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 Guidance – Youtube
Previously on MoreLiver’s:
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
EUROPE
Deutsche Bank Needs
Capital Amid Higher Leverage, JPMorgan Says – BB
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 MEETING
ECB Introductory
statement – ECB
Draghi Breaks New
Ground, Euro Breaks a Cent – Marc
to Market
Draghi says rates
will remain low for extended period – Reuters
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.
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 be – TradingFloor
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 ECB – Nordea
ECB - Extensive discussion on rate cut – IFR
Market Response To Tidal Wave Of Central Bank
Dovishness – ZH
ECB, abandoning tradition, commits to record
low rates – Reuters
European Stocks Rally as ECB Says Rates to
Remain Low – BB
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.
BOE
MEETING
Mark Carney's biggest challenge – Free
exchange / The Economist
Fall in business
lending
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:
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 Deed – Marc
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 town – Nordea
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.
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.
Carney Starts Early Forward Guidance as BOE
Holds Bond Purchases – BB
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.
FORWARD
GUIDANCE
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.
Ok, so reducing short-term bearish bias,
Dragney-style – The
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.
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 Left – Mish’s
PIIGS
European Credit
Markets Set for Mood Swings – MoneyBeat
/ WSJ
ASIA
Is Abe’s fourth arrow economic hari-kiri? – alphaville
/ FT
OTHER
French agency spies
on phone calls, email, web use, paper says – Reuters
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 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.
FINNISH
Melkein
ei, jyrkkä ehkä, kattellaan – eurokuurupiiloa perussuomalaisittain – Heikki
Ikonen / Piksu
Pelkkä
tuhoutumisvauhdin hidastuminen on Euroalueella hyvä uutinen – mutta verratkaapa
USA:n kehitykseen – tyhmyri
EKP ei pelasta Suomea – Talouden
Tulkki