Today we’ll learn more about whether Mr Draghi becomes Super Mario in the near future as the widely anticipated ECB meeting is now only a few hours away. We will do another summary preview of market expectations shortly, but in a nutshell, nobody really expects Draghi to announce anything today although the jawboning is expected to reach unseen levels. The reason is that Germany is still staunchly against outright public QE, and Draghi probably wants to avoid and outright legal confrontation. As DB notes, assuming no new policy moves, the success of today’s meeting will probably depend on the degree to which Draghi indicates the need for more action soon and the degree to which that feeling is unanimous within the council. Over the past weekend Weidmann’s comment about falling oil prices representing a form of stimulus highlights that this consensus is still proving difficult to build. It might need a couple more months of low growth and inflation, revised staff forecasts and a stubbornly slow balance sheet accumulation to cement action.
As if hypnotized by Draghi’s perpetual inability to actually do anything (as opposed to say), a massive barrier of selling has emerged at the 120 level in the USDJPY. It will surely be taken out later today in a major stop hunt, which will in turn push US futures, whether bought by central banks or not, to new record highs, while the Japanese currency ploughs on to SocGen’s point of no return, first at 123 then at 145, and then at #Div/0. Another question has emreged on European bonds: if and when Draghi does finally implement sovereign QE, will that be the signal to sell everything? Judging by the reaction in the US fixed income market, bonds have sold the news in each of the previous 3 QE episodes. Why should Europe be any different?
European equities have lacked direction and remain marginally higher ahead of today’s ECB & BoE rate decision with both central banks expected not to take any action. On a sector basis, consumer discretionary is the best performer, however energy stocks have been lagging as the FTSE 100 marginally underperforms given its large gearing toward resource based firms. In stock specific news, Ryanair opened the session significantly higher trading as high as 8.5% after raising their FY profit forecast with easyJet higher by 2.4% in sympathy with the move.
This post was published at Zero Hedge on 12/04/2014.
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