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Comments from the European Central Bank’s president Mario Draghi have increased the expectation from the market that the ECB will do something huge in the coming Governing Council meeting on Thursday.
The market has probably priced in a resumption Securities Market Programme (SMP), and some are expecting/hoping for another LTRO. Meanwhile, Goldman Sachs speculated that the ECB would allow National Central Banks (NCBs) to purchase private sector assets in hope to ease credit conditions in the periphery.
As a perfect illustration of the extreme optimism about central bankers willingness and ability to “save the world”, so to speak, David Zervos of Jeffries wrote a note yesterday that compare Ben Bernanke and Mario Draghi to Bob Rubin, Larry Summers and Alan Greenspan, who were collectively dubbed as “The committee to save the world” by the Time magazine back in 1999. He even went so far as to call Ben Bernanke and Mario Draghi as Saints:
Today we have a new set of smart regulators/saviors – Ben Bernanke and Mario Draghi. I’m not sure who the third musketeer is yet. It could be Mervyn King, but the UK is almost too small too matter. Maybe its Hollande or Timmy G. Or maybe Shirakowa will show his hand with a 125 USD/JPY peg! That would earn him a place amongst the great reflators of our time!
We have to wait and see the final make up of the trio. But after last week, Mario has clearly been elevated to financial sainthood along with our current hero, St. Ben. With 2 sentences last Thursday, Mario rode Spanish and Italian 2yr yields nearly 200bps lower. It was like watching George Woolf ride Seabiscuit. Beautiful!!
So sometime in 2013 or 2014, just before Ben walks through the ivory tower gates, a Time magazine cover should appear – and the reflators success story will be told. It will be the committee to save the world – part deux (and yes, I am trying to make a veiled reference to that Charlie Sheen spoof classic – “Hot Shots, part deux”)!
The coming ECB Governing Council decision could be the most hyped one for a long time, but it could also well be the perfect set up for disappointment. Should the ECB fail to deliver something huge, the market could sell-off hard.
There are good reasons to believe that this could turn into major disappointment. High expectation aside, the comments made by Draghi seems to be made on his own without any discussion, let alone agreement, with his fellow colleagues of the ECB Governing Council. According to Der Spiegel, it seems that only Draghi himself knew what he was talking about:
Meanwhile, experts at the central banks of the euro zone’s 17 member states had no idea what to do with the news. Draghi’s remark was not the result of any resolutions, and even members of the ECB Governing Council admitted that they had heard nothing of such plans until then.
Now the ECB has been painted into a corner. They can either follow Draghi’s lead without fully agreeing with him or they pause to deliberate on this matter and disappoint the markets. Both outcomes seem rather unsettling.
This article originally appeared here: ECB (excluding Draghi) seems to have no idea what Draghi is talking about
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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