There is far less on the ECB table today compared to a month ago when expectations were massive and Draghi didn't fail to satisfy (with the usual set of half-baked, non-existant programs a la the OMT which still doesn't technically exist, 2 years after it was first revealed) and nobody expects any major announcements out of Mario Draghi. If anything, the market hopes the ECB head will use the press conference today to elaborate on the missing technicalities of the TLTRO. With inflation printing at 0.5% again, concerns of deflation will likely be mentioned once again. When it comes to the EUR reaction, the most bearish case would be for Draghi to discuss QE, and providing details of how a bond monetization operation would look like. More than the EURUSD, a bigger risk lies for peripheral bonds which are at risk if Draghi unveils details of TLTRO today that could hurt the periphery carry trade.
Here is what various sellside firms believe could be the outcomes of today's press conference, via Bloomberg:
RBS
- Any prevention of the TLTRO being used for government bond carry trade is the biggest risk for periphery today, write strategists in a note
- Expect Draghi to be vague on the treatment of government bonds and perhaps reference the ECB’s new regulatory powers
BNP Paribas
- EGB market will pay close attention to any further details on the TLTRO, strategists write in a note
- Environment could turn volatile in early afternoon as U.S. payrolls data released, which could support core bonds with periphery still at risk
Barclays
- If the ECB fails to refresh confidence around its already announced measures, weakening of peripheral bond trading in recent days could continue a bit longer, writes strategist Cagdas Aksu in a note
- ECB could provide some information on the technical details of the TLTROs, as well as the date of their allotment in Sept. and Dec.
- ECB may also provide some technical details on the benchmark levels that will determine quarterly TLTRO borrowing in 2015 and 2016
Citigroup
- There is a high level of anxiety in the markets with regards to additional TLTRO details that might make it more difficult for banks to hold funds for a “long period,” writes strategist Alessandro Tentori in a note
- Together with strong U.S. data, a neutral ECB could result in some profit-taking on carry trade positions that have been very successful since the start of this year