“The chances of an unexpected ECB “taper” are high, the Street is unanimously calling for a dovish push. Once again, they are off sides.”
The Bear Traps Report, yesterday December 7, 2016
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Wall St. got it wrong again, consensus was expecting a dovish ECB today, more love from the central bank.
– Today, the ECB announced EUR100b less QE in 2017 than Wall St. had expected. However, Mario eased fears with a very dovish press conference.
Yields in Europe Soar
Germany 10 Year Bonds: Highest yield since Jan 27, at 0.43%. However since Mario’s more dovish press conference yields have come lower. The removal of the deposit rate cap, allows the ECB to buy more bunds that trade below this -40 bps threshold.
From July, Our Perspective:
“A BOND SELL OFF in Europe will trigger a SELL OFF in the US. Markets have spent the last three days pricing this in, “capital key expansion” is trading like a fait accompli. There are many political hurdles left for capital key expansion, the bond market has priced in far too much ECB love for now. This makes us even more bearish on bonds over the near term, 3-6 months.”
The Bear Traps Report, July 11, 2016
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The ECB has decided to extend its QE program until December of 2017. However, the market was offside in their expectation of the amount. The ECB will shift to 60B Euros a month starting in April vs the current run rate of 80B Euros. Draghi offered himself maximum flexibility by saying the program could go on “beyond” December 2017 if the economic situation required. This language has offset some of the market reaction to the more hawkish stance of “taper” starting in April. Mario has seemingly executed a hawkish ease.
*DRAGHI SAYS RISKS TO EURO-AREA GROWTH REMAIN TILTED TO DOWNSIDE
*DRAGHI SAYS ECB WILL BUY ASSETS YIELDING BELOW DEPOSIT RATE
*ECB SAYS IT MAY INCREASE SIZE OR DURATION OF PROGRAM IF NEEDED
Draghi: “Outlook to inflation is unchanged” from Sept projections, not buying into reflation publicly yet.
European Central Bank’s decision to taper bond purchases is a shot in the arm for the euro. The decision to extend QE at a slower pace did not spook markets as much as expected as Draghi has reassured markets of ECB presence in the years ahead in his press conference.
Euro Trading like a Biotech Stock Today
If “the outlook becomes less favorable or if financial conditions become inconsistent with further progress toward a sustained adjustment of the path of inflation, the Governing Council intends to increase the program in terms of size and/or duration,” it said in a statement, this is Draghi’s hedge.
Draghi: “Outlook to inflation is unchanged” from Sept projections, not buying into reflation publicly yet. This is a very dovish stance.
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