ECB Will Cut Rates To Minus 3%: JP Morgan - page 2
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Euro squeezes to session high despite falling German yields Flows dominating at the start of the month
The euro climbed above the earlier spike high of 1.0620. Eurozone data was on the strong side today and that sparked the bid in European trading.
German and Italian jobs data was better. Ryan outlined how the good numbers have given the anti-QE crowd some ammunition.
This could be the start of a bit of a squeeze ahead of the ECB on speculation that Draghi might disappoint.
A Cheat Sheet For Trading The ECB Meeting - UBS
As the ECB is poised to ease policy at tomorrow's meeting and has a range of tools available to it, UBS looked at the likely market reaction under a variety of scenarios, and created a table which investors can use as a guide when the policy is announced.
What's priced in?
"We think that the market is pricing a cut in the ECB’s deposit rate of 13.5bp on 3 December and by a further 6.5bp within the next 12 months. According to our calculations, ECB sovereign bond purchases are anticipated to increase by €8.5bn/month along with an extension of the end-date of the programme from September 2016. With sovereign bond purchases representing around 70% of all monthly asset purchases of €60bn this would represent a monthly increase in purchases of all bonds of about €12bn," UBS argues.
How will EUR/USD markets move?
"If the ECB delivers more easing than markets are pricing, the year's low in EUR/USD is likely to be tested, though we do not see attractive risk-reward to being short EUR/USD at current levels. The potential for QE2 to move the euro is less than was the case with QE1, given the different starting points for the currency, and better Euro area growth now than earlier in the year," UBS advsies.
"Furthermore, although policy divergence may favor lower EUR/USD, economic convergence and valuation are pulling in the other direction. The gap between core inflation in the Euro area and US is the lowest it has been in a number of years, and the Eurozone's manufacturing PMI is now actually higher than the US manufacturing ISM," UBS adds.
source
According to leaked news, ECB will do nothing. As usual Draghi will try to talk down the Euro
Can The ECB Beat Expectations? - RBS
RBS expects the ECB to deliver a 20bps deposit rate cut (to -40bps), the monthly asset purchase programme (APP) to rise to €85 billion (from €60 billion) and an extension of the APP to March 2017 (from September 2016).
"Following a succession of dovish signals from ECB officials in recent weeks, and most notably from Draghi, we think anything less than this would risk disappointing market expectations.
20bp of rate cuts is now nearly priced in, while our investor poll suggests that ‘consensus’ for QE is for acceleration to around €75bn/month.
Partly for that reason we think the risks are skewed toward a more dovish set of policy announcements than we anticipate," RBS argues.