Things that should make Draghi smile include…
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Ignoring the fact that the euro is acting more like a random walk model than usual, one seemingly obvious consequence of Draghi’s swarm attack is the euro’s growing attraction as as funding currency. As Barc said:
The structural selling of EUR vol post-meeting was the standout FX trade. We view this as further evidence that the current carry-supportive environment characterized by accommodative global monetary policy, historically low vol and strong equity market performance is likely to continue. It also supports our view that the EUR should be the funding currency of choice.
And from BoNYM’s Simon Derrick over the weekend: Read more
We know who he is, we just don’t get what he’s doing. He does so like confounding expectations on his island of stability.
This time with inflation at 1 per cent there was a belief that Draghi would make some sort of compromise gesture while keeping rates on hold, even if it amounted to SMP tokenism. But, nope, he disappointed… despite the ECB’s own 2016 inflation forecast coming in well below 2 per cent. Doing nothing in the face of that isn’t exactly reassuring — it’s a lot easier to fight deflation risks than the real thing. Read more
Update – It’s not just the rate cut, as Mario Draghi opens the presser at pixel time:
Earlier – Bold move or way too late? You decide: Read more
A telling chart from Citi’s Steven Englander:
According to Nomura, since 1980, there are only two periods of economic divergence — between the US and Europe and the UK — comparable to what we are observing currently.
Olli Rehn (left) and Valdis Dombrovskis, the Latvian prime minster, (right) regrettably seem to have got lost in a Powerpoint presentation. Read more
LONDON, May 3 (Reuters) 13.04 – The euro pared gains while German Bund futures edged up on Friday after European Central Bank policymaker Ewald Nowotny said the central bank was open-minded about taking deposit rates into negative territory.
Nowotny said he was “astonished” by the market’s reaction to his comments earlier in the day, when he said negative deposit rates were not relevant in the near term.
Japanese investors are a powerful bunch in world markets. For a microcosm of this, just look at Australia; Japan plays a big role here in debt and in turn, in currency; and it’s a market that has been very attractive to foreigners of late, keeping the currency stubbornly high regardless of price changes in the country’s key exported commodities. BUT, as with everything yen at the moment, there is a serious shift going on. Read more
Little or none seems to be the answer…
I wrote on Monday about the ECB’s options for expanding its balance sheet but skimmed over the idea of direct FX intervention on the presumption it just wasn’t going to happen and the ECB would push via less obvious channels. As I was (justifiably) rebuked, the aim here is to make quick amends. Read more
“Oh, Hollande…” said Mario Draghi as the rest of us wondered if he had or hadn’t entered the supposed currency wars. Or if, in fact, the question was redundant.
The euro’s dive on Thursday was impressive and clearly the result of ECB president Draghi’s comments after the ECB’s rate setting meeting. But whether it was justified or not is very much contested. Read more
Not many people seem bothered by France’s overnight downgrade by Moody’s. The euro shrugged and French bond yields crept upwards at a snail’s pace.
But one place the downgrade might have a real and lasting impact is within the Swiss National Bank. They have a predilection for core eurozone bonds and the downgrade might just prompt them to ditch what holdings they have and/or stop loading up on French debt.
Dear euro, this has been your 2012 so far. Do try and get through the rest safely:
At Thursday’s ECB press conference, Mario Draghi unveiled plans to introduce a new series of euro bank notes. And there was a little video to accompany the news… Read more
Pushing a fresh austerity package (the price of financing the next stage of the country’s bailout) through parliament on Wednesday night cost the Greek government and Antonis Samaras, the centre-right prime minister, dearly. And while there is no guarantee a repeat performance can be staged, there is every probability the boulder will slip and one will be demanded. Read more
Click through the pic for the full document (it’s not the most fun read):
Now, we don’t want to get carried away here. The report – covering lending in the third quarter and expectations for the fourth – wasn’t pretty, but it’s worth pointing out that there are glints of cautious funding optimism to be found, both within the report and without, particularly where corporates are concerned. Read more
From the ECB’s September update on monetary developments in the euro-area released on Thursday:
That’s euroland M3 – the broad money supply measure — coming in below expectations and dropping again to 2.7. Really brings to mind Draghi’s warning to the Bundestag that “In our assessment, the greater risk to price stability is currently falling prices in some euro area countries”, doesn’t it? Read more
Commerzbank is arguing that we should all forget about the eurozone crisis for a bit where euro-dollar is concerned (with our emphasis):
At the same time a further improvement of the Spanish and Italian yield premiums no longer supports EUR-USD (see chart 1). Why? From the market’s point of view the crisis has eased sufficiently for German CDS to ease below 30bp for the first time since April 2010. That means the crisis is no longer sufficiently virulent to affect EUR-USD to the same extent as it did over the past 12 months.
And we have some very small bits of progress. And, naturally, plenty of kinks. Here’s a handy run down from JP Morgan’s Alex White: Read more
There may be a new China to consider but its signs are not very easy to discern. The yuan is on a roll against the dollar, hitting multiple new highs since July but somewhat confusingly, estimates suggest that in the 12 months through September, some $225bn flowed out of China — that kind of outflow doesn’t square with the yuan’s recent strength. Read more
You know what they say. When one door closes, another one opens.
And for the euro, that door seems to be opening in err… Panama. Read more
This is just a lovely chart from the FX team at HSBC (click in to see — tis just too big for an excerpt to handle):
What it, and its fellow soon to be introduced below, do is call further into question the US dollar’s status as a haven currency; one which will benefit in periods of risk aversion. They do so by looking at the performance of G10 currencies against the S&P500. It’s a timely query considering the approaching fiscal cliff… and, well, lots of other stuff. Read more
That call might not come this side of New Year.
The market has been waiting for Spain to request its very own Enhanced Conditions Credit Line for quite a while now. It’s the road to OMT. And for a (very) little while just last week while it appeared we were only a weekend away.
But it’s now looking increasingly like we are not gonna get to see any OMT buying at all in 2012. Sad. Read more
Today carry’s hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of QE. By contrast, other asset classes, notably equity markets, provide a cleaner mechanistic link between a given view and a price.
The conclusion is that even if we knew the outcome of future events with certainty, the FX market is not the best place to reflect those views. We have fallen to the bottom of the food chain. Read more