- Katie Martin (@katie_martin_FX) September 4, 2014
13.00 Luke Bartholomew, from Aberdeen Asset Management Investment Manager, reckons that rate cut chimes very nicely with Mr Draghi's comments on price stability last week:
'The cut to the deposit rate is significant and should further weaken the euro. Draghi clearly intends to match the rhetoric of his Jackson Hole speech with action and markets will welcome that. All eyes are now on the press conference to see if he will announce further measures to compliment the rate cut.'
12.55 Yields on French 2yr bonds, have now joined German bunds in negative territory
French 2-yr yield plunges into negative territory: http://ift.tt/Ye313q
- Jamie McGeever (@ReutersJamie) September 4, 2014
12.52 On the back of that, the euro has fallen to its lowest level since June '13...
#euro -0.86% http://ift.tt/1t3sTIl
- Yiannis Mouzakis (@YiannisMouzakis) September 4, 2014
12.50 Here's the ECB's reasonably suprising decision to cut all its main interest rates by 10 basis points, against most analysts expectations of no change.
Notably, the press release does not contain any wording about more 'additional measures'.
And some early reaction
OK, Mario is yet again backing up an adlib speech with action. 10bp rate cut won't change the economic outlook but the intent is admirable
- kit juckes (@kitjuckes) September 4, 2014
Press release says nothing about further measures, so this MAY be all we are getting today @ecb
- Lorcan Roche Kelly (@LorcanRK) September 4, 2014
12.45pm ECB CUTS ALL MAIN INTEREST RATES BY 10 BASIS POINTS
* Main benchmark rate has been cut to 0.05pc
* Marginal lending facility to 0.30pc
* Interest rate deposit facility to -0.20pc
12.39pm
SIX MINUTES
- Chris Adams (@chrisadamsmkts) September 4, 2014
By my reckoning, BOE is the 9th central bank to leave policy unchanged this week. Perhaps the ECB can make things more interesting.
- Paul Hannon (@PaulHannon29) September 4, 2014
12.35pm Reuters are reporting that the ECB could launch a programme of 500bn euros worth of ABS to run over three years at today's meeting.
From them: 'ECB President Mario Draghi will likely announce such a programme at his news conference unless it comes up against strong opposition at the Governing Council's policy meeting.The programme would have a duration of three years and comprise both ABS and covered bond purchases. The ECB could begin buying the assets this year, the people familiar with the discussions told Reuters.'
12.31pm We'll find out pretty soon. What this space...
Is the ECB about to take over from the Fed as the source of global monetary liquidity?
- Alen Mattich (@AlenMattich) September 4, 2014
12.30pm This is the chart of nightmares if you're one of Europe's policy makers, showing just how perilously close the monetary union is to falling into negative price territory. Current eurozone inflation stands at 0.3pc for August (courtesy of Business Insider).
12.25pm Speaking on interest rates, the ECB's current refinancing rate stands at 0.15pc. Nomura think there's a 60% chance the central bank will cut all its key rates by 10 basis points, despite Mr Draghi's comments in June that the ECB had 'for all the practical purposes...reached the lower bound. '
From Nomura:
With the refi rate currently at 0.15%, the ECB clearly has room to lower rates a further 10bp from current levels, although inconveniently Mr Draghi has previously indicated the ECB was for all practical purposes at the lower bound (though not excluding some 'little technical adjustments'). While the ECB's forward guidance was also changed at the time of the June interest rate cut to remove reference to 'or lower' rates, the forward guidance is clearly state-contingent ('interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation') and risks to the inflation outlook have increased over the past three months to justify a change, in our view.'
12.15pm Meanwhile, the Bank of England has decided to maintain its benchmark interest rate at 0.5pc for the 66th consecutive month. Sixty six.
12.10pm ' Asset-backed securities', or ABS, are a form of financial instrument that package up loans to be sold to investors. They are one way of restoring credit flows to distressed economies, and importantly, don't fall foul of the monetary union's rules on monetary financing of governments. ABS are a something like 'private QE', say Deutsche Bank. From their morning note:
The reality is that whatever Draghi does or doesn't deliver, the success of today's meeting for markets might rest on how open he allows himself to be on the prospect of future QE. For us this is why 'private QE' might be seen as a welcome stepping stone to a greater policy response rather than being a game changer itself. However he will likely need to somehow offer the carrot of future QE for the recent performance of European assets to continue in the short-term. Given the political issues involved in asset purchasing today's Q&A could require Draghi's best diplomacy efforts as he balances what the markets want to hear against what perhaps those at the very core are comfortable with him saying at this juncture. An interesting meeting awaits.'
The market for high-quality ABS in Europe is still quite small and may not be enough to satisfy market expectation for stimulus.
ABS market in Europe is tiny, from Bruegel chart. Total issuance in Europe $1.2 trillion in 2008, $239bn in 2013 http://ift.tt/Ye313y
- A Evans-Pritchard (@AmbroseEP) September 4, 2014
EUR dropping on the ABS headline that we sort of were told about a few months ago. *applause*
- barnejek (@barnejek) September 4, 2014
11.50am Yesterday was Mario Draghi's 67th birthday. Happy birthday Mr Draghi. Markets will be looking for a nice present from the Italian today, and in the time honoured tradition of ECB press conferences, there will be lots of attention paid to the central banker's choice of tie. Blue it seems, is the 'dove' tie.
Here's his look from June ('royal blue'? I think so).
New birthday tie. Light blue, to highlight the suntan. #DraghiTieGuesses
- Katie Martin (@katie_martin_FX) September 4, 2014
+1 and +1 RT @econhedge #DraghiTieGuesses I expect blue tone today. There will be measures of sorts - ABS - plus activist rhetoric.
- Frederik Ducrozet (@fwred) September 4, 2014
'Stats':
#DraghiTieGuesses Light Blue today ! Here are some stats to forge your opinion http://t.co/zd52zIYBx5 #ECB http://ift.tt/1t3sSnE
- Theodore Stanton (@TTStanton) September 4, 2014
11.45am What happened last time
June saw the introduction of a number of measures from the ECB to try and combat economic contraction and boost lending into the real economy. Mario Draghi refrained from embarking on a full-blown programme of quantiative easing, but did take steps to encourage lenders to boost credit. Here's a summary of what happened the last time markets were this expectant:
* ECB cut its base interest rate from 0.25pc to 0.15pc
* Introduction of a negative deposit rate of -0.1pc
* Announcement of TLTRO's - cheap four year loans worth €800bn to eurozone banks to boost lending to small businesses
11.30am. Good morning and welcome to the rolling coverage of today's ECB's monthly rate decision and press conference.
Once again all market eyes will be on president Mario Draghi who is facing calls to embark on further monetary stimulus to stave off the euro-area's slide into deflation.
The reason many analysts and market watchers expect the Italian to announce further measures today comes after his speech at the annual Jackson Hole conference, where the central banker seemed to hint that the bank was prepared to do more to combat falling prices. Or in his words, the ECB will 'use all the available instruments needed to ensure price stability in the medium term.'
Current eurozone inflation stands at to 0.3pc in August, well below the ECB's 2pc mandate. Analysts expect some further incremental measures to be announced today, rather than full-blown quantitative easing. The most likely among them is a programme of purchasing 'asset backed securities', or a form of 'private QE' as Deutsche Bank dubs them.
The question is: will Draghi flex his ABS?
- Pedro da Costa (@pdacosta) September 4, 2014
Posted by Unknown on Thursday, September 4, 2014 - Rating: 4.5
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