Previewing The ECB (No) Decision: The Four Possible Scenarios

Tyler Durden's picture

Over 92%, or 62 of 66 economists surveyed by Bloomberg, expect no surprises from the ECB in half an hour. Whether that guarantees a "surprise" we leave it up to readers, but here courtesy of ABN Amro's head of macro research Nick Kounis, are the four possible decisions scenarios that Mario Draghi can reveal to the world today.

1. ECB ends SMP sterilization: this is ABN’s central scenario

  • Would more than double excess liquidity, spurring expectations of lower short rates and supporting EGBs -- especially 5Y sector; euro would come under pressure
  • May make investors see ECB QE as more likely, supporting peripheral bonds

2. ECB leaves policy and forward guidance unchanged, without clear signal of easing in March

  • This would disappoint markets, which would start pricing higher short rates; govt bonds would probably sell-off, led by periphery; euro would strengthen

3. ECB cuts rates, possibly alongside ditching SMP sterilization

  • This would likely involve cuts to both refinancing and deposit rates
  • Would probably spur market to expect lower front-end rates, steepen curves, compress peripheral spreads and trigger decline in euro

4. Large-scale QE program: very low probability

  • All EGBs would likely benefit near-term, especially peripherals due to hunt for yield; euro would “fall off a cliff”

Source: Bloomberg

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Haager's picture

What? No rate increase even if it's extremely low on probality?

GetZeeGold's picture

 

 

Perhaps a surprise toga party/press conference.....that would be something new...

ArkansasAngie's picture

Europe wants the euro to devaluate so they can sell more stuff and export themselves out of their macro economic (self imposed?) problems.

The only real question is do they do it with a bang or by stealth.  They'd prefer stealth.  

What does that mean for us peons here in the US?  Same crap.

Ghordius's picture

who is this "Europe" that "wants"? isn't this more based on the Anglo-American banker's commentaries on Germany's industrial interests, while angling for a lower EUR themselves, since they spent a decade betting on a falling EUR? There are 18 national bank governors voting on the ECB's moves, plus the small presidium

stealth? the freaking ECB balance sheet is shrinking, and nobody is commenting on that in the AngloSphere. that's not stealth, that's just nobody looking outside the eurozone

schatzi's picture

 

Small correction: it's depreciate, not devalue. To devalue is to officially set a weaker exchange rate. Depreciation usually is manipulated via money supply and interest rates.

 

Other than that, the concept of accelerating growth through currency depreciation doesn't work in most cases. Firstly, you need to actually produce stuff people want to buy in this world and secondly, whatever end-product you can sell more cheaply due to the exchange rate, usually gets neutered by higher import costs of resources, materials and energy needed to produce that end-product.

 

For reference, just look at Japan: Abenomics is failing spectacularly, as they're posting near record current account - and trade deficits.

Ghordius's picture

a seriously above-average comment. depreciation is indeed more potent when you drop rates let's say from 6% to 5.75%, instead of from 0.50% to 0.25%

and yes, you need to actually produce stuff people want

stocktivity's picture

#5 - Mario Draghi - "We will do whatever it takes to juice...ahem...I mean support the market.

Sudden Debt's picture

#6 The ECB will buy unlimited amounts of gold on the open market with fresh printed currency

firstdivision's picture

#7 Mario Draghi pulls a Bud Dwyer

ArkansasAngie's picture

I wonder whether (when?) the US will ever decide that having gold here in the US is a national security issue?  Will they let China et al run away with it?  Will they bet everything on fiat?

Sudden Debt's picture

It's important to see how in history all the gold went from one side to the globe to another.

All the gold in the world has already been everywhere. It already sat in every vault in the world.

Now it's shifting from the west to the east like it once did from the east to the west.

But one thing... if you look to history... shows 1 thing.

Once it's gone it's gone.

It's not comming back for at least a few hundred of years.

You shouldn't panick about it. It's just fact.

But a thumb of rule is this: Follow the gold if you want to prosper.

Those who stay behind will ultimatly lose all their wealth.

Those who move to where the gold is will preserve their wealth.

You don't need to really hold it. The country you reside needs to have it.

I now hold it gold and silver in large quantities. But when Europe and America fall I'll move with my family. And when I move I won't have to start from scratch.

If it's Azia, it will be Azia where I'll go.

Don't hold on to lost dreams. America and Europe are black and white picture now.

We love the old glory. But I want to tough the glory and not just look at it.

Sudden Debt's picture

actually it is. I'm living a very comfortable life right now.

So in that respect time is now. All I want is to keep living like I do now.

Sudden Debt's picture

I have a fireplace and a woman to keep me warm in that case :)

 

Ghordius's picture

don't project the FED's strategies on the ECB. the stock markets are way less important here in the eurozone than the bond markets, both politically and economically

it was Ben Bernanke that took the Russell 2000 as the key indicator of how well he was doing his job

-----------

there was some talk of an alternative: the ECB buying from banks bundles of SME loans. the net effect would be a QE "lite", it would be very targeted, and politically neutral

yet all in all, the ECB has given us a lot of surprises and new tricks. just think how unconventional the LTROs were. and this includes their current shrinking

Sudden Debt's picture

ECB decision right after lunch...

it's 13.25h now... so just a few more hours....

Sudden Debt's picture

You take the most unlikely "sollution" and multiply it by PI!

SilverIsKing's picture

Solution? There is no solution.

Sudden Debt's picture

No solution is also a solution.

Welcome to Europe.

youngman's picture

NEVER pick the mutiple choice answer with the word ALWAYS in it

BandGap's picture

I roomed with engineers in college. They got through entire course by guessing "B". They figured out that professors would start off with the closest (but incorrect) answer first, then the real answer, then gobbledegook for the last two answers.

Guess "B", the second possibility.

youngman's picture

What about Greece..What about Greece...how much do they get again....and who is Frances date-whore de jour....

GetZeeGold's picture

 

 

 

Greece?

 

What's wrong with Greece?

Music101's picture

Doesn't matter -- it's a WORLD OF DEBT!!! See Video Below "WORLD OF DEBT" -- Funny Too:

http://www.youtube.com/watch?v=99xsqxzJnXs

BandGap's picture

This gets tiresome. We're into what, quadruple overtime and need a half court shot to win this?

The financial ship that is the EU is clearly wandering the global money sea and all those aboard rejoice at every little minor correction the the course of things. But if they would look out at the horizon they would see, despite all the corrections and proclamations, they are headed in the same direction that they have been headed all along.

This all reminds me of the movie "Groundhog Day". One man tries to change the course of things but always ends up in the same spot.

Take your medicine, Europe.

Colonel Klink's picture

Which one?  The one which benefits the banks the most.  That's easy!

papaswamp's picture

...and in completely almost unrelated news. Challenger job cuts spike up to over 45,000 for January. 11.6% Y/Y (vs -5% prev.).

Ouch!

q99x2's picture

There is no economic news because there is no economy.

Everything is ECB this FED that Yellen, Taper, Draghi, and on and on.

What happened to business and working people. Everything fucking quit when these central bankers showed up.

Arrest them. Throw them into prisons. Redistribute their stolen wealth.

Cangaroo.TNT's picture

I think this guy leaves out the most obvious scenario:  Mario Draghi performs self immolation while yelling "Greece fire!"

Cleetus's picture

The knucklehead Liesman on Squawk is spooging on some other 'measure' that might or might not occur.

 

I'm on pins and needles

Cleetus's picture

#2 scenario is it and the futures are not dropping... Say it ain't so Joe

AdvancingTime's picture

The games central bankers are playing in supporting their and other currencies has reached a dangerous level, we may be in the "red zone". History has shown that in the past both leaders and governments have fallen with the demise of their coin. The volume of trades, the sheer magnitude of monies flowing back and forth across borders has become staggering. This area of finance has become the worlds largest casino, where players have the potential to quickly suffer staggering losses. The following post delves into these games,

http://brucewilds.blogspot.com/2013/01/currencies-games-in-danger-zone.html