It’s been one of those days. First, the CME broke for 4 hours due to what some suggested were HFT connectivity issues, then Russia announced it would send a second humanitarian convoy into Ukraine (a big risk off move the first time it was announced, now not even an algo stirred), then Germany reported that the IFO Business Confidence/Climate dropped for the fourth consecutive month to 106.3 from 108.0, below the 107.0 expected, with the IFO chief economist stating that German GDP expectations are likely to be cut to 1.5% from 2.0% later in the year, and finally the French government collapsed due to disagreement over policy between finance minister Valls and economy minister Montebourg. All in all, a typical day in Europe’s slow-motion implosion. So why are Spanish and Italian bank stocks soaring and European bond yields reaching new record highs? Simple: following Draghi’s speech on Friday at Jackson Hole, which at initial read was hardly as dovish as many had expected, the FT and various other media outlets promptly changed the narrative and made it seem as if the ECB head was about to unleash QE.
European QE that is, of course, assuming Draghi ever goes about revealing either the TLTRO or the ABS plan he revealed months ago. Then again, this being the ECB it is all about speculation and innuendo, with QE almost virtually assured not to happen unless European GDP (adjusted for hookers and blow or otherwise) is in freefall mode and rioting is on the street, well even more than usual.
It will be a quieter week than even usual (keep in mind volumes last week were the lowest in years) with a US holiday on the horizon (there will be nobody manning trading desks on Friday as everyone rushes to catch one last weekend on Hamptons frat boy fun) and so attention turns to US New Home Sales, the Markit Composite PMI, the Dallas Fed and tomorrow’s meeting between the Ukrainian and Russian Presidents, which Merkel previewed over the weekend saying not to expect much if anything.
Bulletin headline summary from RanSquawk and Bloomberg
- EUR/USD slumps to an 11-month low as markets bet on diverging policy between the Fed and ECB, widening the US/GE 10yr yield spread to levels not seen since 1999
- US stock futures sit at all-time highs ahead of the US open as markets price-in the increasing likelihood of ECB assetpurchase full article HERE