Divyang Shah, Senior IFR Strategist
Back in Dec 2012 it were the words “operationally ready” that created much excitement and subsequently the ECB played down the prospects of a negative deposit rate.
Yesterday Draghi provided us with a variation by saying that the ECB is “technically ready” but seemed to go a step further by saying that the ECB will look at it with an open mind.
But it seems that before the ECB can look at things with an open mind they need to have done their homework on the impact of negative deposit rate. This seems to be incomplete judging by Nowotny’s comments suggesting that this still needed analysis.
But from a market perspective even if a near term move is not seen the higher probability that the ECB will complete its analysis and contemplate this as it falls within its standard measures has been enough to keep OISs slightly biased toward a move.
The 12x24 EONIA for example has managed to stay some 4/5bp lower than before the ECB meeting but unlike in Dec we have not seen ECB meeting date OISs turn negative.
But from the market perspective the damage of the comments has already been done as stops were triggered on both EUR/USD and Jun bunds yesterday.
Even Schatz have managed to stay above 110.80. This side of US payrolls there could be an unwillingness to reverse the price action completely on bunds from yesterday.
