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Thursday, February 6

6th Feb - Special: ECB Preview

Previously on MoreLiver’s:

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Draghi song remains the same — EURUSD spikes higherTradingFloor

ECB holds rates at record low, puts focus on MarchReuters
Draghi Signals ECB Ready to Wait Until March for ActionBB

Recovery hopes win from deflation fears (at least for now)Merkelnomics

Recovery hopes win from deflation fears (at least for now)Merkelnomics

What Mario Draghi Said Today (Not All That Much) WSJ

Draghi stays out of the sandbox while others play on WaPo

High unemployment putting the ECB in isolationMacroScope / Reuters


My own thoughts:
ECB Preview: End of sterilisation?TradingFloor
While the ECB will not necessarily act this week, a consensus has formed that something will be coming. Sterilisation, the sacred cow of hard money policy, could be near the end of the road.

Draghi as ECB Master of Suspense Keeps Investors on EdgeBB

Can the ECB finally deliver more than hot air and topple EURUSD?TradingFloor

What to Expect From the ECB MeetingWSJ

ECB – stick or twist?MacroScope / Reuters

ECB Picks Through Dwindling OptionsWSJ

Quantified negativity and the ECBalphaville / FT
Deutsche Bank’s George Saravelos on negative rates: negative ECB rates are worth at least 2-3% on the currency, provided the ECB is able to push EONIA down to a +5/-5bps range from around 10bps currently. Even if no action materializes today and EUR/USD squeezes higher, we think the persistent risks to European inflation and the divergence between Fed/ECB policy should be worth at least 10 big figures of downside by year-end.

The ECB Divides Expert Opinion MoneyBeatWSJ

From my older posts:

ECB's next steps could involve suspending SMP sterilization - instant QESober Look

An ECB Nail-Biter: Will It Cut Rates?WSJ
ECB PreviewMarc to Market
The ECB meets on Thursday amid heightened speculation it will make a new initia
tive given the deterioration of the two pillars of its monetary policy, money supply and inflation.  

Deflation, now vs thenalphaville / FT
As we await for the ECB to act or not later in the week, Capital Economics’ Jonathan Loynes took the time to note there are good reasons to think a new bout of deflation could be both longer- lasting and more pernicious than the last one

If Not Quantitative Easing, What Can the ECB Do?PIIE
Admittedly, purchases of private bank assets by national central banks would not help the rebalancing of the euro area. They also would not require Germany and other core countries to boost domestic demand and accept higher inflation. But Germany is more likely to accept this course of action now than to pursue greater inflation throughout the euro area, even at the risk of future risk mutualization.

The ECB should be more aggressive on monetary policyBruegel
Promise to do “whatever it takes” stabilized the euro but hesitant stance to fight low inflation or even deflation will undermine stability
ECB preview: Another refi rate cutDanske Bank
At the ECB meeting last month, Mario Draghi described two scenarios that would lead to action. We saw both of these triggers materialize in January. Therefore, we expect the ECB to ease again on Thursday

Are further falls in inflation putting more pressure on the ECB to act?Open Europe
The data suggests to us that the ECB will wait until its March meeting and its updated inflation forecasts to make a judgement – but then again it went a month earlier than expected in November. As for how, the most likely tools remain some form of targeted LTRO and/or purchases of bank loans but both programmes would require significant work and have numerous shortcomings

Euro zone inflation falls again; economists base ECB rate cut calls on déjà vuMacroScope / Reuters
Only two of 76 analysts in a Reuters poll conducted before news on Friday that January euro zone inflation fell to 0.7 percent said the ECB would trim its refinancing rate below 0.25 percent this week. Now a few more say they will. While many economists say the decision is a close call, most lack conviction over whether it will do any good.

ECB to reveal strategy for bank health checks by end-MarchReuters
The ECB kept the euro zone's top lenders on tenterhooks as it promised to reveal the strategy for its unprecedented review of bank balance sheets by the end of March, giving only scant detail on Monday.

Euro dogged by ECB talk, emerging markets sell-off grinds onReuters
Growing pressure for more policy easing in the euro zone pinned the euro near a 10-week low on Monday while persistent tension in emerging markets drove Hungary's forint to a 10-month trough and weighed on global stocks.

The heat is on the ECB... againNordea
At the January ECB meeting, Mr Draghi identified two triggers that could prompt new monetary easing: an unwarranted tightening of the money markets, and a worsening of the medium-term outlook for inflation. We believe none of the two triggers have been hit and hence expect no new ECB easing, but the tone of Mr Draghi is likely to remain dovish in the coming months.

To be, or not to be sterilised in the Eurozone?alphaville / FT
Citi’s research team highlights the important point that Germany’s Bundesbank has signalled that it is open to an end to ECB sterilisation operations. The move follows consecutive failures by the ECB to sterilise its bond purchases in the last month.

ECB to reveal strategy for bank health checks in first-quarterReuters

5 reasons the ECB will act in the months aheadSober Look
Liquidity, credit, monetary aggregates, disinflation

Bundesbank would favor end of sterilization to boost liquidity in bank systemWSJ
The Bundesbank would favor an end to the ECB’s policy of withdrawing large amounts of money from the banking system to offset its government-bond holdings, a person familiar with the matter said.

Weekly Focus: Case for further easing by ECBDanske Bank
Lower inflation has strengthened the case for further ECB easing as soon as the meeting next week.

Week AheadNordea
US: ISM manufacturing survey, labour market report. We expect a setback in the ISM to 55, and we expect the weather to have effected payrolls negatively again in January, 150k, consensus 180k. Euro area: ECB meeting on Thursday, Draghi’s press conference dovish. Final PMI , German order intake and production. UK: no rate- or QE-changes. A new or updated forward guidance framework could be adapted, but unlikely.

Strategy: Too early to call the bottom in risk marketsDanske Bank
Too early to call the bottom in risk markets. Chinese data will be key for EM and risk assets in coming months. Euro-area inflation expectations very low – more pressure on ECB.Downward pressure on bond yields intact in the short term. Euro-area recovery on track despite weak credit data

ECB deflation risk denial has echoes of 2009Reuters
It may be true that the euro zone is further away from deflation now than it was in 2009, not long after a historic crash in stock markets around the globe. But waiting for deflation to set in while hoping for a different outcome could derail an already very fragile economic recovery.

The ECB is much too stodgyBruegel
The euro fuelled a leveraged bet that went bad. The ECB is best positioned to orchestrate the painful sharing of losses. If the ECB does not reinvent itself for the times, it will be hobbled by its obsolescence and by increasingly acrimonious politics. And the flawed euro project will be further damaged.

Euro area deflation monitorDanske Bank
The lower inflation is not contradicting stronger growth in the euro area, in our view. Lower commodity prices have increased purchasing power and the most recent decline in core inflation is due to methodological changes and not a result of a drop in wage growth. Real wage growth has shown a clear improvement from its previous decline.

ECB Bond Sterilization Fails Again WSJ
ECB failed for the second time this year to fully drain the market of the more than €170 billion in government bonds it still holds under its previous bond-buying program.