ECB Leaves Everything Unchanged – Eyes Turn To Draghi

Ok, so everything unchanged officially for the ECB as expected.

Of course today is all about what’s “unofficial” (i.e. what Draghi utters or doesn’t utter). Here’s the policy statement:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

So nothing to rock any boats there.

But you’ve got to think Mario Draghi isn’t looking forward to Thursday’s presser.

Although no one expected any actual change to policy rates or the APP, markets are expecting quite a lot in terms of outright jawboning, telepathy, side-eyes, winks, nods, or really anything at all to suggest that the ECB is going to try and keep a lid on euro strength and/or is prepping an exit plan from stimulus.

And although the latest in a series of trial balloons floated via the media over the past several weeks suggests that nothing that could be even remotely described as definitive re: QE will be coming before October, that doesn’t mean traders won’t hear what they want to hear.

You’ll want to watch European shares closely for the rest of the day because as noted earlier this week, the negative correlation between the euro and the EuroStoxx has reasserted itself – and “big league” (rising euro bad for European stocks):


That means whatever Draghi says or doesn’t say about FX overshoot will probably move European shares around.

That could be exacerbated (i.e. the negative correlation could reassert itself with a vengeance) by the fact that going in, European shares have been generally buoyant despite the stronger euro…


So stay tuned for the presser.


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