ECB May Buy Time While Draghi Faces Questions on Greece, EZ Economic data & Corporate bonds
We are here again and many are saying that the ECB press conference is not going to be as elating as it was back in
March when the European Central Bank unleashed another big bazooka. The reality is that all eyes will be fixed on only
one event, no matter if it warrants attention or not, investors are likely to listen to the president of the ECB when he
takes to the stage. We do anticipate that the chances of the bank changing their stance on their policy is minimal,
perhaps there won’t be a review of their policy before September for a number of reasons, which we will discuss later.
An important feature of today will be the tone of the ECB president, Mario Draghi and the anticipation to see if he will
stick with his deft manoeuvring. Perhaps this meeting will be one of the most important ones as the bank needs to buy
some more time. The bank must consider their words carefully in order to strike a perfect balance and reassure markets
that they are ready to do more if needed. Being too dovish in their tone may signal that the bank is still not
comfortable with their stimulus package however, being too hawkish will raise flags and could indicate that they’re
overly confident about their performance.
What traders will also like to know in this meeting is if the council has a united front with respect to their QE
decision. The battle of defending their strategy against Germany is constantly becoming more difficult and the question
still remains; Does Draghi have enough fire power to continue this or not?
The reason that the bank aren’t making changes to their policy stance yet is because the measures they announced
recently have not been fully implemented. For instance, the ECB corporate bond purchase program which is due to expand
from 20 billion to 80 billion is starting this month. Traders will be highly interested to get more details about this
before they start taking a stab at them but also, and perhaps more importantly, to see if the bank is going to favour
any specific country with respect to their corporate bond purchase program.
Finally, the economic data has started to show signs of improvement. We can see this when we look at the Q1 GDP growth
of the Eurozone which was much better than previously anticipated and the inflation number for the month of May has also
improved when compared to the previous month. So, if the economic data is becoming steady, the ECB is most likely to
hold fire with respect to their quantitative easing policy.
Greece is another topic of discussion in which traders would like to have some comments from the ECB on and to see if
the likelihood of having this country on their shopping list have improved. Although creditors still have not released
the funds, the probability that they will have the funds to pay the bill for their IMF payment are looking more likely.
ENDS