This was supposed to be Mario Draghi’s day.
See the thing is, Draghi, Janet Yellen, and Haruhiko Kuroda have to share the central banker spotlight. Who gets the most attention at any given time depends largely on the prevailing market mood and which one of the trio is perceived as being in the best position to address any “problems.” An example of this dynamic came in March when Janet Yellen abruptly leaned uber dove to combat the strong dollar’s deleterious effect on global market stability.
On Thursday, Draghi was up to bat as the ECB met for the first time since the Brexit vote. But his thunder was stolen by the “Ghost of Kuroda Past.” Allow us to show you what we mean:
Apparently, Kuroda gave an interview to BBC last month, and someone at the network didn’t realize that things have changed markedly since then, and that the possibility of helicopter money from Japan is the only thing keeping risk afloat. Here’s what crossed the terminal starting at around 4:30 a.m. ET:
KURODA: NO NEED, AND NO POSSIBILITY FOR HELICOPTER MONEY
YEN EXTENDS GAINS VS DOLLAR
STOXX 600 DROPS AS KURODA SAYS NO NEED FOR HELICOPTER MONEY
YEN EXTENDS ADVANCE, NOW UP 1% VS DOLLAR AFTER KURODA REMARKS
KURODA'S BBC INTERVIEW WAS CONDUCTED IN MID-JUNE, WSJ SAYS
So that was obviously a debacle. The yen soared, briefly denting S&P futs in a sign of things to come if Japan disappoints on the fiscal stimulus side. Incidentally, it was just about 12 hours earlier that this hit the wires:
JAPAN CONSIDERING 20T YEN STIMULUS PACKAGE: KYODO (EARLIER)
So you know, there were some conflicting messages out there.
Now let’s turn to Draghi. We might as well just cut to the chase and give you the full bullet point summary via Bloomberg:
ECB LEAVES MARGINAL LENDING FACILITY UNCHANGED AT 0.25%
ECB LEAVES DEPOSIT FACILITY RATE UNCHANGED AT -0.4%
ECB LEAVES MAIN REFINANCING RATE UNCHANGED AT 0%
ECB SAYS ASSET PURCHASES TO RUN UNTIL AT LEAST MARCH 2017
ECB KEEPS ASSET-PURCHASE PROGRAM AT 80 BILLION EUROS A MONTH
ECB: RATES TO REMAIN PRESENT OR LOWER FOR EXTENDED PERIOD
DRAGHI REPEATS ECB IS READY, WILLING, ABLE TO ACT IF NEEDED
DRAGHI SAYS ECB HASN'T DISCUSSED TAPERING ASSET PURCHASES
And this was the “big one,” as it were:
DRAGHI SAYS PUBLIC NPL BACKSTOP POSSIBLE IN EXCEPTIONAL TIMES
That was at exactly 9:00 ET. You can probably guess what happened next:
“The issue of non-performing loans is a problem that needs to be addressed because it’s an obstacle to the transmission of monetary policy,” Draghi continued, adding that Europe needs “a consistent supervisory approach, the development of a fully functioning NPL market and government action in passing that legislation [to] foster the development of an NPL market.”
Needless to say, European banks were pleased. Here’s a snapshot:
And that’s pretty much it. Once the dust settled, Europe closed mixed and all’s still well despite Kuroda-san’s apparent repudiation of helicopter “rumors.” Let’s close with i) a little desk chatter from Citi, and ii) some characteristically brilliant analysis from Bloomberg’s Richard Breslow.
From Citi:
“Draghi I think was rather balanced as expected. The net take away for me was that he opened up the possibility of public funding to the banks, and the EZ remains in wait and see mode for Brexit pass through. EUR traded heavy the second half of the press conference but that to me was just because of the large 1.10 strikes rolling off today. The market now has to ask itself if its ready to reload shorts, as the risks are still clearly to the downside, with little reason EUR should rally significantly. I still like selling rallies, and looking at downside strikes further out in 3-6 month time frame.”
From Breslow:
“How economic stimulus policies have evolved is a lot like how the fashion industry works. My mother would never have let me out of the house with a big rip in my pants. But photograph two A-listers sporting jeans with gashes across the thighs and suddenly everyone has to have it. The extraordinary monetary policy we have been forced to wear has become more and more extreme over time. Successive central banks have pushed the envelope of what is fashionable, even as it doesn’t quite work anymore. But every once in a while, the latest changes from derivative to an entirely new couture We might finally be ready for a new design in stimulus policy. Creeping ever more into the discussion of sensible economic policy, in a real, rather than fanciful way, is fiscal stimulus. Up to now it’s been something we all knew would fit well but governments weren’t willing to be caught dead putting on. Sometimes, however, a forbidding wind forces you into something sensible. The U.K. may very well be looking at the horizon and realizing this is no longer a time for something as flimsy as zero rates.”
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