A collection of articles I've linked to previously, from latest to older. This post will be updated as the events unfold. Previous ECB Watch here.
Last update 15:00 GMT 3-May
Live coverage of the ECB’s interest rate
decision – FT
Live Blog: ECB Rate Decision – WSJ
Monetary policy decisions – ECB
Refinancing rate
decreased by 25 basis points to 0.50%
Marginal lending
facility rate decreased by 50 basis points to 1.00%
Deposit facility unchanged
at 0.00%.
3-MAY
The Evolution of the
ECB’s Thinking on Negative Deposit Rates – EconoMonitor
ECB acted, cutting two
rates that don’t really matter much. The ECB opened up two more doors today,
though it hasn’t walked through them: first on securitization of SME loans into
ABS, and second, to lower their deposit rate to negative levels
Central Bank Alchemy and more Negativity – Macro
Man
Looking at negative
deposit rates “with an open mind”? This has prompted TMM to go back to thinking
about the if/how/why/whether they will be implemented. In this respect, a
speech by Benoît Cœuré in February 2012 seems especially applicable
ECB rate cut: Does it mean anything? – TradingFloor
In this video debate
Mads Koefoed, Head of Macro Strategy, Saxo Bank and Steen Jakobsen, Chief
Economist, Saxo Bank debate the significance of the European Central Bank's
rate cut yesterday.
Here's what Draghi meant when he said the ECB
would "cope" – TradingFloor
Nick Beecroft: ECB
President Mario Draghi and his fellow Governing Council members are pulling on
their walking boots for a trip into unexplored territory: namely, negative
interest rates.
Nowotny on Draghi and negative rates: “purple
monkey dishwasher” – alphaville
/ FT
It is more likely that
the ECB is encouraging moderate euro weakness on the view that it will do no
harm, and perhaps a little good, but not on the view that the weakness can
substitute for domestic demand.
2-MAY
AFTER PRESS CONFERENCE
AFTER DECISION, BEFORE PRESS CONFERENCE
BEFORE EVENT
Introductory
statement to the press conference – ECB
EUR Erases ECB Gains,
Yen Does Its Own Thing – ZH
ECB "Technically
Ready" To Ask Depositors To Pay Banks For Holding Their Money – ZH
ECB cuts rates and
has an open mind – Nordea
More liquidity but no immediate help to SMEs * ECB stand
ready to act even after today’s cut * Conclusion – delivering something but not
what it wanted
ECB Rate Cut Avoids a
Tricky Problem – For Now – WSJ
By cutting its benchmark refinancing rate by a quarter of a
percentage point to 0.5% today, while leaving its deposit rate unchanged at
zero, the ECB has avoided a problem that could yet loom in future: can its
deposit rate be reduced below zero?...“Negative deposit rates may come but only
after the euro-zone banks have reduced their excess reserves significantly
further,” said Valentin Marinov, strategist at Citigroup , in a research note.
Draghi Open to
Negative Deposit Rate Trumps Rate Cut to Drive Euro Lower – Marc
to Market
EUR Erases ECB Gains, Yen Does Its Own Thing – ZH
ECB "Technically Ready" To Ask
Depositors To Pay Banks For Holding Their Money – ZH
ECB cuts rates and has an open mind – Nordea
More liquidity but no
immediate help to SMEs * ECB stand ready to act even after today’s cut * Conclusion
– delivering something but not what it wanted
Shock and Awe – Mish’s
ECB Prepared to
"Cope With Consequences of Negative Deposit Rates"; Dancing in the
Dark Experiment
99 Draghi trial balloons [updated] – alphaville
/ FT
Draghi presser
involved the ECB chief mentioning a heap of possible actions — from getting the
“dead” ABS market going to help SMEs, through to negative interest rates, while
giving a little bit of forward guidance on policy — but without committing to anything
concrete.
Five Takeaways From the ECB – WSJ
Benchmark Interest Rate Cut, Deposit Rate Kept at Zero, Reductions
Reflect Economic Weakness, Dissension in the Ranks?, More to Come?
Draghi’s Presser Wasn’t a Crowd-Pleaser – WSJ
The ECB’s interest
rate cuts provided the euro with some impetus to rise Thursday, but a lack of further crowd-pleasing stimulus
measures from President Mario Draghi at his press conference after the decision
quickly saw those gains eroded.
Does Draghi Want a Lower Euro? – WSJ
Perhaps the threat of
negative deposit rates is Draghi’s way of addressing those atrocious
“fundamentals” with one instrument he can definitely influence–the value of the
euro–without actually mentioning the currency at all.
Rate cuts but nothing more – TradingFloor
Juhani Huopainen: The
ECB cut its rates as expected. The EUR weakened, but only after negative rates
were mentioned.
It is clear that there
is a strong current of thought on the ECB’s governing council that they will
need to do significantly more to ease policy, and soon.
The ECB’s Draghi sets out a new European
economic paradigm – Credit
Writedowns
On monetary policy, I
do not expect further cuts here. And I think the ECB is going to remain fairly
cautious about policy unless a crisis erupts. So, I would expect the ECB to
give greater clarity on the ABS program. And if the ECB is daring and the
economy deteriorates further, I would also expect the ECB to start moving
toward more explicitly anchoring other interest rate expectations instead of
just the fixed-rate full allotment.
Draghi changes his mind on negative rates – Danske
Bank (pdf)
There were no new
measures targeting SMEs and Draghi said, ‘we are far from reaching any
conclusion’. So, it seems an instrument for SMEs will not be announced any time
soon. We still think that there will eventually be an announcement at one of the
forthcoming Governing Council meetings.
AFTER DECISION, BEFORE PRESS CONFERENCE
Live Blog: ECB Rate Decision – WSJ
ECB does the expected… - alphaville
/ FT
ECB's Record Low Interest Rate Is Negative For
The.... Dollar – ZH
Monetary policy decisions – ECB
Refinancing rate
decreased by 25 basis points to 0.50%
Marginal lending
facility rate decreased by 50 basis points to 1.00%
Deposit facility unchanged
at 0.00%.
BEFORE EVENT
Ze price stability – alphaville
/ FT
Deutsche’s George
Saravelos: a refi-rate cut by the ECB on
Thursday will be fairly insignificant — but that the risk of disinflation in
the eurozone, and how the ECB responds to this threat to ‘ze price stability’
matters: “The risks around the ECB primary mandate will likely return front and
centre however, making the last two years a poor blueprint for judging how the
ECB reacts”.
ECB Day and other
Developments – Marc
to Market
Why the ECB may prefer
to wait for June: The ECB's views dictate that the initial response to easier
fiscal policies should not be easier monetary policy... The conventional view
is that the problem with the transmission mechanism of monetary policy is with
the credit to small and medium sized businesses. This is really the focus of
the ECB, judging from the number of different officials have cited concerns.
Yet the ECB does not seem ready quite yet to unveil a new initiative.
[video] RANsquawk ECB Rate Decision Preview – ZH
ECB rate decisions and stock market reactions – TradingFloor
Peter Garnry: If
history is any guidance and ignores that we only have three historical
observations, no change in ECB's main refinancing rate would be best for
European equities. The reality is we have no means to predict how equity
markets will react today.
Will he or won't he? The market awaits Super
Mario – TradingFloor
Ken Veksler: I retain
my stance that almost irrespective of what the ECB does and what Super Mario
has to say in the ensuing press conference, the EURUSD will trade lower and
revert back into its recent pivot of 1.3000, with 1.2950 being the key level
below.
An ECB Rate Cut: What the Banks Think – WSJ
ECB increasingly likely to cut rates – Open
Europe
... but running short
of tools to help the eurozone economy
Why the ECB is expected to cut interest rates – MarketWatch
A rate cut may have
only a limited impact on the real economy of the euro zone, but the European
Central Bank’s governing council will most likely still opt for one on
Thursday.
ECB to signal intent with rate cut – TradingFloor
Mads Koefoed: Expected
to cut its refinancing (refi) rate later today by 25 basis ponts (bps) to 0.50
percent in a display of action while it considers more effective tools.
ECB better ease or else – EURUSD set for 1.3000
test again – TradingFloor
John J Hardy: Euro
looks set to weaken just about any way I can slice it in the wake of today’s
ECB meeting, but how and against which currencies is the key question.
Meanwhile, AUD is pushing at key support.
Why I think the ECB is not about to cut the
MRO rate – Place
du Luxembourg
The ECB believes that
the channel of monetary policy transmission is still broken and that unless it
is fixed monetary policy is not able to lift the Euro-Zone economy. The data
also seems to imply that banks’ reliance on ECB liquidity has decreased considerably,
so that the direct effect of a EONIA cut is very limited.
[simple text] The ECB
and the riddle of the markets – BBC
Probably the biggest surprise of 2013 so far has been the dogged
optimism of the financial markets. When the economic news is good, share prices
rise. But when the news is bad, they often seem to go up as well.
ECB poised to act …
modestly – MacroScope
/ Reuters
In terms of reviving the euro zone economy this is pea shooter and
elephant territory. The ECB has consistently diagnosed the key problem that
already ultra-low interest rates are not transmitted to high debt corners of
the euro zone, where lending rates are much higher and credit restricted. A
rate cut won’t change that. It also illuminates the gulf in approach with the
Bank of Japan and Federal Reserve who continue to print money at a furious
rate
1-MAY
ECB Preview: Rate cut and unconventional
measures? – TradingFloor
Juhani Huopainen: Consensus
is split on the ECB cutting the refi rate from 0.75 to 0.5 percent. It is
possible but would have limited effect on the credit crunch, unless it signals
that something else is coming - and soon. Look for opportunities to short the
EURUSD.
Low Euro-area inflation – good news or bad? – Nordea
The Euro-area flash
estimate for inflation in April fell to 1.2%! This follows a reading of 1.7% in
March and we have looked a bit deeper into a few questions.
What the ECB can and cannot do to heal the
eurozone – Gavyn
Davies / FT
To be clear, I am not
arguing that the adoption of forward guidance or QE by the ECB is currently on
the horizon. It is not. Nor can it be done without creating dissent and difficulties
inside the Governing Council. There are sensible arguments against. What I am
arguing, however, is that in the absence of such measures the ECB will soon be
out of ammunition, and the markets should be aware of that.
Investors may be fooling themselves about an
ECB rate cut – Quartz
Expect ECB to Cut Rates on Friday; Even a
"Shock-and-Awe" Cut Won't Help One Bit – Mish’s
What to Expect From the ECB – CFR
I’d like to think that
the ECB will surprise us tomorrow with a package that includes both a rate cut
and measures to increase the flow of credit to the periphery.
The ECB’s options, charted – alphaville
/ FT
Macro Digest: ECB will cut by 25 bps - but
nothing will happen – TradingFloor
Steen Jakobsen: For
now, the ECB will praise itself for getting peripheral rates down and again
adding: Over to you, politicians – we have done our job, now it’s up to you.
Markets Think They’ve Spotted a Rare Breed of
Rate Cut – WSJ
Lower rates a ‘done
deal’ after this week’s news of weakening inflation and unemployment...but…11
of the 25 interest rate changes there have been in the last 10 years were
implemented in months when the governing council received revised economic
forecasts from the ECB’s staff or those of the euro system as a whole…The next
ECB staff projections won’t see daylight until June.
30-APR
ECB’s Mario Draghi faces narrowing options as
economy stagnates – FT
Rate cut
(ineffective), forward guidance (not very effective), easing collateral
requirements (would help banks but not necessarily increase lending), buying up
bundles of SME loans (most effective, but difficult to design correctly and
increases the central bank’s risks)
The credit matrix – alphaville
/ FT
For one, banks can’t
lend if they can’t find borrowers — although it might be unfair to blame
borrowers who are seeing unappealing terms — and for two, central banks have
poured a fair amount of liquidity out there with more available on tap. Morgan
Stanley and UBS discuss possible solutions.
Negative interest rates – the Danish
experience – Nordea
(pdf)
The ECB faces mounting
pressure to ease monetary policy in the Euro area. In our view, this leaves the
ECB with four options: 1) keep the powder dry and hope for the best: unchanged
rates (60%), 2) the safe choice: narrowing the interest rate corridor by
lowering the refi rate, while keeping the deposit rate unchanged (30%), 3)
unknown territory: lowering both the deposit and lending rates, in the process
slashing the deposit rate to below zero (5%), 4) All in one: launching new
unconventional monetary policy measures while at the same time cutting rates
(5%)
ECB Rate Cut May Not Be a Done Deal – WSJ
Ahead of the ECB
meeting, the debate on the right course for euro area macroeconomic policies has
re-emerged. An interesting new feature of the debate is about differentiating
monetary policy to better cater for different conditions in different countries
of the euro area. So should there be more differentiation of monetary policy
across countries and how much can monetary policy achieve?
The ECB will have no
choice but to ease policy and possibly prepare for more drastic actions. The
Eurozone is facing a growing risk of deflation - similar to Japan. Once the inflation rate fell below 1% in Japan, the external shock of the Asian currency
crisis (late 90s) sent Japan into a deflationary spiral.
29-APR
We think a rate cut is
very likely on Thursday and expect Mario Draghi to cut the refi rate to 0.50
%. A deposit rate cut
is very unlikely, in our view. The ECB might present an instrument targeting
lending to SMEs. The ECB is likely to work in tandem with other institutions on
this. The market is already pricing in an ECB refi rate cut and therefore there
is a risk the ECB could disappoint
At the end of last
week, the ECB reported that bailing in of Cypriot depositors did not scare
other euro zone depositors. In fact, the ECB noted that deposits rose in March
across the region, including in countries that have been suggested as potential
candidates for the next aid package,
We stick to our call
and find it most likely that the ECB will keep rates on hold and instead come
up with new measures to support bank lending to Small and Medium-sized
Enterprises (SMEs).
Heterogeneous
transmission mechanism and the credit channel in the euro area * Firms’
adjustment during times of crisis * Macroeconomic effets of large-scale asset
purchase programs
Euro-Area Economic
Confidence Falls More Than Forecast – BB
Economic mood in euro
zone sours again in April – Reuters
German Inflation Rate
Plunges to Lowest in More Than Two Years – BB
Euro Area Savings Rate
Drops To Record Low, Disposable Income Has Biggest Drop Ever – ZH
Business investment
rate down to 19.7% in the euro area – Eurostat (pdf)
Tax-to-GDP ratio in
the EU27 up to 38.8% in 2011 – Eurostat (pdf)
Household saving rate
down to 12.2% in the euro area – Eurostat (pdf)
27-APR
Mr. Jens Weidmann’s
surreptitious campaign to bring back the (Greater) Deutsche Mark: On 12th June,
2013, Germany’s constitutional court is scheduled to rule on the legality of Mr
Mario Draghi’s OMT
Different countries
within the euro zone are in vastly different economic situations, and ECB head
Mario Draghi will have a hard time satisfying everyone:
I did a series of
three posts making the case for the European Central Bank to ease monetary
policy. I figured I would post them all together on my personal blog rather
than separately.
Not only did M3 come
out well below expectations at 2.6% YoY (vs 3% Exp.) but loans to the private
sector remain drastically in the red. The fragmentation
across the individual nations is dramatic…
The wave of voices
calling for some ECB action is growing, particularly given the wider debate on
austerity. It will be tricky to balance this with the demands of the northern
countries.
March 2013: Monetary developments in the euro area – ECB (pdf)
Quarterly Bank Lending Survey – ECB (pdf)
Mmm Mmm Mmm Mmm – alphaville / FT
Ray of light in Euro-zone credit numbers – Nordea
26-APR
German newspaper
Handelsblatt has got hold of a confidential Bundesbank report to Germany’s
constitutional court, which sharply criticized the European Central Bank’s
bond-buying plan. This could be very big or it could be nothing.
So much, then, for the
silly idea in Europe that “bad news is good news” because economic
weakness will force the ECB to cut rates.
25-APR
Given the push back
against austerity, the ECB may not want to send a signal that could be
interpreted as endorsing the relaxation of fiscal discipline…The once united
Troika appears to be fracturing, leaving the ECB as the last defender of the
austerity agenda.
(slides from the presentation)
24-APR
ECB policymakers
rebuffed suggestions that Europe should ease up on austerity and said that
while the central bank has room to cut interest rates, such a move would not
necessarily help the economy much.
Soaring borrowing
costs apparently weren't about indebtedness at all, but about uncertainty over
the ECB's willingness to act as lender of last resort. That, of course, means
that any pivot away from fiscal consolidation in the euro area will require
approval from Frankfurt…
The ECB is closer to
lowering interest rates than at any time since it last cut them in July 2012
and is likely to shave a quarter-point off at its policy meeting next week.
The ECB will cut its
key interest rate to a record low next week as the euro- region economy slumps,
according to banks including Nomura, UBS and RBS.
Ifo: German business
optimism fades – TradingFloor
German business gloom
grows as export markets wobble – Reuters
German Ifo Sentiment
Fell After Winter Chilled Recovery: Economy – BB
23-APR
We believe the ECB
sees additional interest rate cuts beyond the current level as more or less
ineffective. That is the reason, in our view, that interest rates were not cut
already in December. However, key figures have surprised to the downside and we
believe the ECB will have to act if the bank believes the economic outlook has
weakened further or if it is unable to come up with an SME “support package”
even though the ECB believes the effect will be limited.
After the PMI numbers
in March I wrote that the numbers were not bad enough. I think today’s numbers
however fit the bill and are bad enough. These numbers might just be bad enough
to push the ECB into action.
Want to know what the
ECB is going to do? Watch the German PMI – MacroScope / Reuters
Flash PMI – alphaville / FT
Euro zone slump
moderates but German worries appear – Reuters
Euro-Area April
Manufacturing, Services Contract – BB
17-APR
16-APR
…the main reason the
single currency is at risk is that the core, and the ECB, are subjecting the
union to patterns of nominal growth it simply can't be expected to endure.
Draghi on Monday put
pressure on governments to push ahead with plans for closer European
integration to address the euro zone crisis' core problems.
15-APR
What did the former UK
Monetary Policy Committee member mean? Quite simply, that the types of
structural economic changes that Germany has been pushing on the euro zone are
not only destructive but also bound to fail, at least if history is any guide.
And so the euro area
might just choose to lock up bits of euros here and there and selectively
reduce their value. That is what happened to many of the euros locked up in
loans to the Greek government. And it is what happened to many of the euros
that were sitting in insured deposits in Cypriot banks. Who knows where it
might happen next! (Nowhere, say euro-area officials, entirely unconvincingly.)
The rub is that doing something like that on the scale necessary to end the
crisis probably, basically, more-or-less means the end of the euro area.
In normal
circumstances, this might suggest markets are no longer discriminating between
the risks associated with different member countries’ bonds. But analysts say
the recent convergence is based on a precarious belief of ECB action rather
than any real improvement in economic fundamentals.
Speech by Mario
Draghi, President of the ECB, at the “Room for discussion” of the Study
Association SEFA and the Faculty of Economics and Business, Amsterdam,15 April
2013
Euro zone posts
February trade surplus on lower imports – Reuters
Biggest ever euro area
trade surplus – TradingFloor