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Thursday, July 4

4th July - US Close: BoE and ECB go guiding

Heavy central bank day - both the Bank of England and the European Central Bank provided dovish surprises and introduced forward guidance-measures or promises. ECB promised to keep rates for "a long time" - hardly news, but still an improvement over the previous "we do not pre-commit". BoE indicated that it could introduce guidance perhaps as early as in August.

Anchor Grills Draghi on Forward GuidanceYoutube

Previously on MoreLiver’s:

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Roundups & Commentary
Overnight: Independence Day Overnight Market Summary – ZH
The Lunch Wrap – alphaville / FT
Emerging N.Y. headlines – beyondbrics / FT
Midday Express (EU daily news) – Europa
Daily press summary – Open Europe

Deutsche Bank Needs Capital Amid Higher Leverage, JPMorgan SaysBB
Deutsche Bank AG may face a capital shortfall of 12.3 billion euros ($16 billion) under a proposal on leverage by the Basel Committee on Banking Supervision, according to JPMorgan Chase & Co.

ECB Introductory statementECB

Draghi Breaks New Ground, Euro Breaks a CentMarc to Market

Draghi says rates will remain low for extended periodReuters
ECB policy will keep interest rates at current or lower levels for an extended period of time, ECB President Mario Draghi said on Thursday, giving financial markets the clearest guidance to date about future rates.

Is ECB communication akin to Fawlty Towers?TradingFloor
Steen Jakobsen: After today's ECB meeting I am even less confident in central banks' forecasts. Ultimately they have tried everything and can now only talk and make a song and dance. Just like Manuel from Fawlty Towers we are left wondering: Qué?

ECB After-thoughts: As dovish as can beTradingFloor
Juhani Huopainen: By introducing forward guidance, hinting at possible cuts on all interest rates, the ECB acted in as dove-like a manner as it could without resorting to balance sheet expansion.

Soft forward guidance from the ECBNordea

ECB - Extensive discussion on rate cutIFR

Market Response To Tidal Wave Of Central Bank DovishnessZH

ECB, abandoning tradition, commits to record low ratesReuters

European Stocks Rally as ECB Says Rates to Remain LowBB
European stocks rose the most in more than two months as the European Central Bank said that interest rates will remain low for an extended period, and Portugal’s political leaders sought to hold their coalition government together. U.S. index futures and Asian shares also climbed.

Mark Carney's biggest challengeFree exchange / The Economist
Fall in business lending

That Bank of England Surprise Statement in FullMoneyBeat / WSJ

Mr. Carney Moves the Market MoneyBeat / WSJ
The pound dropped to a one-month low against the dollar and a 11-week low against the euro Thursday, just after the Bank of England broke with tradition and published a statement following the decision to keep rates and stimulus on hold, with comments warning the market not to get too carried away with expectations for rate rises. A rundown of reactions:

Bank of England: how big is the Carney premium?Danske Bank (pdf)
What form forward guidance might take, if implemented at the BoE, is the big question. It could be a Fed type rule with thresholds on unemployment or similar, it could be the 'old' Fed type rule with a specific date before which no rate hike should be expected, it could be a Japanese type rule with targets on money balance, or something new like a NGDP type rule etc. This uncertainty should be reflected in a market risk premium going forward

BOE Surprises in Word not DeedMarc to Market
Stated that the implied curve was not warranted by the latest developments.  This was a protest of the increase in short-term interest rates seen in recent weeks.  It is not exactly forward guidance, but seems to be a close relative. 

BoE comment: There’s a new guy in townNordea
All in all, no changes to the policy stance today, but a clear indication that forward guidance is the first priority, and, if rates remain at the current level, that forward guidance will be in a dovish direction in August.

Cable Carnage Following Carney's First Bank Of England StatementZH
Citi: The statement clearly highlights the MPC dovish bias against the background of improving UK data and evidence of gradual recovery in the housing market. SocGen: However, the fact that a statement was released today in itself sets out the view that rates should be lower (for longer?). Whether that's communicated more formally next month in forward guidance remains to be seen but tactically it's difficult now to argue against selling GBP rallies.

Bank of England steers markets on rates at Carney debutReuters

Carney Starts Early Forward Guidance as BOE Holds Bond PurchasesBB
Mark Carney signaled that the Bank of England will keep interest rates at a record low for longer than investors had expected as he used his first meeting as governor to give more insight into future policy.

Forget Ben, what about Mario and Mark?Buttonwood / The Economist
But if the ECB. BOE and BOJ all seem to have an easier policy than the Fed, that will get the dollar bulls very excited. How far will this be allowed to go? Meanwhile, such is the dominance of central banks on markets, that tomorrow's non-farm payroll numbers will be a "good news is bad news" moment for equities.

Boom! The ECB and Bank of England join the ‘forward guidance’ partyWonkblog / WP

Ok, so reducing short-term bearish bias, Dragney-styleThe Tail Chaser

Q&A: What is 'forward guidance'?BBC

What is forward guidance and what does it mean?Nordea
All in all, forward guidance seems to be the new black among central bankers. The soft guidance from the ECB today has a significant degree of discretion to it, which means that Draghi can use it to guide market expectations and the risk sentiment. However, it is not actually a promise and should probably not be seen as more than an indication of the ECBs clear easing bias.

Forward guidance crosses the AtlanticFree exchange / The Economist
Quite how effective forward guidance will prove to be in Europe is debatable. But another irony about today’s flurry of activity is that it has sprung from a failure in the Fed’s communication.

Draghi Says ECB Rate to Stay Low for ‘Extended Period’; BOE Signals Rates to Stay Low; Communication Only Tool LeftMish’s

Fear Eases in Peripheral Bonds but Portugal Still Locked OutMoneyBeat / WSJ

Things In Portugal Are Getting WorseZH

European Credit Markets Set for Mood SwingsMoneyBeat / WSJ

Political crisis in PortugalNordea

China, Australia and a hard landingalphaville / FT

Is Abe’s fourth arrow economic hari-kiri?alphaville / FT

French agency spies on phone calls, email, web use, paper saysReuters
France's external intelligence agency spies on the French public's phone calls, emails and social media activity in France and abroad, the daily Le Monde said on Thursday.

Ecuador says it found a hidden microphone at its London embassyReuters
Ecuador has found a hidden microphone inside its London embassy, where WikiLeaks founder Julian Assange is living, and will disclose on Wednesday who controls the device, its foreign minister said.

Melkein ei, jyrkkä ehkä, kattellaan – eurokuurupiiloa perussuomalaisittainHeikki Ikonen / Piksu

Pelkkä tuhoutumisvauhdin hidastuminen on Euroalueella hyvä uutinen – mutta verratkaapa USA:n kehitykseentyhmyri

EKP ei pelasta SuomeaTalouden Tulkki