Was that a Change in Discourse?

by Claus Vistesen

Cross-posted from Alpha Sources



This is really just an update to the post below on today's ECB meeting but I think that the events deserve attention above the fold. The market action itself was not that surprising. The ECB moved in (introductory statement here) according to my expectations and kept rates steady as well as the BOE chose to lower rates .25 basis points. This latter event also seemed to be very much in the cards so nothing unexpected here either. Yet, what was very interesting, and also I have to say in line with my own predictions, was the change in the ECB discourse. Admittedly, it was small but it was there and I think that Trichet just paved the way for a cut come the next session in March. Especially the following taken from the introductory statement seems to have commanded much attention ...

(...) uncertainty about the prospects for economic growth is unusually high and the risks surrounding the outlook for economic activity have been confirmed to lie on the downside. Risks relate mainly to a potentially broader than currently expected impact of financial market developments on financing conditions and economic sentiment, with negative effects on world and euro area growth. Further downside risks stem from the scope for additional oil and other commodity price rises, concerns about protectionist pressures and the possibility of disorderly developments due to global imbalances.

Whether we will see a shift already in March is debatable but what seems clear is that we are moving closer to a breaking point in terms of strategy. Today's action also further exacerbated the pressure on the Euro confirming one of the main tenets voiced at this space. So, the stars are aligning in nice accordance with the forecasts and opinions mused at this space. Of course, tomorrow is another day and another set of events and I will keep watching accordingly always trying to calibrate my views as we go along. One thing is sure, I don't think that today's ever so subtle change in the ECB discourse should be neglected.