Trading with point and figure

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Our line@12020 became rez on the bounce

Dentalfloss · Jun 6, 2019

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Dentalfloss · Jun 6, 2019

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Dentalfloss · Jun 6, 2019

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Dentalfloss · Jun 6, 2019

Dentalfloss · Jun 6, 2019

Dentalfloss · Jun 6, 2019

Dentalfloss · Jun 6, 2019

Post ECB thoughts "ECB gives with one hand, takes with the other, firmly in neutral.. with hands tied?"

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Ostwald, Marc

15:21 (4 minutes ago)

to Marc

1) Statement - There were two changes relative to May, the first extending rate guidance from the end of 2019 to the of H1 2020, and the announcement of the rates to be applied on the TLTRO III. The word 'tweaking' applies pretty much across the statement, the rate terms on the TLTRO III, the updated forecasts, and Draghi's press conference, and these ultimately ended up being a case of giving with one hand and taking away with the other. Thus they pushed their rate guidance out by 6 months, though the statement effectively implied that the next move would be a hike. Draghi however leant against that by saying that it was 'not correct to say ECB guidance tilted to rate hikes'. On the TLTRO III terms, markets had been thinking that the non-eligible lending rate would be flat to the Refi Rate, and were disappointed by the +10 bps, on the other hand the rate on eligible lending could be as low as the average Depo Rate +10 bps, a little more generous than markets had been assuming. The latter appears to be an attempt to implement policy in a more 'effective' and 'targeted' fashion, as many ECB officials have suggested in recent months.

- Policy statement: https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190606~1876cad9a5.en.html
- TLTRO III press notice: https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190606~d1b6e3247d.en.html

2) Forecasts - 0.1% upward revision for 2019 GDP to 12%, were offset by a 0.2% cut to 2020 and 0.1% cut to 2021, both to 1.4%. Meanwhile the new CPI forecasts flattened the expected near-term inflation path, by edging up 2019 to 1.3%, and cutting 2020 to 1.4%, while leaving 2021 at 1.6%. Overall a valiant set of tweaks that a) does not force the ECB's hand to take action near term, b) allowed Draghi to say incoming data were 'not bad', while also sticking to the 'downside risks' to the outlook narrative, primarily due to external trade related risks (be that Trump tensions or Brexit).

- Forecast update: https://www.ecb.europa.eu/pub/proje...01906_eurosystemstaff~8e352fd82a.en.html#toc2

3) Policy Outlook - Neutral, neutral, neutral. In effect the ECB is where the RBA and RBNZ were at the end of last year, the next move could be up or down on rates, it could involve restarting QE (aka APP), and in principle boils down to, if trade tensions escalate further and have a sharper impact in growth and/or inflation terms, then the ECB 'stands ready to act' Unsurprisingly the dovish wing of the council (described as 'some' council members) put a rate cut and restarting QE on the table, though in the end all they got was an extension of the forward guidance. As for tiering the deposit rate, it is clearly not going to be happening any time soon, though Draghi was keen not to rule that or other 'mitigating measures' being implemented at some point, presumably the former would be a lot easier to contemplate and implement, IF banking union comes to fruition at some stage, i.e. not on Draghi's 'watch'. Market reaction was, when all is said and done, a case of flailing within recent ranges. The fact is that the ECB, like the Fed and other central banks, cannot really afford to take pre-emptive action, a) given the fact of NIRP, or in the case of the Fed limited rate ammunition, as well as the huge extant volume of QE; and b) the high bar to second guessing Trump or anyone else involved in trade negotiations. In other words, politics rules OK, or perhaps KO, if things were to go wrong.

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MARC OSTWALD
Global Strategist & Chief Economist

ADM Investor Services International Limited
A Subsidiary of Archer Daniels Midland Company