Back in May, the ECB's Benoit Coeure told a non-public audience of hedge funds in London that "the central bank would moderately front-load its purchases in its quantitative easing program because of the seasonal lack of market liquidity in the summer."
The reaction was a 50 pips drop in EURUSD.
The problem: this was inside information. It wasn’t released to the trading public until around 8am the next day (London time) when it resulted in a further 150 pip plunge.
As egregious as this obviously was, it didn't surprise us or anyone else who's predisposed to skepticism about the relationship between policymakers and those who essentially gamble on policy decisions. Indeed, it was simply another example of nefarious intermingling between central planners and a select group of private sector operators and came just as Jeb Hensarling began to turn up the heat on Janet Yellen regarding leaked Fed minutes.
Now, As FT reports, "some of the European Central Bank’s top decision-makers met banks and asset managers days before major policy decisions, and on one occasion just hours before, copies of their diaries reveal." Here's more:
The disclosure of the meetings comes at a time of heightened scrutiny of the contacts between central bankers and the financial services industry. Earlier this year, the ECB launched its own review of the issue, setting out new principles for how its officials should interact with the private sector.
The meetings offer a sharp contrast with the Bank of England, which prohibits members of its rate-setting committee from talking to media and “other outside interests” on monetary policy matters in the week before a policy decision.
The diaries show two members of the ECB’s executive board, Benoît Cœuré and Yves Mersch, met UBS bank the day before a two-day policy meeting of the central bank’s rate-setting governing council on September 3 and 4 2014.
Mr Cœuré also met BNP Paribas bank on the morning of September 4, the day the ECB’s governing council surprised markets by cutting interest rates. It also announced it would begin buying private sector assets to save the eurozone’s economy from the threat of deflation. UBS and BNP Paribas declined to comment.
Mr Cœuré met asset manager BlackRock the day before a policy meeting in March this year, when the council unveiled the details of how it would carry out its €1.1tn asset purchase, or quantitative easing, programme. BlackRock declined to comment.The ECB’s vice-president, Vítor Constâncio, and its chief economist, Peter Praet, met Algebris, a hedge fund, at the height of this summer’s Greek crisis, when the governing council held daily conference calls on whether to continue sanctioning emergency loans to keep Greece’s banks afloat.
Got it. They met with everyone. Regularly. But don't worry, they always acted with integrity:
The central bank also confirmed that officials never discuss market-sensitive information in private meetings.
“The quiet period refers to public communication ahead of monetary policy governing council meetings. The same underlying principles — guarding against signalling future monetary policy — are of course applied to bilateral meetings. In any case, no market-sensitive information is disclosed by the ECB in any non-public forum,” an ECB spokesperson said.
Of course not. Nobody at the ECB would leak non-public information to banks or hedge funds. Just ask Benoit Coeure.
In any event, this reminds us of 2010, when the release of Bill Dudley's daily schedules from the beginning of 2009, through September 30, 2010, revealed some amusing, if not very surprising, disclosures. Among them: Dudley's penchant to meet with Jamie Dimon, Vik Pandit and, of course, former boss Lloyd Blankfein. Other meetings include Sullivan and Cromwell chairman, and the banking cartel's personal chief attorney H. Rodgin Cohen. Those are to be expected: after all Dudley has to conduct the New York Fed policy exactly in accordance with Wall Street's expectations, and per Wall Street's recommendations. What is a little more surprising is that on February 9, 2009, Bill Dudley hosted a lunch roundtable with hedge fund SAC Capital.
And so, this is just history repeating itself in the name of facilitating a better "understanding" of central bank decision making. Of course it's far easier to predict the direction of markets when one "understands" these things before anyone else does and in what can only be described as a hilarious bit of irony, the ECB is now set to publish executive board members' diaries - with a three month delay. So just to be clear, the market will get to read about how they were frontrun 90 days later.
Then again, it's all par for the proverbial course...