Home > Uncategorized > 2011/12/08: Quick Post: ECB Radical Communication Today!!? NOT Likely

2011/12/08: Quick Post: ECB Radical Communication Today!!? NOT Likely

© 2011 ROHR International, Inc. All International rights reserved.

The issue is that ECB President Draghi will neither be inclined nor required to make any major commitments on curing what ails the European Sovereign Debt Crisis without the political commitment to sounder fiscal plans he has requested. And those will not even begin to take shape until tonight’s informal EC state dinner. Probably the least ‘informal’ informal dinner in the history of politics and negotiation.

Nonetheless, Signore Draghi still has all of that cover against making any radical commitments at today’s press conference. So after the well-anticipated 25 basis point interest rate cut don’t expect anything but further indications that the ECB will be waiting to see what the politicians can accomplish. However, might there be other aspects of the ECB’s involvement which will support the financial system that will become clear at today’s press conference? Likely so.

While there is strong sentiment the ECB is constrained at present from any activities that are more extensive support than what it’s provided to date on distressed European sovereign debt, adjusting money market arrangements to address the stress in the interbank lending market is completely within its powers. We suspect it will move well beyond typical three-month facilities for banks into something lasting more so up to several years. And as such, its activity today is likely to prove supportive of the current positive equity market tone in the short run. And this will not be offset by the lack of any major commitments to greater activity to address the broader European Sovereign Debt Crisis, because President Draghi has already staked out the position that until there is political agreement on further fiscal rationalization the ECB will not move.

For all the anticipation of what might come out of the post-rate decision press conference today, the chances are the ECB President will be able to constructively demure for now. Which will leave the decision in equities, and of course the intermarket influences flowing from it, pending the discussions and negotiations beginning with the informal EC state dinner and flowing right into this weekend’s extended European Summit. So, rather than any definitive market response either today or tomorrow, it will be another feast or famine Monday coming in off the weekend.

We have also anticipated quite a of further contention in Europe on providing that more solid fiscal arrangement regardless of what the ECB does today. For anyone who missed our view on that, please see yesterday’s post ‘The Ecstasy & Agony’ on Europe Still a Mess with More Divergent Positions Than Meet the Eye. It reviews not only the resistance the Merkel-Sarkozy plan is getting from the northern tier European states, but also the intrinsic inconsistencies in what they hailed as the ultimate solution on Monday.

General Market Observations

That also works hand in glove with the fact that activity in other asset classes is not as yet reflecting the sort of confidence exhibited by equities that any solutions for that short term crisis mentality in Europe amounts to a sustainable return to confidence and growth. In spite of the December S&P 500 future pushing above 1,240-50, the US and UK govvies remain no worse than support in the December T-note future upper 129-00 area, and the December Gilt future turning positively powerful. Similarly in foreign exchange, the euro is troubled anywhere back up around EUR/USD 1.3500, while the US Dollar Index keeps its bid.

Thanks for your interest.

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