ECB on Hold Tomorrow

Takeaway: No change in interest rates as the ECB monitors inflation and the ongoing political scene.

Positions in Europe: Long German Bonds (BUNL)

 

The ECB meets tomorrow. Our call is that there will be no change to its main interest rates and there will be no material update on when the Outright Monetary Transactions (OMTs) could be activated to buy sovereign bonds.

 

Our interest rate position is in agreement with consensus -- 46 of 47 economists polled by Bloomberg expect no change in the main interest rate. We think the ECB is holding its bullets even as inflation remains sticky and above the 2% target (currently at 2.5% in OCT Y/Y).

 

ECB on Hold Tomorrow - 44. interest rates

 

The bank is also wrestling with an uncertain political climate focused on:

  • The extent to which the ESM can directly recapitalize troubled banks, and
  • How to set up banking and fiscal union

And the Bank is also aware of weak loan results, as displayed in the first chart below, and weakness in the broader economy, as witnessed in the Services and Manufacturing PMIs below the 50 line indicating contraction. That said, we do not expect these figures to influence a rate cut tomorrow.

 

ECB on Hold Tomorrow - 44. ECB loans

 

ECB on Hold Tomorrow - 44. pmis

 

On OMTs buying, we expect Draghi to continue to be tight lipped, mostly given the political climate and the moderation in Spanish and Italian sovereign yields (currently the 10YR is at 5.69% for Spain and 4.91% for Italy).

 

The Eurogroup holds its next meeting on November 12th; the hot topic will likely be Greece. The Greek government announced that it will have a decision on a €13.5B package of spending cuts, tax increases and structural reforms ahead of the meeting, on November 11th, which is pursuant to a €31.5B aid tranche intended for delivery on November 27th.   Both a divided Greek Parliament and strong populace resistance to austerity suggest challenges to passage, as an ultimate decision has been promised and delayed for weeks.

 

 

We do not have a Real-time position in the EUR/USD (FXE) but our immediate term TRADE levels are $1.27 – 1.29 with intermediate TREND resistance at $1.31.

 

ECB on Hold Tomorrow - 44. eur usd

 

Matthew Hedrick

Senior Analyst


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more