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ماريو دراجي رئيس البنك المركزي الأوروبي يتحدث خلال مؤتمر صحفي في واشنطن يوم 11 اكتوبر تشرين الثاني 2014. تصوير: جوشوا روبرتس - رويترز.

MACRO VIEW COLUMNS: Euro Longs Contemplate Deferral of ECB Tapering Dream

(Bloomberg) — What happens to a dream deferred? For bond bears, hopes of an early ECB taper announcement have dried up like a raisin in the sun. Mario Draghi’s Sintra speech seems like a trading lifetime ago, and the straight-line rally in Bunds and Bobls has quenched much of the interest in euro-zone rates. Euro FX bulls are a more resilient bunch, however, and the single currency remains buoyant ahead of Thursday’s ECB meeting. They should probably prepare for disappointment –though in the grand scheme of things it may not matter that much.

  • Although it felt like a quiet summer, there was plenty of action in European asset markets. Bonds and the currency rallied hard from early July onwards, while equities underperformed global peers thanks to a less competitive exchange rate
  • The upshot is that there has been quite a bit of movement in key variables since the last ECB forecast round, and even the last ECB meeting. The Bloomberg Euro Index is up nearly 5% since the June meeting, which should dampen the inflation forecasts from the ECB staff. In July, the euro took heart from Draghi’s comment that financial conditions have eased. Since then, financial conditions have tightened somewhat back to their level in June (and around the level of the pre-crisis average)
  • On the face of it, the recent tightening of financial and monetary conditions might warrant a spot of caution from a central bank in the ECB’s place. Of course, the negative externalities of the current policy regime — the tax on banks with money deposited at the ECB and the difficulty in maintaining capital key allocation targets — would argue in favor of beginning the gradual process of normalization
  • In the July press conference, however, Draghi was at pains to emphasize that an announcement would be made on the future of the purchase program “in the autumn”. Anyone with a passing knowledge of astronomy can tell you the northern hemisphere autumn begins on the equinox, which is still a couple of weeks away. This message, combined with recent leaks suggesting concern over the pace of the euro rally and the ECB’s usual modus operandi of forming working groups to assess potential policy shifts, strongly suggest that Draghi will play defense in his press conference and defer any announcement until the October meeting
  • On the face of it, that would appear to be a disappointment — but does it matter? On anything but the short term, probably not. Ultimately it doesn’t matter if a policy implemented in January is announced in September, October, or New Year’s Eve. Unless Draghi actively talks the euro lower, it will take more than a dream deferred to derail the current market mindset — at least until the forgotten Fed cycle springs back to life
  • NOTE: Cameron Crise is a macro strategist who writes for Bloomberg. The observations made are his own and are not intended as investment advice.

To contact the reporter on this story: Cameron Crise in New York at ccrise6@bloomberg.net

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