Previewing The ECB's 7:45 AM Interest Rate Decision

Tyler Durden's picture

From RanSquawk

ECB’s interest rate decision due at 1245GMT (0645CST) followed by Draghi’s press-conference at 1330GMT (0730CST)
•    Likely to cut interest rates by another 25bps, an outside chance of 50bps cut
•    May announce a provision of bank loans lasting up to two or three years
•    No pre-commitments to buy EU based bonds or act as a lender of last resort
Global equity markets and in particular the financial sector has been under severe stress recently, which in turn meant that the ECB had to cut borrowing rates, provide USD-funding and re-introduce long-term money operations, as well as announce another covered bond buying program. However market participants continue to criticize the central bank for its lack of “bazooka” resembling action, which in the eyes of many will be a surrender to unlimited purchase of various government bonds.
Given pressure on the central bank continues to build, today the ECB is widely expected to cut the benchmark borrowing rate by another 25bps, with an outside chance that members will push for a 50bps cut. Apart from cutting the interest rate, press reports indicated that some members of the ECB governing council have been debating on providing bank loans lasting up to two or three years. An alternative solution would be to broaden the range of assets banks can use as collateral to obtain funds from the central bank. Highlighting deteriorating condition in money markets in Europe is the last data from the Bank of Italy, which showed that funding from the ECB to Italian banks rose sharply to EUR 153.2bln in November from EUR 111.3bln in October. In addition to that, the head of UniCredit has urged the ECB to increase access to ECB borrowing for Italian banks, while the Bank of Italy launched twice-daily overnight liquidity auctions to boost access to capital. Still, despite the persistent widening in the 3-month Euribor-OIS spread and the TED spread, the 3-month EUR/USD cross-currency basis swap has edge back towards -100bps mark, that’s after trading -152bps only few weeks ago (Note: post Lehman Brothers collapse in October 2008 saw 3-month EUR/USD cross-currency basis swap trade at -215bps).
The press conference will likely be dominated by questions surrounding the controversial Securities Markets Program (SMP) and prospect of lending money to the IMF to by-pass various EU treaties. Those looking for a fully fledged QE announcement will likely be disappointed yet again and Draghi is expected to reiterate that the SMP is a temporary solution and that the central bank will not be acting as a lender of last resort. In addition to that, purchases of bonds will be passed over to the EFSF, once that is fully operational and that no pro-commitments will ever be made on maximum size of weekly purchases. As a result, market participants should pay close attention to price action in the short-end, which will likely be susceptible to unusually high volatility, which in turn will drive demand for riskier assets. Despite concerns over the future safe-haven status of German Bund, lack of alternative (apart from UK Gilts), implies that at least in the near-term markets will continue to view the benchmark as the ultimate risk-less asset.
Staff projections to be revised
Reflecting the economic slowdown in the Eurozone as confirmed by the PMI readings, the ECB is expected to significantly mark down growth projections. At the same time, inflation projections are unlikely to be subject to considerable alteration.

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Oh regional Indian's picture

Another crazy Friday meeting, loads of weekend innuendo, either a stellar monday or a shitty, black one. Almost feels like it does not matter anymore. 

And UK Gilts are a safe haven? hmmmmm....... must research the resurgence of the Empire.



BandGap's picture

And the woot of the day is 60 AA or AAA batteries for 5.99 plus shipping. Talk about a mix of news.


Ghordius's picture

re: "UK Gilts are a safe haven" - yes, guaranteed to be repayed, UK never defaulted since the Middle Ages, period. Only problem: you are repayed in future quids. Solution: postpone it, buy the 30y.


DavidC's picture

What am I missing here? If the ECB cuts rates that's bearish for the Euro, yes? And bearish Euro is bullish Dollar. Bullish Dollar means bearish US stocks, surely?

Am I missing something? Serious question.


Oh regional Indian's picture

David, that is such a logical flow of events, ne? By that logic, gold and the dollar are still inversly correlated. Plus, does logical/overwhenling bearish pressure translate to a dive? Hardly ever anymore.


DavidC's picture

I take your point but Gold, as well as having the inverse dollar relationship, has also had physical buying pressure, even (latterly) from Central Banks. But the US stock market seems to be just a dollar(or HFT!) play, particularly when we had the ZeroHedge post yesterday about more massive withdrawals from funds.

I was thinking again, last night, about HFTs, following the move after the denied rumour of ECB/IMF funding. If ANYTHING occurs to precipitate a drop, I think we're going to see another 'HFT - STOP' event and the market will plunge. I could be wrong, but it's food for thought.


Oh regional Indian's picture

Entirely likely DavidC. 

Two massively contradictory headlines.....boom!


Irish66's picture

BOE rates unchanged

morisu's picture

And in other news: as concerns rose earlier about Finlad stopping the great new ESM renovation ( the decision from Finnish Constitutional Court just came out and new ESM is (surprise?) against constitution. So no votes from Finns for the new ESM structures.

Iriestx's picture

HAHAH!  Cutting interst rates.  Yeah, because that's what the problem is.  This is the equivalent of putting some air pressure in my tires when the engine is on fire and hoping the car will run.

silver500's picture

No, this is like throwing gasoline at that car...

The interest rate is not irrelevant; the artificially low rates are the fundamental cause of the problems in the financial system and economy.

youngman's picture

What would Trichet do?    The dropping of the rate is meaningless....its just to equalize between the US and Europe....for the new currency???????  Tell me what the Greek Restaurant owner is doing to change his life....nothing..he is not going to pay more taxes...or fees...we are turning the Western world into a black market....a big black market

zilverreiger's picture


Webcast of the press conference 8 December 2011

Press conference following the meeting of the Governing Council of the European Central Bank on 8 December 2011 at its premises in Frankfurt am Main, Germany, starting at 2:30 p.m. CET:

  • Introductory statement by Mario Draghi, President of the ECB.
  • Question and answer session. Registered journalists pose questions to Mario Draghi, President of the ECB, and to Vítor Constâncio, Vice-President of the ECB

NEOSERF's picture

The funny thing about all these banks going to the Central bank windows to sure up their capital accounts is that the implicit pledge and promise is that at some point growth will return to some 4-6% level which will allow them to actually make payments...reality is that we are now in a -2% to 2% world without free future cash flow spend creating jobs and projects that had a negative ROI...