And, finally, adding this snippet from UBS, a real quick one.
We expect little news from the Fed this week:
UBS add that implied pricing in the options market for the meeting is roughly in line with the past 12 meetings … that is a SPX move of +/-0.9%.
No dots at this meeting 🙁
Other highlights:
On Wednesday, Boeing, Ford, McDonalds, Facebook are some of the companies reporting.
Finally, on Thursday Amazon, Merch, Mastercard earnings will be released.
The major European indices are ending mostly higher. The exception is the German Dax which fell -0.4%.
Going into the ECB meeting there were expectations that, after the ECB’s strategic review, the ECB would be revealing a more dovish hand. At the heart of those dovish expectations was the theory that the ECB would somehow morph the emergency PEPP purchase program (due to expire in 2022) into the standard €20 billion a month AP program. This was hinted at in the run up to the meeting by Christine Lagarde who said that the PEPP could ‘change’ into something else. However., the statement was not explicit. It was a case of trying to read between the lines.
Balancing act
Within the GC are fiscal conservatives like Germany and the more liberally minded Italians, so getting agreement was always going to be tough. This meeting really showed that there is still work to be done and ultimately the doves were disappointed. Rates were unchanged and so too were both the PEPP and the AP programs. So, here is what could be gleaned from the meeting.
Rates
Christine Lagarde said that they were at the ‘effective lower bound’. However, the statement explicitly says that,’the Governing Council expects key interest rates to remain at their present or lower levels…’
Dovish message?
Not so according to Christine Lagarde. The New ECB message is not that the ECB are ‘lower for longer’. Apparently PEPP was not discussed and neither was the link between APP and interest rates
Disagreement
Christine Lagarde noted some ‘marginal’ disagreement in this months meeting concerning the calibration of some aspects of the forward guidance. Germany’s Weidmann & Belgium’s Wunsch opposed the ECB’s new guidance according to Bloomberg as it signalled a commitment to lower rates for longer. In addition to these two members sources note that several more voiced objections due to the length of commitment and a lack of clarity.
Inflation
The ECB will accept an overshoot of inflation which they expect to be temporarily higher. Remember, the know have a symmetric 2% target.
The bottom line
It was a dovish meeting. The EUR chopped around at the meeting and in the press conference, but in the end the EURUSD pair dropped lower as the message was, in its lack of hawkish tones, not a denial of the dovish expectations. Is the ECB really lower for longer? Probably, but incoming data will be important here.
