Thursday, September 06 09:12:52
The ISEQ is up this morning at 3,190, up 16 points as European markets anticipate today's ECB announcement and it's likely impact on bond and equity markets. Could a rate cut be part of today's package? Davy Stockbrokers have some comments on the likely scenarios:
The key event today will be ECB President Mario Draghi's press conference following the governing council's policy meeting. Speculation on the likelihood of a new round of bond purchases by the ECB has grown to such an extent that the imminent rate decision has received unusually little attention. The consensus is that the ECB will cut its main policy rate by a further 25bps, from 0.75pc to 0.5pc.
Media reports suggest that the ECB is unlikely to place explicit targets for the yields on, or purchases of, European sovereign debt. Instead, Draghi may reiterate his open-ended commitment to ensuring that convertibility risk premia on government bonds are reduced - implying that the ECB's unlimited balance sheet will be employed to ensure the survival of the euro. That said, markets will look for concrete signs that the ECB will begin substantial bond purchases in the near term. Market sentiment could be disappointed if hopes for immediate action by the ECB are not satisfied. Attention will also focus on the conditionality of any ECB bond intervention, potentially linked to complementary aid from the EFSF/ESM.
Elsewhere, today's non-manufacturing ISM survey in the US will be a key indicator of the health of the economy there heading into the final quarter of 2012. And the ADP employment survey will be watched ahead of tomorrow's non-farm payrolls report. Markets expect the ADP to show growth of 140,000 in August, and non-farm payrolls 127,000 - modest rates of growth, which if sustained through 2012, will probably lead the Federal Reserve to engage in a third round of QE according to Davy Stockbrokers