Volatility expected as ECB announces latest policy decision

Volatility expected as ECB announces latest policy decision

By Craig Erlam on Jun 6, 2014 08:04:47 GMT

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  • Volatility expected as ECB announces latest policy decision;
  • Markets priced too much in, set up for disappointment;
  • BoE decision a non-event;
  • Weekly jobless claims to provide further evidence of labour market strength.

The last couple of weeks in the markets has been dull to say the least, volatility has been down and so have trading volumes. This can be largely attributed to the uncertainty surrounding the ECB decision and as a result, I expect this to change dramatically today.

Traders and commentators alike have spent the last month trying to deduce exactly what ECB President Mario Draghi meant last month when he claimed the central bank is “comfortable” taking action in June. Again, this came with the usual caveat being that he wanted to wait for the ECBs new projections before making any rash decisions and if we see nothing from the ECB today, he will fall back on this as the reason for holding off once again.

It baffles me that investors have once again taken the bait from Draghi and I expect them to be disappointed all over again. That said, Draghi is the master of doing nothing while at the same time convincing investors that something big is around the corner. While we may see big disappointment after the decision, I am confident that Draghi will once again talk himself out of it 45 minutes later and people will quickly begin talking about the next meeting as the point at which the ECB will come out firing.

That’s not to say the ECB will do nothing today. I think that would be a huge mistake and not even the ECB is dumb enough to make that after creating all of this hype. I believe we’ll see a token effort to appease the markets in the form of a small refi rate cut, of 15 basis points, potentially partnered with a new initiative to boost lending to small and medium sized businesses, similar to the funding for lending scheme that the Bank of England introduced in the UK. I believe the markets have priced in more, with many suggesting we’ll see negative deposit rates, but I will be very surprised if this happens. The ECB doesn’t exactly have a history of delivering until it absolutely must.

There’s plenty more to focus on today, but none of these will have anywhere near the impact of the ECB decision and press conference on the markets. The Bank of England decision will be a non-event as the central bank is under no pressure to change policy at the moment.

In the US, we have weekly jobless claims data being released, which is seen rising to 310,000 following another very strong figure last week. The labour market is looking much better in the US at the moment and this only provides further evidence of that.

Ahead of the opening bell on Wall Street, the S&P is seen opening unchanged, the Dow 3 points lower and the Nasdaq 2 points lower.

About Craig Erlam

Craig Erlam is Market Analyst at Alpari UK. He joined Alpari (UK) at the beginning of 2012 after four years in the financial services industry, including working at Goldman Sachs. Craig writes market commentary that regularly appears on websites including The Financial Times, Reuters, BBC, The Telegraph and FOX Business. He also provides insight and analysis for clients which he posts daily on Twitter, Google+ and the Alpari (UK) website. You can also find Craig on YouTube where he gives short market updates, including charting analysis.

Recent posts by Craig Erlam

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