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4 Dec 2014
Market reaction related to timing? - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank monitors the markets reaction to an indecisive ECB.
Key Quotes:
“Gauging the market reaction today (Eurodollar up by more than 1 big figure, core yields up several basis points and a widening of sovereign spreads) it would be tempting to conclude that the market is disappointed because today’s indecisiveness is a sign of division within the Council”.
“However, we would argue that it is more likely that the market is ‘jumping the gun’ on any positive QE effect and the reflation trade. Even more to the point, perhaps, is that the market has in fact decided that QE is so hard to avoid now (it has become a ‘fait accompli’) that it would be wise to close out on short EUR, long Bund and long peripherals positions as there may be very little to gain as we enter the very last weeks of 2014. In that sense today’s market reaction may be of little guidance as to the trend the in coming months”.
“In terms of timing, we feel 5 March is still the most likely date for a full-blown QE program announcement. First of all because the ECB would have new staff projections at its disposal, but also because the ECB would have a clearer view on the effectiveness of its covered bond and ABS purchase programs. Moreover, there would be lesser ‘moving parts’ in their balance sheet, as the 3-year LTRO repayments take place in January and February. This will allow the ECB to make a thorough assessment of the required size, pace and composition of its QE programme”.
Key Quotes:
“Gauging the market reaction today (Eurodollar up by more than 1 big figure, core yields up several basis points and a widening of sovereign spreads) it would be tempting to conclude that the market is disappointed because today’s indecisiveness is a sign of division within the Council”.
“However, we would argue that it is more likely that the market is ‘jumping the gun’ on any positive QE effect and the reflation trade. Even more to the point, perhaps, is that the market has in fact decided that QE is so hard to avoid now (it has become a ‘fait accompli’) that it would be wise to close out on short EUR, long Bund and long peripherals positions as there may be very little to gain as we enter the very last weeks of 2014. In that sense today’s market reaction may be of little guidance as to the trend the in coming months”.
“In terms of timing, we feel 5 March is still the most likely date for a full-blown QE program announcement. First of all because the ECB would have new staff projections at its disposal, but also because the ECB would have a clearer view on the effectiveness of its covered bond and ABS purchase programs. Moreover, there would be lesser ‘moving parts’ in their balance sheet, as the 3-year LTRO repayments take place in January and February. This will allow the ECB to make a thorough assessment of the required size, pace and composition of its QE programme”.