A very large and tasty “nothing burger” happened during a very slow data week. Thursday morning, the European Central Bank (ECB) delivered their rate decision and left their marginal lending rate unchanged, their deposit facility rate unchanged and their asset purchase target unchanged. This was exactly what most of the market expected and no surprise news is good surprise news as far as markets are concerned. Many analysts however are of the opinion that the ECB needs to start “removing accommodation” which is an inoffensive way of saying tightening monetary policy. Because of this the market was most interested in both the ECB’s post announcement statement and the Mario Draghi press conference, with a heavy focus on the later.
The statement itself was also unchanged in terms of key phrases and sentences. The line that was expected to be removed from the ECB statement in reference to the asset purchase program was, “If the outlook becomes less favorable, or if financial conditions become in consistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size/or duration.” This line being left in the statement disappointed the Euro bulls, but in the pres conference a clever Draghi dodge was on display. As always when reporters asked if the Governing Council had discussed when to begin tapering, Super Mario responded that it had not been discussed at all. This time however, he put a date on the discussion. Draghi said those discussions would begin in the fall. A time table to discuss the timetable of a taper. Here’s where the dodge came in; a reporter then asked if rapid Euro strength bothered the GC. He didn’t answer. He dodged the question. This was enough for a market that was begging for a more hawkish ECB to take the market on a second leg higher.
This was a rare case of buy the rumor, buy the second rumor all courtesy of Super Mario. What will happen when they finally taper? I expect the “sell the fact” part of the old trading adage will happen, but we may need to wait for the fall. So wait, when is fall…?