to ECB decision will depend on type and aggressiveness of measures announced, Valentin Marinov, strategist at Citigroup, writes in note
• Easing plans that are too aggressive, or signals of further aggressive easing without detailed SME lending plan, may weigh on EUR; EUR could be supported if ECB cuts rates and unveils concrete proposals to stimulate the lending channel
• ECB would have to sound very dovish or deliver a 50bps cut for front-end to rally; look for better entry points than 1% in 3Y1Y receivers, probably in week after ECB

Standard Bank:

• Not recommending any new positions today; wise to wait for ECB decision before committing to any new trades, Steven Barrow, strategist at Standard Bank, writes in note

Barclays:

• Rate-cut expectations should be fully priced into EUR by now; risks are skewed to EUR strength due to possibility of new non-standard measures and short EUR positioning, Raghav Subbarao, strategist at Barclays, writes in note
• Reaction in rates markets likely limited; rates already low and already incorporated expectations of 25bps cut;  no rate cut and absence of hints on June reduction will disappoint and fuel volatility at front-end, Giuseppe Maraffino, strategist at Barclays, writes in note

UniCredit:

• EUR/USD will benefit if ECB remains on hold (which UniCredit expects), Luca Cazzulani, strategist at UniCredit, writes in note

BNP Paribas:

• 25bps refi rate cut is fully priced in now and EUR/USD can gain further ground if this scenario is confirmed, Steven Saywell, strategist at BNP, writes in note
• Additional measures to boost credit for SMEs may support EUR due to improved risk appetite; a change in inflation language without rate cut should on balance be EUR-supportive
• Eonia curve shows 1-mo. OIS already 6bps to Sept.; thus a 25bps refi rate cut is almost fully priced in; little value in bunds at 1.2% and recommend staying short

ING:

• House view is ECB will prefer June cut, but Draghi may not want to disappoint market given already fragile sentiment, Chris Turner, strategist at ING, writes in note
• Net effect of ECB refi-rate cut may be EUR-supportive; money-market rates already near zero and bigger impact will be on euro-zone banking stocks which will enjoy lower borrowing costs

Lloyds:

• Market has shifted away from expecting EUR weakness on ECB refi rate cut; EUR may slump if ECB doesn’t cut refi  rate as credit markets will be disappointed
• EUR may dip initially on rate cut -- a buying opportunity; strongest positive reaction will likely be EUR/CHF
• Too early to expect non-standard measures; Draghi may maintain update commentary

BOTM-UFJ:

• Impact of ECB rate cut is likely to be limited with short rates already close to the deposit rate
• Negative impact on EUR from rate cut is likely modest as market is already fully expecting a 25bps refi rate cut

RBC:

• Expectations for ECB easing have built up significantly; market pricing of policy action today looks somewhat overdone, Norbert Aul, strategist at RBC, writes in client note
• Reiterate April 25 recommendation that investors pay 1Y, 2Y-forward Eonia with target of 45bps and stop at 30bps: Aul

Commerzbank:

• Risks in ECB policy decision today are balanced toward disappointment, as rate cut is already priced in and new easing measures need to be unveiled to boost markets; enter tactical bund-future shorts

Comments

[firstdivision]

I predict no change with dovish talk.  Damn it feels good to be a Nostradamus

[ZippyBananaPants]

http://m.youtube.com/watch?v=aYvsWo0uu8o

[ZippyBananaPants]

My thoughts turn to all who are unemployed, often as a result of a self-centred mindset bent on profit at any cost.

— Pope Francis (@Pontifex) May 2, 2013

[disabledvet]

"Or those out of work but still looking." It's all very comicated sometimes. "If euro goes full on QE then this could be perceived as a sign of fundamental problem. If they do nothing or just lower 25 it could be seen that they just don't get it." I say .50....unless their interest rates are already at .25....

[dontgoforit]

Either way, like us and the rest of the 'developed' world - there's just too much in the way of debt and promised pensions to allow for a smooth landing - not enough money in the universe to stop the inevitable crash, just a matter of when it's going to happen.  No prediction but if we make it to 2014 it will be at least a minor miracle.

[Quinvarius]

Like a bunch of bookies making odds in Vegas.  Guess what?  The EUR will go to the exact price that the Fed and the ECB already decided to take it.

[disabledvet]

"QEternity...

[Yen Cross]

     ECB needs to cut both refi rate and deposit rate. Draghi has no plan-b for an open lending facility per the last ECB meeting when he made an ass of himself to reporters.

[writingsonthewall]

How many of these 'strategists' are working for insolvent banks?

Seems to me the media has given up looking at QUALITY - instead they will provide a megaphone for any idiot who conforms with their views.

Barclays idea that a change is 'priced in' is laughable - because the pricing is comeing from the banks who are already informed of the decision in advance by their central banking buddies.

I wonder if they also used the phrase "the LIBOR rate is clearly priced in for event 'X'" - whilst they were manipulating it.

[20834A]

OT Alert: (Not yet confirmed, but highly believable, alas)

BREAKING: DHS Says They Can Seize Your Gold, Silver, And Guns If They Feel Like It

http://www.mrconservative.com/2013/04/9782-dhs-says-they-can-take-what-they-want/

[W T F II]

Whatever facilitates the continuence of the challenged sovereigns buying their own bonds through their own banks and pension funds in the ultimate Ponzi is what will happen.

In the real World of global economics, the Euro should be UNDER $ parity...!! That's what is called for given the comparative metrics.

[Peter Pan]

The EU has already cut its throat with the uniquely bizzare combination of austerity, haircuts, politics and economic conditions so cutting the rate will not provide anything more than some temporary respite.

In the years to come the EU will be nothing more than a sad and sorry chapter in both history and economics books.

[Nu Yawks hottes...]

Whereas the EU nations should be spending more money (with dismal returns in terms of GDP) they haven't got to levitate assets on behalf of a too-well-connected-to-jail elite like the US ?