ECB Decision-Day Guide (In 5 Simple Questions)

Tyler Durden's picture

As we have heard numerous times this year already, tomorrow may be 'another' most important day of the year/cycle as Mario Draghi and his band of merry men at the ECB appear to be finally cornered (by market exuberance, macro weakness, and excess positioning) into "doing" something as opposed to just talking about it. While we have discussed the ins and outs of the potential for a small focused ABS bailout QE, negative rates, and why whatever Draghi does tomorrow will have minimal impact on the real economy; Bloomberg provides a quick and easy guide to the five things to watch for from Mario Draghi tomorrow...

 

Draghi is desperate to avoid a Japan-style lost decade or two...

 

Via Bloomberg's Alessandro Speciale,

1. Which interest rates will Draghi cut, and how far?

While all but two of 60 economists surveyed by Bloomberg News predict a cut in the main refinancing rate from the current record-low 0.25 percent, they’re divided over the size of the reduction. Twenty one economists predict the ECB will lower its benchmark by 10 basis points to 0.15 percent; 34 analysts forecast a cut by 15 basis points to 0.10 percent. Three expect the rate to fall even further.

The majority of economists in a separate survey predict the ECB will become the first major central bank to introduce a negative deposit rate, with 32 of 50 analysts saying the rate will be cut to minus 0.10 percent and 12 forecasting a reduction to minus 0.15 percent. Such a move would weaken the euro, which has appreciated 4 percent against the dollar in the past 12 months. Only six economists see the ECB keeping the deposit rate at zero.

2. Which non-standard measures is Draghi debating?

Policy makers are contemplating a package of measures, and analysts from Goldman Sachs Group Inc. to Nomura International Plc expect a rate cut to be complemented by tools aimed at reigniting credit supply. “The combined use of several monetary-policy instruments is conceivable,” Executive Board member Peter Praet said in an interview with Die Zeit.

Longer-term loans to banks conditional on increased lending to companies may take center stage, with a program modeled on the Bank of England’s Funding for Lending Scheme being one option officials have discussed. Other measures up for debate include the suspension of sterilizing crisis-era bond purchases, changes in reserve requirements and collateral policy and an extension of the fixed-rate, full-allotment regime currently scheduled to be in place until July 2015, under which banks can borrow as much cash as they like against eligible collateral.

3. How serious is the threat of deflation in the euro area?

Inflation, which the ECB aims to keep just under 2 percent, has remained below 1 percent since October and slowed to 0.5 percent last month. In March, the ECB predicted it won’t return toward its goal until the end of 2016. Draghi is set to unveil new staff projections on prices, growth and unemployment that may force the ECB further into uncharted territory.

4. What can the ECB do later in the year if the situation worsens?

Draghi said on April 24 that large-scale asset purchases would be justified if the medium-term outlook for inflation worsens. Any program would target a mix of assets to reduce “term premia across markets and jurisdictions,” Executive Board member Benoit Coeure said on April 13.

The ECB and Bank of England have called on regulators to ease rules on asset-backed securities in Europe. That would provide a broader range of funding options for companies and create assets the ECB could buy to supply liquidity.

5. What else is on the ECB’s agenda?

Draghi may be quizzed on the progress the ECB has made on minutes. Officials started drafting trial versions earlier this year and are debating a reduction in the frequency of rate-setting meetings once they start publishing the accounts.

Developments in the ECB’s comprehensive assessment of the banking system may also be a topic in the press conference, in particular in how it may take account of rising legal costs after U.S. authorities threatened to levy a $10 billion dollar fine on BNP Paribas SA for breaching trade sanctions. In addition, the place of Dexia SA, the bailed-out French-Belgian lender, in the Comprehensive Assessment may be raised, after the ECB supervisors decided to exempt it from a stress test.

*  *  *

And so while they are the key five questions... here is what the world is hoping for / expecting...

 

Better not disappoint Mr. Draghi

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Yen Cross's picture

 Already shorted usd/jpy Tyler. Even if the crosses sell off, my trusty CHF is a hedge!

Haus-Targaryen's picture

I was just thinking about something -- 

If the overnight goes negative, then banks are going to want to put their cash in places other than the ECB -- stuff that is "secure" -- and stuff that is easily liquified, and the best thing I could think of is sovereign debt.  

If even a small percentage of the overnights go into sovereigns -- you're going to see places like Spain paying essentially 0 for debt, which will continue this farce almost indefinitely.   

Although if German 10 years go permanently negative, then good ol' Wolfgang is going to be swapping out all of his callables so quickly it'll make your head spin.   

I get the feeling something large is about to pop.   

BrosephStiglitz's picture

Armstrong did supposedly predict that there would be a "Sovereign Debt Big Bang" in 2015 Q3.  The timing may well be off by a quarter, or two, but it seems likely at this stage when looking around the world.

Freebird's picture

Do you think Cross that any of fhe Tylers are interested in any of your little fx trades? Well done though for getting a firsty...

 

(Wnkr)

disabledvet's picture

I know I am. Along with the question "why nickel?"(the answer is obvious of course) while gold and silver get annihilated (nickel hydride batteries is my guess...anyone else even wonder around here? Or are we all just secretly rooting to be just like CNBS?)

There are solutions. If the Yen gets hammered this week...obviously not good if your Japan...but good if your Yen Cross.

And the biofuels index is also up over 70 percent YTD. (FUE.)

Get ready for your fuel bill to soar folks. "70 percent" sounds about right to me.

SyndicateOne's picture

Who cares. Stock market is going up. Nothing else matters 

Al Huxley's picture

He will blah, blah, blah, blah, I'll do whatever it takes, blah, blah, blah, and then do nothing.  The markets will find this extraordinarily bullish and leap upward.

BandGap's picture

Just.Pull.The.Fucking.Pin

 

NoDebt's picture

Sucks being Japan.  If they had had the world's reserve currency maybe they wouldn't have suffered a stock market decline while their bond yields fell to zero.

We, on the other hand, will see ever-higher stock market valuations while our bond yields fall to zero.

 

disabledvet's picture

" beggar thy neighbor" dead ahead. Draghi will massively devalue...the debt reset is going to be truly epic.

We'll see if Putin attacks. Russia will not last long if oil prices suddenly collapse.

disabledvet's picture

I didn't say Draghi would succeed. Look at the yen over that same time frame. "Phuckin dipshits from Texas again."

It would appear with Loiusianna now one of the richest States in the Union that West Virginia and their truly massive nickel deposit won't be far behind.

I recommend to both they follow North Dakota and start capitalizing a State Bank. They might need to start issuing their own currency soon.

The inflation in North Dakota is really impressive...but at least it's based on incomes.

CrashisOptimistic's picture

Perhaps more to the point, what exactly is the indication that there are too few Euros floating around and that is holding back business?

Is there some overwhelming demand by businesses to borrow to expand and the money to lend them is not available?

Didn't think so.

disabledvet's picture

The imminent arrival of the Mongols?

Yen Cross's picture

  Bill of Rights   WTF? usd/cny trades 731 pips off the Sunday close into Monday. I realize it's Friday.

  Have you looked at the Chibor 7 day swaps?

  You're probably the douche that's been dinging me anyways.

  Bill of Rights > 1 NSA year & 5 clown weeks<

Bill of Rights's picture

Hey loud mouth, I'm not your wife or your mom so quell the douche comments,

Yen Cross's picture

 Hey! Ya you! Bill of Rights   if you want to speak with me use your mothers tongue

  Show some respect!

Yen Cross's picture

 I realize you've had a few laughs. You might want to short the crosses going into next week.

JustObserving's picture

6.  How much will gold and silver fall on Draghi's measures to fight deflation?

CrashisOptimistic's picture

What in the hell is wrong with you gold wackos.

There is ZERO mention of gold in the article.  Not a single word.

But you wackos have to go around spamming every single comment thread. 

What's the rationale?  Is it some sort of mental illness?

Yen Cross's picture

 Here we go with crash peak oil ballistics. Okay crash sink the NSA knife.

CrashisOptimistic's picture

YC, my theory is the gold folks discovered that the only people in gold article comment threads are gold folks.  

The conclusion would then be inescapable, that is, no one else cares.  That, of course, limits cash influx available.  

So they have persuaded themselves that they should talk about gold on threads that have nothing whatsoever to do with gold in the hopes that this is going to move the price.  It's some sort of bizarre delusion or illness.

Bitcoin was and I guess still is probably the ultimate threat to gold oriented cash.  The money flowing to bitcoin doesn't flow to gold and that will evoke rage.

As for oil, well, of course that's a different cup of tea since all of civilization is dependent, so any article at all would be oil relevant, but in general oil talk in these threads is a great deal more restricted than gold talk.  You will not find oil talk (and note the talk has nothing to do with oil trading, since the issues far transcend trading)in the click bait  threads about gold that Tyler provides -- well, hmm I guess I can't say that given I never read any gold threads.  Not interesting, but I suspect there is no oil production talk in gold threads.  

In contrast, I will guarantee you if there is talk of oil production in China or Russia, some gold wacko will show up demanding that it be paid for with gold.

Oh well.

Yen Cross's picture

 Crash respectfully. I think you think you know it all. You're not on my page. I'm pushing 50 and been there done that.

 I've done well, and am packing my shit for Australia. I can fly a twin engined jet, skydive, scubadive, and work a laptop on the beach. You go get that "peak oil thing". You deserve it.

fukidontknow's picture

You're moving to Australia - good luck with that mate. I hope for your sake that you're also good at fighting as you seem a bit lippy.

BrosephStiglitz's picture

I think anyone posting on here and expecting to move the price of anything (Gold, Bitcoin, silver etc.) is deluded.  As I read it, they are more irritated about the rampant price manipulation and the nature of the markets.  They are also pretty irritated with the nature of the monetary system.  Hence, gold for oil.

Also, getting off topic, but I don't agree that Bitcoin is a competitor for gold.  It is a poor substitute.  Bitcoin has some very good characteristics though.  I see the two as parallel, but right now Bitcoin is slowly being engulfed by the global banking system and it is still a largely speculative asset.

GetZeeGold's picture

 

 

If you don't hold it.....I wouldn't count on anything right about now.

 

That includes you.....ummm......paper wackos.

 

Be careful out there....or you're gonna get bailed in.

Bill of Rights's picture

There's that word again, "Mental illness"  that seems to be the word of the year with the Progressive Libs.

 

The hypocrisy is epic.

 

 

Yen Cross's picture

  Good Lord you're off the "Kool Aid". You think I'm liberal? You must be an NSA troll!

CrashisOptimistic's picture

Sort of looks like two words to me.  Mental illness, I mean.  Don't know what progressive libs means.

Yen Cross's picture

   Good luck trading next week Crash.

Dr. Engali's picture

Dragqueen will do whatever the Squid tells him to do and they will have been positioned accordingly...... Regardless of what he does BTFD.

disabledvet's picture

Gold is collapsing on news that Europe has no will to defend itself.

I think Norway is safe. Sweden's a bitch to conquer too.

Warsaw will simply get nuked.

Berlin is still a sitting duck.

Oh, I'm sorry. Peace Love Dope! Peace Love Dope!

Haus-Targaryen's picture

Europe is fucked without the United States.  

With Europe's best fighting force having been neutered with "don't be bad and have weapons" nonsense stemming from the second world war, the largest/best prepared military standing between Russia and the Atlantic is France.  If/when there ever comes a day that the US has to leave due to insolvancy -- absent a monser "European" (I use this world lightly, as the last thing we need is some Frog general getting charitied into controlling the new world's military superpower) buildup -- Russia can do what it wants.  

Then again, maybe this is a good time for Germany to get back Ost- und West Preußen.  

"Ok Vlad, heres the deal -- we'll keep the French and British tied up in political nonsense in Brussels for the next 20 years, and you can have all of Eastern Europe back, but we want Preußen.  We cannot look like the bad bad guys in this -- so you have to do the dirty work, but you get back the wealthiest parts of your empire, and we get our old empire back.  Everyone wins except the Poles, but they are used to it at this point."  

Confundido's picture

No matter what, bearish gold. The algos will first push it to $1,258/oz, and then it will end at $1,225/oz.

disabledvet's picture

No, no. "First gold will makes its way to the safety of New York City." THEN the price will collapse.

BrosephStiglitz's picture

Armstrong suspects that Ecuador's gold will be dumped on the market by Goldman to push prices down and then bought back at a lower price.

I doubt they will dump all of the gold though.  They might dump a portion to break the current price resistance level and watch the fireworks.

Yen Cross's picture

  Did I forget to tell you guys I shorted usd/jpy?

CrashisOptimistic's picture

Is that anything like buying JPY/USD?

Yen Cross's picture

 Not really. It's more like shorting the overprinted usd backed euro<via swaps,repos, and backdoor sovereign transactions.

  Any questions?

disabledvet's picture

Now I'm confused. You're short dollar versus yen? With nickel prices going through the roof?

The yen has gotten clobbered over the past year. Anyone long either that or the euro is a nut.

Yen Cross's picture

  I'm short usd/ period.  The massive spike in treasuries should have boosted the usd much more. Oil is going back up.

  This setup reminds me vividly of  1987. I remember the complete lack of caution.

CrashisOptimistic's picture

My theory is USD strength pushed rates up a bit, not vice versa.

Yen Cross's picture

   The usd is overbought. It will go down next week. The usdx is slightly above the 200 day sma.

  I'd watch the 200day level for pivots. I posted the chart earlier.

 

CrashisOptimistic's picture

Don't plan to watch for any pivots whatsoever of any sort.

But knock yourself out.

Yen Cross's picture

      I called the trade period. Trade it or get off the porch!

    Ohh, by the way, usd/jpy should put in a "blow off candle" in the next 4-6 hours. You still have time to get short.

BrosephStiglitz's picture

USD might be overbought.  Hard to call.  Good luck if you have open positions though, hope it pans out for you.