Payrolls An Afterthought?
After much anticipation it seems the market is back to square one. In hindsight perhaps it is wise never to expect too much as even central bankers know that there are some aspects of crisis resolution which are beyond their control – be it trying to accelerate a recovery in the US or pushing for structural changes in the Eurozone. Within their restricted remits though, both the Fed and ECB will need to push the boundaries, but Bernanke and Draghi both know things must happen in the right order and under the right conditions. The ECB, often accused of being behind the curve, delivered a statement of intent but drew a clear line there, and EUR longs looking for the beginning of the end were forced to bail. To be sure, Draghi flagged the bond-buying option as many had hoped, but there were certainly no game changers. For starters, Draghi stressed the need for proper sequencing and conditionality – a formal application for assistance via the EFSF/ESM would be a necessary, but not sufficient, condition for ECB action to tame “risk premia that are related to fears of the reversibility of the euro”. Draghi also acknowledged that a rate cut was discussed, and dismissed the prospect of the ECB granting a banking license to the ESM in its current form. Then he added a fresh twist in his description of “new” bond purchases that would be “very different” from the SMP and would focus on the shorter end of the yield curve. Draghi’s inability to clarify whether such purchases would be limited or unlimited, let alone sterilised, simply added to the market confusion. Whether the Bundesbank’s clear objections delayed the Governing Council’s ability to push things forward with haste, or the collective Council did not want to remove incentives for reform that delayed a more full-on response is unclear, but the waiting game must continue, and to their credit, the ECB may yet have done enough to deter new downside trades. EURUSD remains higher compared to levels before Draghi’s London speech, though periphery yields in the long end are creeping back up. Ahead today, markets look to payrolls which have become almost an afterthought for an event-filled week. Given the Fed has already decided the impact may also be muted (UBSe. 115k, cons. 100k)..
Click here to read the full report: UBS Morning Adviser Europe
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