Chances of ECB rate cut?

c.chugani · Oct 2, 2007

With all the subprime mess spreading over to the old continent and European banks warning on major hits due to the mortgage crisis - are the markets rallying in aniticipation/speculation of a possible rate cut by the ECB this week?

And if they DON'T get the rate cut - will markets still sustain at current levels, despite all the additional bad news that has emerged lately?

ECB also seems to be injecting billions into the system. And dollar seems to have rebounded off major 0.70 support.

Thoughts?

jbt · Oct 2, 2007

Quote from c.chugani:

With all the subprime mess spreading over to the old continent and European banks warning on major hits due to the mortgage crisis - are the markets rallying in aniticipation/speculation of a possible rate cut by the ECB this week?

And if they DON'T get the rate cut - will markets still sustain at current levels, despite all the additional bad news that has emerged lately?

ECB also seems to be injecting billions into the system. And dollar seems to have rebounded off major 0.70 support.

Thoughts?

I just posted an analysis of this very idea. They won't cut - but we do think 4% may be it.
http://www.dailyfx.com/story/topheadline/ECB___No_More_Beyond_1191319928106.html

c.chugani · Oct 2, 2007

sound analysis imho and makes sense.

so 4% maintenance could signal a change in the EURUSD rally.

my question is: how will european indices take it? Or are they more dependent on the Fed's upcoming meeting?

FGBS · Oct 2, 2007

EVERYONE expects 4%... So don't think much will happen if that happens. If they hike we might see some action.

Ivanovich · Oct 2, 2007

I think the market has yet to factor in that this is it for hikes. They're still holding out for Trichet to signal "vigilance". If and when Trichet slams the door on hikes for the forseeable future, EUR should correct.

Paliz · Oct 2, 2007

You will see a major cut , and hold off on the injections of billions into the market.

Ivanovich · Oct 2, 2007

Quote from Paliz:

You will see a major cut , and hold off on the injections of billions into the market.

Really, now.

You actually believe the ECB is going to cut 50bps or...more? That's what I consider a "major cut".

I think I need some of what you're smoking.

kashirin · Oct 2, 2007

Quote from jbt:

I just posted an analysis of this very idea. They won't cut - but we do think 4% may be it.
http://www.dailyfx.com/story/topheadline/ECB___No_More_Beyond_1191319928106.html

Your analysis has a major flaw.
Currently the main reason for $ devaluation is double deficit - budget and trade
And you haven't even mentioned it.
Those deficits discount all GDP growth

US grew much faster during last years and rates were higher and still 50% devaluation

Rates are important but currency doesn't devalue 50-100% only on rates

I think as trade deficit will never shrink we will see 1.5 then 2 then 5 then 10 $ for euro

there might be major corrections like we saw in 2005 although highly unlikely

londonfxguy · Oct 2, 2007

Quote from Ivanovich:

Really, now.

You actually believe the ECB is going to cut 50bps or...more? That's what I consider a "major cut".

I think I need some of what you're smoking.

Not that crazy. Deutsche put out a piece the other day calling for 50 bps of easing by first quarter 08.

trefoil · Oct 2, 2007

The US trade deficit is improving rapidly. The fiscal deficit has been improving for years, and given continued growth, will continue to do so.
Trichet won't cut, not until and unless he is absolutely forced against a wall. Reason why is why you guys have to study your history.
DeGaulle wanted the franc to be the major world currency, and Paris to be the world financial center. That dream was shattered by the May '68 general strike and student riots.
Trichet still dreams of doing the same thing with the euro, which is basically the franc in alliance with the mark, from the French POV. That dream would be shattered by a move down now, just as the euro is positioned to take the crown from the dollar.
This is a pipe dream that Trichet <i>will not voluntarily give up.</i> He will not cut unless absolutely forced to, and even if he does, he will only do 25 bp, so as to continue to increase the rate differential with the dollar. The result of this is that he will not cut as is needed to keep things under control until it's too late for the European economy.