Upcoming Forex Market Event: ECB meeting coming up at 12h45 (UTC +01h00 / 01h30 CET) 5 DETAILS TO WATCH AT ECB MEETING Brain Blackstone (Wall Street Journal, Blog) The European Central Bank is expected to refrain from new stimulus measures when it meets Thursday in Naples, Italy and instead focus on implementing a new, private-asset purchase program that was part of September’s stimulus package. Still, the meeting and ECB President Mario Draghi’s press conference will be closely followed for views on ultra-low inflation, the weakening euro and potential for large-scale government bond purchases. Here are five things to look for Thursday: 1. THE ABS AND COVERED BONDS PROGRAMS The ECB is expected to unveil details of the asset-backed securities and covered bond purchase plans after Thursday’s meeting. Analysts want to know, in particular, how big the programs will be, though the ECB may want to keep this vague for now. Another question is the ratings threshold. The ECB will discuss whether to make ABS in Greece and Cyprus eligible for purchasing even though they are below investment grade. 2 THE BALANCE SHEET The ECB has set a goal of returning its balance sheet to early-2012 levels. That implies an increase of between €700 billion ($882 billion) to €1 trillion from its current €2 trillion level. But analysts doubt whether the current mix of four-year loans, ABS and covered bond purchases will get it there. Mr. Draghi will likely be pressed on whether additional assets could be added to the mix, including corporate bonds or government bonds. 3 THE FOUR-YEAR LOANS Demand for the ECB’s first installment of four-year loans to banks (called TLTROs) was disappointing at €84 billion. Look for Mr. Draghi to echo comments by other ECB officials that take-up at the next lending round in December should improve. 4 WHATS HAPPENING TO INFLATION? AND QE? Annual eurozone inflation hit a fresh a fresh five-year low of 0.3% in September, way below the ECB’s 2% target. Inflation expectations using Mr. Draghi’s preferred gauge, five-year forward swaps, are back near August levels that prompted him to warn about the weakening of future price expectations. Mr. Draghi will likely be pressed on whether these developments escalated the quantitative easing debate at Thursday’s meeting. 5 AND WHAT ABOUT THE EURO? The euro has weakened considerably since the ECB signaled in May the beginning of a new easing cycle. The euro hit a two-year low against the U.S. dollar Tuesday around $1.26. ECB officials have tacitly endorsed the decline, which should boost exports and inflation. Mr. Draghi’s comments will be scrutinized to see if he sees the potential for a further euro drop given divergent monetary policies in the eurozone and US.
Posted on: Thu, 02 Oct 2014 10:40:53 +0000