By week’s end, the EU heads of government and the ECB will have concluded a summit and announced a rate decision. Other central bank meetings by the BoC and RBNZ are expected to see policy left unchanged, while the market has priced in the RBA taking another step towards policy neutralization with a second consecutive-25bp ease. Currently, the growth and interest rate sensitive currencies seem well supported heading into the meetings, but, the risks are skewed towards disappointment.
The market believes Draghi and company will cut the rate by a further-25bp, with a “stronger” possibility of a larger move. They could be more proactive, some analysts expect them to announce a long-term repo operations of greater than one year, along with loosening of collateral requirements. However, it seems unanimous on the street that the ECB will “not” be offering definitive guidance on plans for sovereign bond purchases.
This is a big week for Merkel, Sarkozy and Draghi’s leadership. They now have limited opportunities to find a stabilizing solution. The market know that if Euro loses, the rest of the world loses. This week, from a policy stand point cannot be deemed a gamble, they have to deliver a concrete framework that the market at least perceives to be some sort of solution, otherwise there is the abyss! .
To your success.....
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