Things are escalating...
heading for Swap-rate-implied parity...?
Scotiabank's Guy Haselmann has some thoughts on EU moves post SNB...
The ECB has been promising sovereign QE for 7 months. It is probably fully priced in. Its main goal has been and remains to depreciate the Euro. EU country rates have already converged, so the goal in proceeding with QE is unlikely to be to try to converge them further. On the contrary, should the structure of QE indicate less EU integration, such an anti-union move should significant widen periphery spreads (despite the ECB buying them)
Draghi rarely disappoints markets but he will have his challenges not doing so next week.
Some believe that SNB’s removal of its QE is being replaced by ECB QE. I don’t entirely look at it this way, because the ECB QE is priced-in and has been well-telegraphed and expected for so long (7 months). Therefore, the market is losing SNB’s support that it had believed was going to continue as a core policy.
Hidden risks and uncertainties are growing. Negative sovereign yields and a depreciating Euro creates added problems. USD securities, particularly Treasuries that offer more yield and a strong currency, look attractive to Europeans and foreigners.