Boost From The Ecb's Ltro

On Thursday 3rd May at 1245 BST/ 0745 ET the European Central Bank (ECB) will announce interest rates. It is widely expected to remain on hold at a record low 1%, for the fifth consecutive month. Of more importance to the market will be ECB President Draghi's press conference at 1330 BST/ 0830 ET as we will likely find out the Bank's view on weakening economic growth and sovereign strains in Spain. Draghi may also shed more light on the 'growth compact' that he suggested at a speech to the European Parliament last week. We don't believe the Bank will announce any new 'special' measures to try and ease the problems in the Eurozone periphery. President Draghi did not hint in his speech last week that the Bank would re-start its Securities Markets Programme (SMP), which purchases domestic ...

ECB Preview: Mixed Growth Signals Not Enough to Trigger Rate Cut - Recent economic data is mixed, but not so weak that it will trigger a rate cut, in our view. The ECB remains in “wait-and-see” mode as it assesses the impact of the two 3Y LTROs. We expect the ECB to keep rates unchanged until early mid-2014. - In our view, Mario Draghi's new outspoken focus on growth is not an early signal of a June cut, but rather a hint to the euro area political leaders that the ECB will support public investments in infrastructure projects. - Headline inflation has remained stubbornly high due to higher energy prices and indirect taxes. This diminishes the likelihood of a rate cut. In the coming months inflation is likely to climb back to the March level. Inflation should remain above target ...

Japan: Just Enough QE to Satisfy Expectations The Bank of Japan (BoJ) today expanded its QE programme by JPY5trn to JPY70trn, broadly in line with market expectations. It also revised up both its growth and inflation forecasts, underscoring that the recent aggressive monetary easing has to some degree been driven by increasing political pressure for more aggressive monetary stimulus. The overall picture remains that monetary policy in Japan is now being eased more aggressively and the BoJ is poised to continue its asset purchases next year, when we expect most other major central banks to go on hold. We expect political pressure to remain an important factor as politicians have ample opportunity in 2012 and 2013 to influence monetary policy with two board seats currently vacant ...

The Week Ahead Highlights Can the ECB save the day? Fed speak provides more transparency but not clarity Bank of Japan easing pressure mounts A very mixed UK recovery Bank of Canada to hold RBA minutes to provide more insight Norges Bank's battle with the Nokkie Market Moves Can the ECB save the day? At the end of last week market sentiment towards the Eurozone took a turn for the worse. Stocks closed down sharply and Spanish 10-year bond yields surged to 6% at one stage. The cost to insure Spanish debt against default reached a record high; while bond yields are a mere 70 basis points away from the euro-era record highs reached in November 2011. Problems have been simmering in Spain for some time, and there was no new news that triggered the sharp dip ...

The Week Ahead Highlights Searching for the next crisis? What's driving the dollar? Europe: what happened to the LTRO? Searching for the next crisis A couple of weeks ago the market was able to shrug off the prospect of a Greek default and a sharply rising oil price. Even weak Chinese economic data didn't de-rail risky assets. However, that optimism didn't last long and last week investors removed the rose-tinted spectacles and started to worry once more about the outlook for the global economy. Last month China's growth rate was downgraded to 7.5% per year from 8%. Since China has a history of out-performing expectations this downgrade had little market impact. However, a fifth straight decline for the HSBC/ Markit manufacturing PMI survey reading and the markets are ...

The Week Ahead Highlights Shift in FX drivers may provide support for the USD Budget D-day for Osborne The ECB's tough talk Shift in FX drivers may provide support for the USD This week U.S. Treasury yields broke out of their ranges and rocketed higher. 10-year yields rose nearly 28bps since Monday and advanced above the 200-day sma for the first time since July to reach current levels of around 2.31%. U.S. equity markets rallied significantly as well this week with the S&P 500 closing above 1400 for the first time since 2008 while the Dow Jones Industrial Average traded at levels that have not been seen since 2007. At the same time, the USD gained against its major counterparts most notably against the Japanese yen. This may be the start of a significant shift in FX ...

(Reuters) - The dollar hit an 11-month high against the yen and 1-month high versus the euro on Wednesday, with more gains foreseen after a modest upgrade of the Federal Reserve's economic forecasts and firmer U.S. data lessened the greenback's status as a funding currency. U.S. 2-year Treasury yields hit a 7-1/2-month high after solid retail sales data, making the dollar less attractive to fund investments in higher-yielding assets. Tokyo exporters were also reluctant to sell it now, expecting more strength, traders said. These factors saw the dollar hit a high of 83.41 yen in European trade, its highest level since mid-April to trade up around 0.7 percent for the day. Traders said key resistance was last year's high of 85.53 yen. Recent easing steps by the Bank of Japan and the ...

(Reuters) - On December 8 last year, Mario Draghi sat down to chair his second policy meeting as European Central Bank president. Wearing the same understated, dark blue tie he had sported when he led the ECB to a surprise interest rate cut at his first meeting as president a month earlier, Europe's most powerful banker wanted to hear his colleagues' arguments on what action to take this time. The meeting, held on the 36th floor of the ECB's glass and steel Frankfurt headquarters, opened with recommendations from veteran policymaker and chief economist Juergen Stark, a German, according to two people present. Made in the Bundesbank's inflation-fighting mould, Stark felt the Council should wait to see how price pressures developed before moving again. Inflation was running at 3 percent, ...

The Week Ahead Highlights What now for the euro? To hike or to cut? A global central banker's dilemma Why the rise in oil prices should grab our attention What now for the euro? The debt deal agreed by Greece and its private sector bond holders to wipe EUR 100 billion from its enormous debt pile was an historic move: the largest sovereign debt restructuring in history. This is the latest piece of the jigsaw to try and solve the sovereign debt crisis, but the market's response suggests that the saga does not end here. Not only did Fitch place Greece into selective default after Collective Action Clauses or CACs were introduced to force reluctant bond holders to accept losses, but as Europe closed on Friday night expectations were growing that Credit Default Swaps on Greek ...