ECB Up Next
Risk appetite was fairly stable heading into today’s central bank meetings. A Spanish multi-tranche bond auction passed with few problems, the Tesoro was able to issue at the upper end of targeted amounts (EUR 4 bn in total). The auction tailed more than expectations leading to some underperformance in the bonds, but the euro was largely immune to this and pushed higher in line with wider risk appetite. Earlier Australian economic data disappointed again overnight – retail sales rebounded somewhat, but the recovery was lukewarm at only +0.2% m/m (cons. +0.4%). AUDUSD slipped below 1.02 on the data but has since made good all losses. Central bank policy meetings are back in the spotlight, the BoE left both rates and the asset purchase program unchanged while we will hear from the ECB today. FOMC minutes are also scheduled for release later tonight, and a BoJ policy decision is due on Friday. We are with consensus in not expecting any change in ECB, or BoJ policy. Dissenting votes may have been cast on the BoE’s MPC, but we will have to wait until the minutes are released in two week’s time to find out. President Draghi will once again be subjected to a barrage of journalist questions. Several topics are likely to be addressed but we will be particularly interested in any questions about the ECB’s decision to waive its seniority status in the case of bonds purchased via the OMT, and in particular how this can be reconciled with the ECB’s ongoing opposition to accepting a haircut on its existing Greek debt holdings. Any doubt cast on the credibility of the ECB’s current pledge to waive seniority status has the potential to develop into a euro negative story. Meanwhile in the US, the ADP employment report showed that 162k jobs were added in September (cons. 140k). USDJPY jumped higher but our US economists caution that the report is not necessarily a leading indicator for Friday’s payrolls report from the Bureau of Labour Statistics. As for tonight’s FOMC minutes, the policy statement three weeks ago already revealed that one dissenting vote was cast against QE3. What matters now from a markets perspective is whether the minutes convey a readiness by the FOMC to keep easing for potentially a very long period of time, and whether there is room to accelerate bond purchases in future – perhaps even widening the scope to include UST securities rather than just MBS.
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UBS Investment Bank