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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Thu, 02/06/2014 - 08:22 | 4407239 Haager
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What? No rate increase even if it's extremely low on probality?

Thu, 02/06/2014 - 08:33 | 4407254 GetZeeGold
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Perhaps a surprise toga party/press conference.....that would be something new...

Thu, 02/06/2014 - 08:34 | 4407260 ArkansasAngie
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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.

Thu, 02/06/2014 - 08:46 | 4407286 Ghordius
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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

Thu, 02/06/2014 - 08:50 | 4407289 schatzi
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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.

Thu, 02/06/2014 - 09:06 | 4407330 Ghordius
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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

Thu, 02/06/2014 - 09:30 | 4407273 y3maxx
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Will stay the same

Thu, 02/06/2014 - 08:26 | 4407244 stocktivity
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#5 - Mario Draghi - "We will do whatever it takes to juice...ahem...I mean support the market.

Thu, 02/06/2014 - 08:29 | 4407248 Sudden Debt
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#6 The ECB will buy unlimited amounts of gold on the open market with fresh printed currency

Thu, 02/06/2014 - 08:32 | 4407253 firstdivision
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#7 Mario Draghi pulls a Bud Dwyer

Thu, 02/06/2014 - 08:38 | 4407266 ArkansasAngie
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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?

Thu, 02/06/2014 - 08:47 | 4407287 Sudden Debt
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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.

Thu, 02/06/2014 - 08:56 | 4407309 Sudden Debt
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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.

Thu, 02/06/2014 - 09:50 | 4407475 Sudden Debt
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I have a fireplace and a woman to keep me warm in that case :)


Thu, 02/06/2014 - 08:38 | 4407269 Ghordius
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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

Thu, 02/06/2014 - 08:25 | 4407245 Sudden Debt
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ECB decision right after lunch...

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

Thu, 02/06/2014 - 08:26 | 4407246 Sudden Debt
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You take the most unlikely "sollution" and multiply it by PI!

Thu, 02/06/2014 - 08:32 | 4407251 SilverIsKing
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Solution? There is no solution.

Thu, 02/06/2014 - 08:36 | 4407261 Sudden Debt
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No solution is also a solution.

Welcome to Europe.

Thu, 02/06/2014 - 08:31 | 4407255 youngman
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NEVER pick the mutiple choice answer with the word ALWAYS in it

Thu, 02/06/2014 - 08:38 | 4407272 BandGap
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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.

Thu, 02/06/2014 - 08:32 | 4407250 youngman
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What about Greece..What about much do they get again....and who is Frances date-whore de jour....

Thu, 02/06/2014 - 08:35 | 4407259 GetZeeGold
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What's wrong with Greece?

Thu, 02/06/2014 - 08:32 | 4407252 Music101
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Doesn't matter -- it's a WORLD OF DEBT!!! See Video Below "WORLD OF DEBT" -- Funny Too:

Thu, 02/06/2014 - 08:36 | 4407263 BandGap
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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.

Thu, 02/06/2014 - 08:35 | 4407264 Colonel Klink
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Which one?  The one which benefits the banks the most.  That's easy!

Thu, 02/06/2014 - 08:39 | 4407275 papaswamp
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...and in completely almost unrelated news. Challenger job cuts spike up to over 45,000 for January. 11.6% Y/Y (vs -5% prev.).


Thu, 02/06/2014 - 08:46 | 4407279 q99x2
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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.

Thu, 02/06/2014 - 08:42 | 4407282 Cangaroo.TNT
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I think this guy leaves out the most obvious scenario:  Mario Draghi performs self immolation while yelling "Greece fire!"

Thu, 02/06/2014 - 08:51 | 4407293 Cleetus
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The knucklehead Liesman on Squawk is spooging on some other 'measure' that might or might not occur.


I'm on pins and needles

Thu, 02/06/2014 - 08:53 | 4407298 Cleetus
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#2 scenario is it and the futures are not dropping... Say it ain't so Joe

Thu, 02/06/2014 - 09:00 | 4407324 AdvancingTime
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