Traders were looking with much hope to today’s ECB announcement which, despite the highly anticipated extension of forward guidance from late 2019 to “at least the first half of 2020”, proved to be a dud, and “not the big bang” many had expected, according to Commerzbank (which itself is struggling to find a buyer these days).
According to Commerzbank strategist Christoph Rieger, the TLTRO 3 had a hawkish aftertaste, and “being less generous than the prior wave of cheap loans” means that some in the market will have been left disappointed by the ECB’s lack of dovishness.”
“This is not the big bang some were speculating about,” he said, adding that “The extension to forward guidance is no more than a footnote given what the market is pricing.”
Perhaps watching the Euro spike in response to the announcement, Rieger noted that “If anything, it could even resonate hawkishly with the focus still on when the first hike could come.”
In short, “the bar remains high for Draghi to beat market expectations; bunds should regain traction though, with risk assets disappointed and euro stronger, and no relief for breakevens.”
Meanwhile, “Contrary to assumptions Draghi has sought to bind his successor by extending forward guidance to H1 2020 — the flip-side being that it also implies no cuts until then” according to CIBC FX strategist Jeremy Stretch. Echoing Rieger, he said that early details of the TLTRO III level being not as generous as the previous incarnation may have also provided EUR some support.
Elsewhere, CLSA’s Valentin Marinov, the extended forward guidance and the TLTRO III modalities “sound like a botched compromise between the Governing Council hawks and doves, but nothing dramatic.” Additionally, there was no mention of tiering so “lack of genuine dovish surprises could help EUR as EUR-funded carry trades get unwound.”
And with no “big bang” delivered by Draghi, the market reacted appropriately, with the EURUSD first sliding, then spiking once the terms of the announcement were digested…
… which in turn hit European Stoxx, which wiped out much of the session’s gains.
via ZeroHedge News http://bit.ly/2MGYfto Tyler Durden