ECB Meets Market Expectations...So Far

After a long night of the Index futures as flat as I have ever seen them before the European Central Bank's policy revue, the market finally saw "some of the volatility " expected as the typical Central Bank knee jerk reaction took hold.

The ECB cut the Refi-Rate by 10 basis points to +0.15%, they cut the Marginal Lending Facility (Emergency lending) by 35 basis points to +.40% and in a move widely anticipated (consensus of 10 to 15 bps), the ECB took the Deposit Rate Facility down by 10 bps to NEGATIVE 10bps (-.10%) which means you must now pay your bank in Europe for the privilege of parking money there.

European money markets are expected to be hit hard as money flows out with the negative deposit rate.


The knee jerk reaction sent the Euro lower, the USD higher, the USD/JPY higher and Index futures higher with USD/JPY...

USD/JPY in candlesticks, ES purple line. Note how flat ES was overnight and followed USD/JPY on the knee jerk higher.

The policy change was exactly as expected and as many have come out this morning and said, "Fully priced in", it's the "further monetary policy measures" to be communicated at a press conference today at 9:30 a.m. that is what the market is really looking for, be prepared for volatility if the ECB disappoints.

The above actions have been fully expected for well over a week now, it has been the press conference where Draghi will communicate other measures that the market is nervous about and where the ECB may disappoint.

Here's what the market is looking for...

After those rate cut decisions, the market is anticipating further measures like stopping its sterilization program which will inject liquidity. Investors are also expecting it to announce asset purchases. Another LTRO may be on the table or at least has been expected, be prepared for early volatility.